In this briefing:
- QTT Placement: Liquidity Warrants a Quick Trade
- Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
- Optex (6914 JP): Factory Automation Slowdown in the Price
- CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
- Japanese Cosmetics Sector: Weak Inbound Sales in January Was Merely a One-Off Glitch
1. QTT Placement: Liquidity Warrants a Quick Trade
Qutoutiao Inc (QTT US) announced a USD 100 million share sales by the company and its shareholders, slightly more than two weeks after the lock-up expiration on March 13th. In this insight, we will provide our quick thought on the deal.
2. Zhongliang (中梁地产) Pre-IPO Review – Incredible Growth Bogged Down by Related Party Transactions
Zhongliang Holdings (ZLH HK) is looking to raise about US$800m in its upcoming IPO.
ZLH is a fast-growing real estate developer in China. Its completed projects are mostly in the Zhejiang Province but its projects under development are spread across the country.
It was highly leveraged in FY2016 as it ramped up its expansion efforts but had been able to reduce it significantly to about 260% net debt to equity levels while effective interest rates on debt has been falling every year.
In this insight, we will look at the company’s operations and financials, identify key corporate governance issues, and share our thoughts on peer valuation.
3. Optex (6914 JP): Factory Automation Slowdown in the Price
According to management, weak demand for factory automation sensors had a significant negative impact on sales and profits in 1Q of FY Dec-19. Also, in our estimation, it is likely to cause 1H results to fall short of guidance. But this should be in the share price, which has dropped by nearly 50% from its 52-week high.
In the year to December 2018, operating profit was up only 2.1% on a 7.0% increase in sales, largely due to an increase in machine vision marketing expenses. In January and February 2019, factory automation orders and sales dropped abruptly as customers sought to reduce excess inventories. In March, some new orders were received for delivery in May, indicating that the situation may stabilize in 2H. Demand for security and automatic door sensors continues to grow at low single-digit rates.
For FY Dec-19 as a whole, management is guiding for a 6.2% increase in operating profit on a 7.2% increase in sales. Our forecast is for flat operating profit on a 2% increase in sales. Sales and profit growth should pick up over the following two years, in our estimation, but remain in single digits.
At ¥1,765 (Friday, March 29, closing price), Optex is selling at 18x our EPS estimate for FY Dec-19 and 17x our estimate for FY Dec-20. Over the past 5 years, the P/E has ranged from 13x to 36x. On a trailing 12-month basis, Japan Analytics calculates 5% upside to a no-growth valuation, which is in line with our forecast for this fiscal year. This suggests: buy either for the bounce or for the long term.
4. CIMC Vehicle (中集车辆): Market Leader of Semi-Trailers but Little Growth Ahead
CIMC Vehicle, the largest manufacturer of semi-trailers in the world and a subsidiary of CIMC, will start to pre-market its USD300-500 million IPO in Hong Kong, as per media reports. In this insight, we will cover the following topics:
- Company background
- Semi-trailer and truck body industry
- Shareholders and pre-IPO investors
- Our thoughts on valuation
5. 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
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