In this briefing:
- Japanese Cosmetics Sector: Weak Inbound Sales in January Was Merely a One-Off Glitch
- Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up
- Nexon to Increase Focus on Mobile Gaming Amidst Talks of Possible Sale of the Company
- Modi’s Vulnerable Domestic Flank
- ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech
1. Japanese Cosmetics Sector: Weak Inbound Sales in January Was Merely a One-Off Glitch
- Japanese cosmetic companies showed a bit of concern in January when the inbound sales, which had been growing steadily over the past few years turned red all of a sudden.
- Tourist arrivals kept their growth momentum going into January, However per capita spend by tourists has been on the decline for a couple of years
- Chinese e-commerce legislation did have an impact on Japanese cosmetic companies, however, the impact wasn’t as significant for cosmetic companies as it was for some of the other retailers
- Inbound and travel retail sales: back on track from February onwards
2. Sumco: Well Positioned to Expand Capacity Faster than Its Competitors if Demand Picks Up
- The semiconductor silicon wafer market saw continued growth in demand for all wafer diameters supported by applications for servers, data centers, automobiles and IoT applications.
- While the demand for semiconductors, data centers and other IoT applications are declining, Sumco expects firm demand from power semiconductors, sensors and automotive uses. The management expects the demand from the 5G market also to aid in top-line growth.
- Sumco has posted an extraordinary loss following the early termination of a long-term polysilicon purchasing agreement. The long-term contract with Osaka Titanium is expected to end in March 2019. We expect this move to help Sumco switch to cheaper polysilicon which in turn should help reduce costs. That being said, some of the long-term contracts for polysilicon are still continuing, and there is still significant inventory built-up so this impact could take four to five years to be fully realised.
- Having visited the company recently, Sumco still has more potential brownfield capacity available, which we believe can be used in the event the demand picks up enabling the company to add new capacity faster than its competitors and enjoy the benefits from growing demand and increasing prices.
3. Nexon to Increase Focus on Mobile Gaming Amidst Talks of Possible Sale of the Company
- The global gaming market is transitioning towards mobile gaming, which currently captures around 50% of market share. This has resulted in Korean gaming company Nexon slowly shifting its focus towards mobile games.
- Over the year’s Nexon’s mobile gaming segment has grown faster than the PC online segment. When looking at the five-year revenue CAGR between the two business segments, the PC online segment has grown at a CAGR of 9.4% over FY2013-18 while the mobile games segment has grown at a double digit CAGR of 14.1% over the same period.
- For the mobile gaming segment, in the future, Nexon’s primary focus includes developing mobile games based on IPs of older PC games.
- The company has a steady line up of mobile games planned for FY2019, with ten titles set to release in the first half.
- On our estimates, Nexon seems over-valued, currently trading at a FY1 EV/OP of 9.6x compared to its five-year historical median of 7.7x.
4. Modi’s Vulnerable Domestic Flank
The Indian prime minister’s announcement that India had destroyed a ‘low-earth orbit’ satellite with a missile, and thus joined an elite club, suggests that the ruling party is desperate to deflect the voters’ attention from the dire economic situation in India. This desperation points to a reality quite different from the view in the capital market, which appears to have discounted another term for Modi. In the wake of the Balakot ‘surgical strike’, this government wants to foreground its muscular national security policy to compensate for its inability to address the economic situation on employment and rural wages.
5. ECM Weekly (30 March 2019) – ESR, Yunji, Ruhnn, Jinxin Fertility, Metropolis Health, Viva Biotech
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
CanSino Biologics Inc (6185 HK)‘s debut in Hong Kong this week was spectacular. It closed almost 60% above its IPO price on the first day. In Ke Yan, CFA, FRM‘s trading update note, he pointed out that valuation is trading close to fair value and that the near term driver will be the progress of the NMPA review and commercialization of MCV2. On the other hand, Koolearn (1797 HK)‘s IPO was not as fortunate. The company got listed on the same day but struggled to hold onto its IPO price even though it was oversubscribed.
For upcoming IPOs, Dongzheng Automotive Finance (2718 HK) will finally be listing next week on the 3rd of April after re-launching its IPO at a much lower fixed price of HK$3.06 per share. Sun Car Insurance(1879 HK), however, pulled its IPO even though reports mentioned that books were covered. We are also hearing that Shenwan Hongyuan Hk (218 HK) will be pre-marketing its IPO next week while CIMC Vehicle will be seeking approval soon.
India’s IPO market is starting to warm up after long lull period as Metropolis Health Services Limited (MHL IN) and Polycab India (POLY IN) are launching their IPOs next week. Sumeet Singh had already shared his thoughts on valuation for Metropolis Healthcare and his early thoughts on Polycab in:
- Metropolis Healthcare IPO – Fairly Valued, at Best
- Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
Meanwhile, in the U.S, Ruhnn Holding Ltd (RUHN US) launched its IPO to raise about US$125m and we heard that books have already been covered. Lyft Inc (LYFT US)‘s strong debut even after it priced above its original IPO price range should bode well would likely mean that there will be more tech unicorns looking to list in the coming few months.
In Malaysia, we also heard that Leong Hup International (LEHUP MK) will be pre-marketing next week while in Indonesia, Map Actif will open its books for US$200 – 400m IPO next week as well.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.9% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Haitong UniTrust International Leasing (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- As IPO flood recedes, Asia bankers bet on follow-on capital raising
- Bitmain forced to delay Hong Kong IPO amid crypto-mining decline
This week Analysis on Upcoming IPO
- Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
- Metropolis Healthcare IPO – Fairly Valued, at Best
- Jinxin Fertility (锦欣生殖) Pre-IPO: Strong Foothold in Sichuan but Weak Sentiment for Sector
- Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk
- Yunji (云集) Pre-IPO Review – Poor Disclosure on Data
- ESR Cayman Pre-IPO- First Stab at Valuation
- Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
- Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
- SNK Corp (950180 KS)
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