Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: World Co Ltd, Samsung C&T, Tipco Asphalt, ICICI Bank Ltd, Alibaba Pictures and more

By September 16, 2020 No Comments

In today’s briefing:

  • Japan’s Big Apparel Trouble: World to Close 350 More Stores
  • Buffett’s Investments in Japanese Trading Companies – Positive Boost to Korean Trading Companies?
  • TASCO: Medium-Term Disruption from Crude Switching
  • ICICI Bank – Insurance Waiver In Reality Is Capital Forbearance
  • Alibaba Pictures (1060): Big Screen to Small Screen

Japan’s Big Apparel Trouble: World to Close 350 More Stores

By Michael Causton

Apparel groups are in trouble, as Renown Inc (3606 JP)’s bankruptcy and Sanyo Shokai (8011 JP)’s boardroom battles exemplify, but World Co Ltd (3612 JP) always claimed it was in better shape – particularly just before relisting.

The Kobe-based firm has now admitted even its shopping mall chains need fixing, with a raft of closures due soon but, unlike competitors, it does have real growth businesses including its new Off Price chain, &Bridge and is in much better shape than competitors – but all things are relative, with the apparel sector showing clear signs of dysfunction with more closures and bankruptcies to follow.

Their demise will leave more room for the better-performing retailers and brands.


Buffett’s Investments in Japanese Trading Companies – Positive Boost to Korean Trading Companies?

By Douglas Kim

In this insight, we highlight seven major trading companies in Korea that could receive a greater positive boost from the global institutional investors who seek to find similar companies to the Japanese trading companies invested by Warren Buffett. The seven Korean trading companies mentioned in this insight have an average P/B multiple of 0.5x in 2020, which is 23% lower than the average P/B multiple of 0.7x for the five Japanese trading companies invested by Warren Buffett. These companies are as follows:

  • Samsung C&T
  • GS Corp
  • Hanwha Corp
  • POSCO International
  • SK Networks
  • LG International
  • Hyundai Corp

TASCO: Medium-Term Disruption from Crude Switching

By Research Group at Country Group Securities

Analyst meeting held yesterday came out with a negative tone. We expect crude switching to other alternative sources to significantly drag its 2021E earnings by 40%.

  • TASCO reported on Friday that the company will stop crude procurement from Venezuela to comply with US request.
  • As a result, the company has to cut run its refinery and intensively seek alternative crudes.
  • During switching, the company expects to become a ‘trading company’ and focus more on retail sales and premium products.
  • We expect its earnings to fall by 40% in 2021-22E as sale volume and margin decline in medium term.

We downgrade our rating to ‘SELL’ from ‘HOLD’ with a revised down target price to Bt15.0 (from Bt28.0), derived from 14xPE’21E which is equal to Asia ex Japan material peer.


ICICI Bank – Insurance Waiver In Reality Is Capital Forbearance

By Thomas J. Monaco

*Ownership Waiver Received On Insurance: On September 14th, ICICI Bank (ICICIBC.IN) [ICICI] announced that it had received an exemption on September 9th under the provisions of Section 19 (2) of the Banking Regulation Act of 1949 (the Act), with respect to keeping its shareholdings in ICICI Lombard (ICICIGI.IN) [Lombard] and ICICI Prudential (IPRU.IN) [IPRU] above 30% for a period of three years;

*Exemption In Reality Provides Capital Relief: The exemption permits Lombard and/or IPRU to consider strategic options such as mergers and acquisitions or capital raise which have the potential of reducing the bank’s shareholding. According to ICICI, this exemption allows it to facilitate a strategy of dilution in its insurance subsidiaries as it pursues M&A/capital raising activities; and

*Capital Shortfall Persists: We do, however, find it odd that ICICI would dare mention anything about being well-capitalized, and that based on its operating profits and provisions already made that it expects to be well-positioned to absorb the stress arising out of the pandemic. No one asked. When we exclude the INR 15 bn raise, this intimates that ICICI is short another INR 45 bn in equity taking the unrealized losses and charges into account.


Alibaba Pictures (1060): Big Screen to Small Screen

By Henry Soediarko

Alibaba Pictures (1060 HK) ticketing service revenues’ growth will be capped due to the COVID-19 safety precaution for longer than this year given there is not yet a vaccine let alone curing the world out of COVID-19.

Thanks to its standing as part of the Alibaba Group (9988 HK) , the management has decided to co-invest in Reality Shows productions alongside Youku that will shift its distribution channel from cinemas to home (Television) and personal (smartphone and tablet) entertainment. 

Alibaba Pictures is trading at 1.27x PBR, a 90% discount to iQIYI Inc (IQ US) , even before it books future revenues from the Reality Shows. Buy


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