Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: WH Group, LG Corp, Baycurrent Consulting, Intuitive Surgical, Shift Inc, Bangkok Expressway and Metro, SCG Packaging Public Company Limited and more

In today’s briefing:

  • WH Group (288 HK) Now Cheapest Vs Peers in Yonks
  • LG Corp: SoTP Valuation Analysis Update + Four Key Catalysts
  • Baycurrent Consulting: Strong Fundamentals; Up Almost 200% and Further Upside Likely
  • Intuitive Surgical (ISRG US): Global Leadership to Continue Amid Upcoming Competition
  • Shift 4Q: Growth Story Is Getting Stronger
  • BEM: Expect 3Q21 Earnings to Be Bottom of This Year
  • SCGP: Expect 3Q21 Earnings to Soften QoQ Due to Lockdown Impact

WH Group (288 HK) Now Cheapest Vs Peers in Yonks

By Travis Lundy

Post WH Group Tender Offer buyback, there is a fair bit of good news. 

  • A month ago, WH Group (288 HK) was near its cheapest vs peers in years on a forward earnings basis.
  • Lean hog prices are finally making a rebound in China after a multi-month cull and NDRC intervention
  • Hog prices in the US remain strong-ish. 
  • Forward earnings estimates are up. 

But since the strength in WH Group shares immediately post-tender, when people sold the overhang, the stock has fallen sharply. HK and China-listed peers are up an average of 15% in the past month while global-listed peers are down 4%. WH Group resembles a mix of those two baskets but is down 12% in the same period vs +5% for an equal-weighted basket.

The shares are now scraping on 4-year lows despite recent 15% accretion, and on an accretion-adjusted basis have underperformed by 30% in bit over a month. 

That is probably overdone.

LG Corp: SoTP Valuation Analysis Update + Four Key Catalysts

By Douglas Kim

In this insight, we provide an updated SoTP valuation analysis on LG Corp (003550 KS). We have a positive view of this stock. Our base case valuation analysis suggests an implied price of 131,911 won per share, representing a 41% upside from current levels.

After much delay, the IPO of LG Energy Solution could finally occur in the next several months and this may be the largest ever IPO in Korea. The IPO of LG Energy Solution could be a key catalyst for LG Chem Ltd (051910 KS) and LG Corp (003550 KS) in the coming weeks. 

In addition to its deep discount versus its NAV, there are also four key catalysts for the company which are as follows:

  • IPO of LG Energy Solutions
  • Potential for higher dividends
  • Improvement in balance sheet & potential for higher share buybacks
  • Rising foreign ownership

Baycurrent Consulting: Strong Fundamentals; Up Almost 200% and Further Upside Likely

By Shifara Samsudeen, ACMA, CGMA

Baycurrent Consulting (6532 JP)  offers a range of consultancy services in Japan including development and formulation of business strategy, digital transformation, M&A and JV, improvement in operational capabilities and IT Services. The Covid-19 outbreak has accelerated the digital transformation in Japan which has led to increased requirements for consulting services in the country.

BayCurrent’s share price has rallied almost 200% over the last 12-months to JPY46,250 per share from JPY15,740 per share a year ago. In this insight, we examine the company’s business model, key drivers, outlook, financials and valuation.

Intuitive Surgical (ISRG US): Global Leadership to Continue Amid Upcoming Competition

By Tina Banerjee

Shares of Intuitive Surgical (ISRG US) corrected ~10% from its 52-week high price of $362 achieved in early September. We believe the correction reflects investors’ fear on the pace of recovery of the elective surgeries globally, especially in the U.S. Amidst this backdrop, the company’s Q3 results announcement on October 19 will be a closely watched event. During their Q2 results announcement, management raised 2021 procedure growth (a key performance parameter) guidance to 27–30% y/y from 22–26% y/y announced during Q1 results announcement. So, outlook on procedure growth guidance for the remainder of the year and early trend into Q4 will the major catalysts for the shares.  Shares of Intuitive Surgical have historically been trading at a high multiple, at par with other high growth ideas such as Abiomed Inc (ABMD US), Align Technology (ALGN US), IDEXX Laboratories (IDXX US), and Illumina Inc (ILMN US). Intuitive’s large market opportunity, especially in the international market, less than 10% penetration of its TAM, near monopolistic market positioning, and high switching cost justify its premium valuation. However, the valuation is always questioned amidst the upcoming competition. As Intuitive’s patent expired, big players including Medtronic Plc (MDT US) and Johnson & Johnson (JNJ US) are vying to take some share through acquisitions of surgical robot start-up entities. This insight analyzes multiple upcoming competition in the soft tissue surgical robotic market and how Intuitive Surgical is expected to maintain its global leadership amid the competition.

Shift 4Q: Growth Story Is Getting Stronger

By Shifara Samsudeen, ACMA, CGMA

Shift Inc (3697 JP) reported its 4QFY08/2021 and full-year FY08/2021 results on Tuesday (12th October) which saw revenues growing 60.2% YoY to JPY46.0bn from JPY28.7bn in FY08/2020. The operating profit for the year grew 69.8% YoY to JPY4.0bn vs JPY2.4bn in the previous year. Both reported revenue and OP beat Shift’s guidance by 2.2% and 17.5% respectively while revenue and OP beat consensus estimates by 0.4% and 4.5% respectively.

The company’s share price rose 10.0% at the end of Wednesday’s close following the company’s strong FY08/2021 earnings.

We discuss the details below.

BEM: Expect 3Q21 Earnings to Be Bottom of This Year

By Research Group at Country Group Securities

We maintain BEM with a BUY rating while roll over target price to Bt10.30 (previous TP: Bt9.90) derived from SOTP methodology, which is equivalent to 51.5xPE’22E.

• We expect the company to report net profit of Bt21m in 3Q21. (-90%QoQ -97%YoY), the lowest level in our available data. QoQ and YoY contraction will be mainly due to impact from 3rd wave of COVID-19 widespread, which trimmed down average daily toll traffic to 670k trips/day (-13%QoQ -41%YoY) and MRT ridership to 80k trips per day (-33%QoQ -72%YoY)
• Earnings from core business operation will be under break-even point in 3Q21, but will alleviate with dividend incomes from TTW (We estimate dividend income in 2Q21 at Bt221m)
• Recent rally in stock price factored in expectation that recovery in toll and MRT traffic number will be strong in 4Q21 after lockdown measures have eased. We expect MRT Orange-line (Bt1.9 per share upside) bidding to proceed by December’21 or latest in 1Q22. Earlier-than-expected announcement will be the key catalyst to support stock price in short-term.

SCGP: Expect 3Q21 Earnings to Soften QoQ Due to Lockdown Impact

By Research Group at Country Group Securities

We expect 3Q21 earnings at Bt1.97bn (+48% YoY, -13% QoQ), slipping to the three quarter low due to weaken demand from ASEAN lockdown, but should rebound sharply in 4Q21 onwards.

•Expect its 3Q21 revenue to soften QoQ at Bt28bn (+20%YoY, -6%QoQ), due to weak demand during ASEAN lockdown.
•Expect earnings recovery in 4Q21 onwards, supported by capacity expansion into high margin products of the IPC segment and recovery in domestic and export markets after lockdown easing,
•2021 earnings outlook will be backed by more contribution from M&A consolidation especially for Deltalab.
Maintain our BUY rating with TP of Bt72 based on 30xPE’22, which is a premium compared to Asia (ex-Japan) sector of 12xPE’22. Our rating factors in growth potential from organic expansion and abundant M&As.

Related tickers: WH Group (0288.HK), LG Corp (003550.KS), Baycurrent Consulting (6532.T), Intuitive Surgical (ISRG.O), Shift Inc (3697.T), Bangkok Expressway and Metro (BEM.BK)

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