ntasian merging leaders und2018...ntasian emerging leaders fund september 2018 page | 5 larsen &...

NTAsian Emerging Leaders Fund

September

2018

Investments Sep-18

Contents

Valuation table 3

Company page

Cosmo Lady (2298 HK) 4

Larson & Toubro Infotech (LTI IN) 5

Minth (425 HK) 6

Luk Fook (590 HK) 7

Pakuwon (PWON IJ) 8

Com2us (078340 KS) 9

Hanon Systems (018880 KS) 10

FPT (FPT VN) 11

Puregold (PGOLD PM) 12

Silverlake Axis (SILV SP) 13

Disclaimer 14

NTAsian Emerging Leaders Fund September 2018

Page | 3

Valuation table

Ownership PER EPS gr FY18F Valuation

Company Code Mkt

cap % of Price ^ 17A 18F 19F 20F 17A 18F 19F 20F EV/

EBITDA Yield PBV DE ROE ROCE

USDm NAV

Co’s

paid-up

capital Local curr

x x x x % % % % x % x % % %

Top ten holdings

Cosmo Lady 2298 992 10.6 2.8 3.43 19.3 16.5 14.0 11.6 23.3 16.6 18.5 20.2 9.8 3.0 1.7 (42.4) 10.8 14.0

L&T Infotech * LTI 4,648 10.2 0.6 1,950.00 28.9 25.1 23.0 20.5 18.8 15.4 9.2 12.2 18.3 1.3 7.2 (41.0) 31.5 41.3

Minth 425 4,727 10.1 0.6 32.30 15.8 15.7 12.8 10.7 19.6 0.5 22.3 19.6 10.4 2.2 2.4 (9.6) 16.3 16.9

Luk Fook * 590 2,044 8.1 1.0 27.25 12.0 11.0 10.2 9.4 32.5 8.5 7.9 8.2 8.0 4.5 1.5 (6.3) 14.0 16.8

Pakuwon PWON 1,665 8.1 1.3 515.00 12.3 10.0 8.7 7.6 24.0 23.1 14.6 15.3 7.6 1.3 2.0 0.4 21.7 17.7

Com2us 078340 1,699 8.0 1.2 146,600 12.2 13.0 9.8 10.5 (0.6) (6.1) 33.3 (6.7) 9.6 0.9 2.1 (16.9) 17.1 23.1

Hanon Systems 018880 6,082 7.4 0.3 12,650.00 21.2 19.2 17.4 15.8 9.9 10.3 10.6 10.5 9.8 2.9 3.2 16.4 17.1 18.5

FPT FPT 1,218 7.4 1.6 46,300.00 9.6 15.3 14.0 10.9 (0.8) (37.0) 8.8 29.0 7.1 3.3 2.3 (16.3) 14.6 17.1

Puregold PGOLD 2,302 5.7 0.6 45.00 21.4 19.7 18.1 16.8 5.3 8.4 9.3 7.6 10.8 0.8 2.3 (13.0) 12.5 17.2

Silverlake Axis * SILV 852 5.4 1.7 0.440 25.2 14.1 13.4 12.9 (18.7) 79.4 5.2 3.5 11.0 6.4 6.4 (49.3) 46.9 50.3

Top ten weighted average 17.8 16.1 14.2 12.6 13.4 10.2 14.7 12.7 10.4 2.6 3.1 (18.4) 19.6 22.7

Portfolio weighted average 20.4 17.9 15.5 13.6 8.9 10.7 14.7 13.2 10.7 2.4 3.1 (14.7) 18.6 21.8

^ As of 28 September 2018

* Year ended Jan-Jun, all valuation are included in Dec in preceding year i.e. valuation of Jun 18 will be included in 17.


Page | 4

Cosmo Lady (2298 HK)

Share Data (as of 28 Sep 18)

Share price HKD 3.43

2018 high / low price HKD 5.15 / 2.59

Shares outstanding m 2,262

Market cap USDm 992

NT's ownership % of NAV 10.6

NT's ownership % of co. 2.8

Top 3 shareholders

1. Harmonious Composition Investment 55.5%

2. Fosun ruizhe Grace Investments 10.6%

3. Prime Capital Management 8.7%

Share Valuation Dec 17A 18F 19F 20F

Revenue CNYm 4,542 5,224 6,007 6,909

Recurring NP CNYm 317 403 490 589

EBITDA CNYm 420 522 631 760

EPS HKD/sh 0.18 0.21 0.25 0.30

EBITDA gr % 38.0 24.2 20.8 20.5

EPS gr % 23.3 16.6 18.5 20.2

PER x 19.3 16.5 14.0 11.6

Yield % 2.7 3.0 3.6 4.3

ROE % 10.5 10.8 11.7 13.2

ROCE % 13.5 14.0 15.4 17.6

EV/EBITDA x 13.4 9.8 8.2 6.8

Net DE (cash) % (35.6) (42.4) (39.1) (36.2)

P/BV x 1.9 1.7 1.6 1.5

FCF/EV % 4.2 4.6 4.1 5.3

Source: NTAsset

Revenue breakdown by business segment (%)

Source: Company data

Share Price Chart

Source: Bloomberg

Background

Cosmo Lady is China’s largest intimate wear brand with 1,332 self-managed and 6,036 franchised outlets. Frost & Sullivan estimate Cosmo Lady’s market share at 2.8% in 2017, equivalent to the 2nd through 5th players combined. Chairman Zheng was a sales manager in a Shenzhen Walmart store before starting his own business in the late 1990s. The Cosmo Lady brand expanded at a pace of more than 1,000 outlets per year from 2011 to 2015, and the 2015 acquisition of Ordifen added several high-end brands into its portfolio. E-commerce accounted for 13% of 1H18 revenue and was profitable with a lower average markdown than offline. Cosmo Lady is already the #2 intimate wear retailer on TMALL.

Investment Thesis

The fragmented Chinese intimate wear market is ripe for consolidation. Cosmo Lady aspires to reach 15% market share in the long run, comparable to mature markets like US where Victoria’s Secret and Hanes each have 20-30% market share.

After the challenges faced by the company in 2016 and 2017, Chairman Zheng recognized that the strategy he followed in building Cosmo Lady’s leading position needs to evolve materially if they are to achieve his next objectives of building market share to 5% and then 10%. The emphasis is shifting from the build out of distribution channels and market reach to now a tighter focus on building brand equity and product quality. To lead these efforts, Cosmo Lady added two well-known industry veterans to its management team discussed in the following section.

Following the establishment of a cooperation fund with JD.com to invest in intimate wear related industries, Cosmo Lady has announced several strategic investments and joint ventures with upstream suppliers, with the goal of developing key suppliers and shortening product development and manufacturing turnaround time. Management plans for total investments of up to RMB200m.

Recent developments

• 1H18 revenue and net profit were up 13% and 18% YoY respectively, driven by recovery from franchises orders and positive same store sales due to warmer winter and product improvements. For 2018, management targets double digit percentage increase in sales area.

• In April 2018, Cosmo Lady issued new shares at HK$4.20 to JD.com 2.48%, Tencent 0.83%, VIPshop 0.83%, and another investor 1.24%. The company has since entered into a cooperation agreement with Tencent to jointly develop smart retail arrangements as part of the effort to digitize the retail experience.

• In July 2018, Ms. Sharen Jester Turney was appointed Chief Strategy Officer. She was the CEO of Victoria’s Secret between 2006 and 2016, growing its revenue from US$4.5bn to US$7bn.

• In August 2018, Mr. Yuasa Masaru was appointed Chief Technology Officer. He was previously the head of R&D for Wacoal Holdings, the largest intimate apparel retailer in Japan.

Financials & valuations

Cosmo Lady maintains a strong net cash balance sheet and is trading at 14.0x FY19 PER, 1.6x PBV with ROE’s expected to recover back to mid-teens. We see the potential for Cosmo Lady to deliver double digit earnings CAGR over the next five years.

Sales to franchisees

54%

Retail sales33%

E-commerce13%

0

2

4

6

8

10

Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 Mar-18

HKD


Page | 5

Larsen & Toubro Infotech (LTI IN)


Share price INR 1,950.00

2018 high / low price INR 1,965.10 / 1,091.10

Shares outstanding m 173

Market cap USDm 4,648



Top 3 shareholders

1. Larsen & Toubro 83.4%

2. Auburn Limited 2.8%

3. Sunil Sangamnerkar 1.9%

Share Valuation Mar 18A 19F 20F 21F

Revenue INRm 73,065 91,331 102,291 114,566

Recurring NP INRm 11,596 13,445 14,750 16,628

EBITDA INRm 12,491 17,353 19,435 21,768

EPS INR/sh 67.42 77.78 84.91 95.24

EBITDA gr % 1.6 38.9 12.0 12.0

EPS gr % 18.8 15.4 9.2 12.2

PER x 28.9 25.1 23.0 20.5

Yield % 1.1 1.3 1.5 1.6

ROE % 33.1 31.5 28.9 27.5

ROCE % 42.7 41.3 37.9 36.2

EV/EBITDA x 25.8 18.3 16.0 14.0

Net DE (cash) % (39.5) (41.0) (45.8) (49.5)

P/BV x 8.7 7.2 6.1 5.2

FCF/EV % 1.5 2.9 3.9 4.5

Source: NTAsset

Revenue breakdown by service offering (%)


Share Price Chart

Source: Bloomberg

Background

L&T Infotech (LTI) is an Indian IT services company, headquartered in Mumbai. It was founded in 1996 as subsidiary of Larsen & Toubro (LT IN) and got listed in July 2016. LTI is 6th largest Indian IT services company with annual revenues of USD1.2bn. Out of 301 active clients, 59 are Fortune 500 companies. 11 of the top 20 clients have been with the company for over 10 years. LTI has over 25,000 employees located in 25 delivery centers globally.

Investment Thesis

L&T, parent company of LTI, is a large engineering and construction conglomerate with over USD 16bn of revenues. It is majority owned by employees and institutional investors and is professionally managed. L&T’s parentage and brand equity supports customer acquisition for LTI. LTI has an edge in catering to manufacturing sectors (non-BFSI sectors) due to experience and relationships of its parent. Manufacturing companies have been a laggard in IT spend, which is now changing and LTI stands to benefit. IT services is an employee centric business. LTI has put in place attractive long duration ESOPs (vesting 20% every year after year 1) and a senior management team with good credentials. Mr. Sanjay Jalona (CEO of LTI) comes with long experience at Infosys. He has built an industry leading senior management team in the last two years and fully revamped the Sales & Marketing team with 65% of sales people hired in last 2 years.

Recent developments

• Indian IT services industry has strong global cost competitiveness. The industry is maturing with USD 116bn of exports in FY17. Industry growth has slowed down given a higher base but is still expected to be high single digit. NASSCOM guidance for FY19 is for 7-9% growth compared to 7-8% for FY18 as the improved global macro environment is supportive of rising spend on IT.

• LTI has been consistently delivering double digit growth since listing in Jul-16. It has outperformed the industry growth with large deal wins, focus on new ‘digital’ technology services, and effective mining of its large client relationships. It reported revenues of USD 320m for June-18 quarter, which was up 23% YoY in constant currency (29% in INR due to currency depreciation). PAT growth was even higher at 35% with improvement in margins.

• Outlook for LTI remains positive. It won a large deal from a global Fortune 100 consumer and pharma giant with TCV of >USD 50mn. Revenues from an Exxon Mobil deal, announced earlier this year, will come from Q2 (Sep-18). Management expects to maintain net profit margins at 15% levels with currency volatility reduced by hedges.


We expect LTI to grow revenues at 10-12% CAGR while maintaining margins. Management is confident of industry leading growth in FY19. LTI is trading at 23x FY20 PER, while generating almost 30% ROE and 4% FCF yield. Valuations for LTI are in-line with large-cap peers despite its much superior financial performance. Increasing cash balance in our forecasts results in declining ROE. LTI has guided for 35-40% dividend pay-out which can be increased if they do not utilize this for inorganic growth.

Application development maintenance

34%

Enterprise solutions25%

Infrastructure management services

11%

AIM, Enterprice integration,

Mobility17%

Testing9%Platform base solutions

4%

500

800

1,100

1,400

1,700

2,000

Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

INR


Page | 6

Minth (425 HK)








Top 3 shareholders

1. Jong Hwa Chin 39.3%

2. Commonwealth Bank 8.1%

3. Matthews Intl Capital Management 7.1%


Revenue CNYm 11,384 13,092 15,711 18,853

Recurring NP CNYm 2,056 2,080 2,545 3,042

EBITDA CNYm 2,631 3,011 3,692 4,430

EPS CNY/sh 2.05 2.06 2.52 3.01

EBITDA gr % 14.9 14.4 22.6 20.0

EPS gr % 19.6 0.5 22.3 19.6

PER x 15.8 15.7 12.8 10.7

Yield % 2.2 2.2 2.7 3.3

ROE % 18.1 16.3 17.8 18.9

ROCE % 19.3 16.9 17.9 18.4

EV/EBITDA x 11.9 10.4 8.5 7.2

Net DE (cash) % (10.9) (9.6) (7.3) (4.5)

P/BV x 2.7 2.4 2.2 1.9

FCF/EV % (0.3) 2.7 2.8 3.0

Source: NTAsset

Revenue breakdown by geographical segment (%)


Share Price Chart

Source: Bloomberg

Background

Minth is China’s leading supplier of exterior auto body parts including trims, decorative parts, and body structural parts with a 30% share of the domestic market and a 10% share of the global market. 2017 revenue breakdown by OEMs was 37% Japanese, 28% American, 23% European, 9% Chinese and 3% Korean. Top customers are Honda, GM and Nissan each at 15-17% of revenue, followed by BMW 10%, Ford 6%, Great Wall and Volkswagen each around 5%.

Investment Thesis

With factories in China, Thailand, Mexico, USA, and Eastern Europe, Minth has the capability to support global car platforms and continues to take share from regional players, mostly from Europe. Its multi-year order backlog based on confirmed business awards already exceeds RMB92bn, and this supports management’s target of RMB20bn in revenue by 2020 and 20% global market share. In addition to diversifying its customer base, Minth has also expanded into new product categories such as aluminum parts, automotive electronics, and going forward components for electric vehicles. Exports from China to US account for less than 10% of revenue. Minth plans to alleviate tariff risk by shifting more production to Thailand and setting up additional factories in US.

Recent developments

• It is still too early for management to quantify the impact of the trade war between US and China, and so far, there has been no impact. Minth management says it will look to mitigate any subsequent tariff impact by optimizing utilization of its global production base.

• 1H18 revenue and core operating profit were up 14% and 9% YoY respectively, partially impacted by RMB appreciation compared to same period last year. Management maintains 2018 guidance for revenue and net profit to grow by double digits with gross margin steady at 33-35% as the mix of aluminum products (>40% gross margin) increases and utilization improves.

• New business awards reached a record RMB3.0bn in 1H18, including first order for aluminum door frames with potential revenue greater than RMB600m per year. Minth also added several OEM customers for EV aluminum battery packs, and two OEM customers for camera modules. Revenue potential for aluminum battery packs is RMB3,500 to RMB6,000 per vehicle, compared to Minth’s current average content per vehicle of RMB380. These new product segments now account for 5% of total backlog.

• There is significant room for gross profit margin to improve at overseas factories, while domestic headcount should decline sharply starting 2019 after smart manufacturing process stabilizes. Management has started to focus on capex efficiency and has come up with methods to lower maintenance capex, so capex intensity is expected to decline moving forward.


Minth maintains a net cash balance sheet and its shares are trading at 12.8x FY19 PER and a PBV of 2.2 while generating ROEs of ~17%. We expect double digit percentage earnings CAGR through 2025 based on management’s topline guidance.

PRC61%

North America20%

Europe14%Asia Pacific

5%

0

10

20

30

40

50

60

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

HKD


Page | 7

Luk Fook (590 HK)








Top 3 shareholders

1. Luk Fook (Control) Ltd 39.9%

2. Commonwealth Bank of Australia 6.0%

3. Silchester Intl Investors 5.0%

Share Valuation Mar 18A 19F 20F 21F

Revenue HKDm 14,578 16,000 17,440 18,879

Recurring NP HKDm 1,338 1,451 1,565 1,693

EBITDA HKDm 1,710 1,920 2,093 2,265

EPS HKD/sh 2.28 2.47 2.67 2.88

EBITDA gr % 21.0 12.3 9.0 8.3

EPS gr % 32.5 8.5 7.9 8.2

PER x 12.0 11.0 10.2 9.4

Yield % 4.0 4.5 4.9 5.3

ROE % 14.1 14.0 14.0 14.2

ROCE % 16.0 16.8 17.1 17.2

EV/EBITDA x 8.3 8.0 7.3 6.7

Net DE (cash) % (17.7) (6.3) (6.0) (6.0)

P/BV x 1.6 1.5 1.4 1.3

FCF/EV % 3.9 4.4 5.2 5.9

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Established in 1991, Luk Fook is a leading jewelry retailer in Hong Kong and China, with 225 self-operated stores and 1,406 licensed stores. Its own large-scale jewelry processing plant in Guangzhou is focused on the production of gem-set jewelry. The major Hong Kong jewelers are known for their product design and are positioned in the mid-end segment between local Chinese brands and foreign brands. Hong Kong & Macau accounts for 65% of revenue and 53% of operating profits, and the balance is from Mainland China through self-operated retail outlets, store licensing and wholesaling. Gold sales are volatile depending on gold price sentiment, but gem-set accounts for two-thirds of gross profit due to its much higher margin.

Investment Thesis

Per-capita spending on jewelry in Mainland China is only half that of Japan and one-fifth of USA, and Chinese consumers spend a disproportionate amount on gold. Penetration rate for gem-set and diamond jewelry should continue to rise as consumers are increasingly influenced by Western culture and this evolution of product mix will be favorable to jewelers’ margins. Luk Fook has a strong balance sheet with net cash, a consistent dividend payout track record, and room to grow its store network in China. Wholesale and licensing revenue will grow faster than self-operated retail as China is the main growth driver and the Hong Kong store network can be further optimized. Wholesale and licensing are asset-light business strategies that generate higher return-on-equity compared to self-operated retail.

Recent developments

• FY18 net profit increased by 33% YoY on a 14% increase in turnover, and total store count increased by 135 to 1,631.

• 2Q18 same-store-sales growth for self-operated stores was 22%, with Hong Kong & Macau up 26% YoY and China down 2%; licensed stores in China saw single digit percentage growth. Gem-set sales in all regions continued to grow which is positive for margins.

• 2018 year-to-date tourist arrivals to Hong Kong grew 9% YoY, with tourists from Mainland China up 13%. China jewelry retail sales continue to be exhibit high single digit percentage growth year-to-date.

• Positive impact from rental reduction in Hong Kong & Macau has nearly run its course. While 43% of its stores in Hong Kong & Macau are up for renewal in FY19, management only expects single digit percentage reduction.

• During FY19, Luk Fook plans to add more than 120 stores in China where its store count is less than 70% of competitors Chow Tai Fook and Lao Feng Xiang.


Luk Fook maintains a net cash balance sheet and is trading at 10x FY20 PER and 1.4x PBV generating low teens ROE. It’s dividend yield ranges between 4-5%.

Retailing - HK, Macau and overseas

50%

Wholesaling - HK18% Wholesaling -

Mainland China15%

Retailing - Mainland China13%

Licensing4%

0

10

20

30

40

50


HKD


Page | 8

Pakuwon (PWON IJ)


Share price IDR 515

2018 high / low price IDR 715 / 496

Shares outstanding M 48,160




Top 3 shareholders

1. Pakuwon Arthaniaga 69.7%

2. Vanguard Group 2.0%

3. NTAsian Emerging Leaders Fund 1.3%


Revenue IDRbn 5,718 6,575 7,233 7,956

Recurring NP IDRbn 2,010 2,475 2,836 3,268

EBITDA IDRbn 2,859 3,288 3,616 3,978

EPS IDR/sh 41.7 51.4 58.9 67.9

EBITDA gr % 22.6 15.0 10.0 10.0

EPS gr % 24.0 23.1 14.6 15.3

PER x 12.3 10.0 8.7 7.6

Yield % 0.9 1.3 1.5 1.7

ROE % 21.2 21.7 20.7 20.0

ROCE % 16.9 17.7 19.4 20.8

EV/EBITDA x 9.4 7.6 6.2 5.0

Net DE (cash) % 15.8 0.4 (12.4) (23.2)

P/BV x 2.4 2.0 1.7 1.4

FCF/EV % 8.4 10.5 12.6 15.4

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Pakuwon Jati (PWON) is Indonesia’s leading property developer specialising in mixed use projects. Its targets mid to high end income customers in Jakarta and Surabaya, Indonesia’s two major cities. PWON was established in 1982 and was the first property company to be listed on the Jakarta Stock Exchange in 1989. The company has a well-balanced portfolio of development and investment properties, with a near 50:50 split between recurring income and sales of residential/commercial units. PWON owns more than 10 years’ worth of landbank in prime areas.

Investment Thesis

As Indonesia’s leading mall developer, PWON is well positioned to tap into Indonesia’s rising middle class with rapidly growing income and purchasing power. PWON has a strong presence in Surabaya, where there is less competition from other large property developers compared to Jakarta. For Jakarta, there is moratorium on new mall openings which helps provide barrier to entry against newcomers. PWON’s mixed used projects are located near the upcoming mass transit lines which should provide significant upside to its gross development value, similarly what has happened to Bangkok property value over the past decade after the commencement of the mass transit lines. Threat from e-commerce on PWON malls are alleviated with an established mall culture given limited alternatives for recreational space (e.g. parks and museums) coupled with costly delivery given Indonesia’s archipelagic geography. We also noted that PWON’s malls are among the most popular malls in Surabaya and Jakarta, with occupancy rate at nearly 100% vs 80-90% for other malls.

Recent developments

• PWON reported strong 1H18 net profit of IDR1,279bn, up 31% YoY on a normalised basis (excluding one off expense in 1H17 from early bond repayment penalty). The growth was driven by revenue growth from both rental income and residential sales, increase in GPM, and lower finance cost as PWON had been deleveraging its balance sheet.

• Although there are short term headwinds from the rising interest rates and political uncertainties ahead of the upcoming Presidential Election, we believe that this would only result in a temporary delay in homebuying decisions. The long-term growth potential remains intact for PWON given the prime location of its projects, particularly in Jakarta where its projects are near upcoming mass transit lines which are expected to be operational in early 2019.


PWON is trading at a discount to its historical average on an undemanding 8.7x FY19 PER and a discount to RNAV of 50-60% on EPS three-year CAGR (FY18-20F) of 18%. The EPS growth is driven by expansion of rental area/hotel rooms, rental escalation, and residential development pipeline. .

Rental income

42%

Property sales51%

Hotel and service apartment

7%

0

200

400

600

800


IDR


Page | 9

Com2us (078340 KS)


Share price KRW 146,600

2018 high / low price KRW 191,500 / 125,200





Top 3 shareholders

1. Gamevil Inc 24.5%

2. National Pension Service 6.1%

3. KB Asset Management 5.8%


Revenue KRWbn 508 488 568 570

Recurring NP KRWbn 150 141 188 175

EBITDA KRWbn 197 181 242 222

EPS KRW/sh 11,974 11,250 14,994 13,992

EBITDA gr % 0.9 (8.3) 33.8 (8.1)

EPS gr % (0.6) (6.1) 33.3 (6.7)

PER x 12.2 13.0 9.8 10.5

Yield % 1.0 0.9 1.3 1.2

ROE % 21.4 17.1 19.4 15.6

ROCE % 29.0 23.1 26.2 21.0

EV/EBITDA x 9.2 9.6 6.3 6.2

Net DE (cash) % (3.3) (16.9) (29.6) (38.5)

P/BV x 2.4 2.1 1.7 1.5

FCF/EV % 7.3 8.4 12.1 12.8

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Com2us is a Korean mobile game developer that has spearheaded the mobile game industry since its inception in 1998. It has a leading market position in Korea, one of the most advanced markets for mobile games and is strong in both sports and RPG genre games. Com2us has enjoyed global success with Summoners War (SMWR), an in-house developed game which currently accounts for ~75% of revenue. Com2us has been providing mobile games in 39 countries, and 85% of revenue is generated from overseas markets. Gamevil acquired control of Com2us in Oct 2013.

SMWR is a global hit RPG game and expected to record USD 1.5bn in total lifetime revenues with 100m downloads at the end of 2018 from its launch in May 2014. The company plans further expansions of SMWR IP franchise via partnerships. The Walking Dead creator, Robert Kirkman, along with Star Wars: The Clone Wars/The Angry Birds Movie producer, Catherine Winder, will oversee the development of the SMWR universe outside of the gaming space such as comics and animation. Com2us also recently signed a licensing agreement with Nasdaq listed toy manufacturer Funko to produce figurines and digital items.

Investment Thesis

Com2us has assembled one of the strongest R&D teams to develop quality games and built a solid pipeline for new releases. The company also has a strong overseas network as SMWR has one of the most diverse regional revenue exposures amongst its global peers in mobile games. Furthermore, the company has a unique distribution/marketing platform, HIVE which provides access to global gamers with 600 million accumulated downloads. The company utilizes the platform for better monetization by analyzing big data including customers’ preferences, purchasing behavior, and targeted cross promotions. Com2us has a low fixed cost structure (labor, overseas marketing, and distribution), and a high sales ratio in the overseas market, which allows the company to step back from the highly competitive environment in the overly crowded Korean domestic market.

Revenues are largely generated by in-game purchases from users (game players) which is like other game developers. Given the business model, there is substantial operating leverage with successful game titles.

Recent developments

• According to the management, SMWR remains strong in terms of Daily and monthly average users and average revenue per user this year. Their global eSports event, SWC 2018 (Summoners War World Arena Championship) expects to double the number of participants in this year’s events.

• Skylanders RoH has started its Closed Beta Test and over 12 days in June, Google reported 50K+ downloads in 137 countries via GooglePlay Store, twice management’s initial expectation. The bigger pool should provide the better feedbacks and data analysis to increase hit prospects for the final launch. As we expected, 60% of users are from the North America and Europe which is where the Skylanders IP is more recognized.


Com2us is trading on 9.8x FY19 PER, 1.7x PBV with 19.5% ROE and currently maintains a 10~15% dividend payout ratio. It is one of the cheapest mobile game names in the region. Com2us has KRW738bn net cash in its balance sheet (2Q18), equivalent to 35% of the current market cap, and should generate annual FCF of KRW120~140bn over the next 3 years with the existing game portfolio.

North America33%

Asia ex Korea31%

Korea17%

Europe16% Other

3%

0

50,000

100,000

150,000

200,000

250,000

Jul-07 Jul-09 Jul-11 Jul-13 Jul-15 Jul-17

KRW


Page | 10

Hanon Systems (018880 KS)


Share price KRW 12,650

2018 high / low price KRW 13,750 / 9,760

Shares outstanding M 534




Top 3 shareholders

1. Hahn & Co Auto Holdings 50.5%

2. Hankook Tire 19.5%

3. National Pension Service 5.4%


Revenue KRWbn 5,586 5,913 6,285 6,675

Recurring NP KRWbn 318 351 388 428

EBITDA KRWbn 670 724 794 857

EPS KRW/sh 596 657 727 803

EBITDA gr % 9.9 8.0 9.8 7.8

EPS gr % 9.9 10.3 10.6 10.5

PER x 21.2 19.2 17.4 15.8

Yield % 2.5 2.9 3.3 3.8

ROE % 16.7 17.1 17.5 18.0

ROCE % 18.2 18.5 19.2 20.2

EV/EBITDA x 10.4 9.8 8.9 8.2

Net DE (cash) % 9.3 16.4 13.1 9.6

P/BV x 3.4 3.2 2.9 2.7

FCF/EV % 2.3 0.7 4.2 4.9

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Hanon is the third largest global manufacturer of auto climate control parts and is one of only two producers of full modules for auto climate control systems. The market for climate control is relatively consolidated. Hanon is the number 3 players with 13% share of the global market, behind Denso with 23% and Mahle with 15%. Other key players are Valeo with 12%, Calsonic Kansei with 5%, Sanden with 4% and small producers account for the remaining 28%.

Hanon has a high-quality professional management team and has high corporate governance ratings, paying a quarterly dividend equivalent to a 2.5~3% yield with a 40~45% payout ratio. The company is currently 51% owned by a PE Fund and 19% by a strategic partner, Hankook Tire.

Investment Thesis

The company’s revenue is expected to grow 7-10% CAGR for the next 5 years driven by expansion of its customer base including GM, VW, BMW and Tesla. While Hanon initially targeted new order growth of 48% YoY in 2017, it achieved an increase in new orders of 64% YoY. Of these 58% came from non-core customers and 44% were for eco-friendly vehicles.

There is strong demand for climate control/thermal management technology improvements given the current trend to focus on fuel efficiency and lower emissions for global automakers and governments. Moreover, there is further potential with development of the EV segment. Hanon expects its global compressor market share to increase to 18% in 2020 from 14% in 2016. This is driven by market share gains in the traditional market and strong growth in the green car market, with the company specifically targeting e-compressor market share of 22% in 2020 from 14% in 2016.

Recent developments

• In 1H18, sales grew just 3%, held back by sluggish performance of its major customers in China (Hyundai, Kia, Ford). Growth in sales to other customer was 30% YoY. The company expects the better topline growth in 2H supported by new model launches. Overall efficiency has improved with OP margin ratio climbing when adjusted for one-offs. Orderbook was flat YoY in 2Q18, and the moderate order growth this year comes after very strong growth past year. The important factor is that eco-friendly exposure in new orders has been increasing meaningfully from 5% in 2015, 35% in 2016, 44% in 2017 to 66% in 1H18 (or from 4% of backlog in 2015 to 40% backlog in 1H18).

• Hanon recently announced that they are acquiring the global fluid pressure and controls business of Magna at USD 1.2bn, which is 6.6x EV/EBITDA. Hanon holds KRW 567bn in cash/equivalents and debt/equity of just 37%. We assume that the short-term impact is ~30% in sales and 20~25% in EPS. There is more positive synergy for the longer-term as Hanon can achieve the 1) scale benefit, 2) customer diversification, and 3) competitive advantage improvement in thermal management segments.


Hanon generates strong operating cash flow and maintains a net cash balance sheet. This supports both its R&D activities, currently 5.1% of revenue (increased from 4.6% in 2017), and CAPEX which can include M&A opportunities. Successful M&A could be a catalyst for a rerating, as the company has seen inorganic growth via several successful deals in the past.

Hanon is currently trading at 17.4x FY19 PER, 8.9x EV/EBITDA, which is undemanding for a Korean auto parts maker with strong positioning for the rapidly growing EV segment, high corporate governance rating and paying a quarterly dividend.

Europe38%

Korea31%

Asia17%

America14%

0

3,000

6,000

9,000

12,000

15,000


KRW


Page | 11

FPT (FPT VN)


Share price VND 46,300

2018 high / low price VND 56,000 / 38,800


Market cap US$m 1,218



Top 3 shareholders

1. Gia Binh Truong 7.1%

2. Quang Ngoc Bui 3.4%

3. Franklin Resources 1.9%


Revenue VNDbn 42,692 22,231 25,379 28,562

Recurring NP VNDbn 2,386 1,737 2,031 2,634

EBITDA VNDbn 4,201 3,652 4,341 5,015

EPS VND/sh 4,818 3,034 3,302 4,261

EBITDA gr % 5.5 (13.1) 18.9 15.5

EPS gr % (0.8) (37.0) 8.8 29.0

PER x 9.6 15.3 14.0 10.9

Yield % 5.8 3.3 3.6 4.6

ROE % 22.8 14.6 15.8 18.8

ROCE % 24.4 17.1 19.1 22.4

EV/EBITDA x 6.0 7.1 5.7 4.6

Net debt (cash) % (24.0) (16.3) (23.1) (29.4)

P/BV x 2.2 2.3 2.1 2.0

FCF/EV % 4.4 2.3 11.8 14.9

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Founded in 1988 and listed in 2006, FPT is the largest IT conglomerate in Vietnam with more than 32,000 employees, of which more than 13,000 are IT experts, computer engineers and software developers. FPT has three core business units: Technology; Telecom; and, Education. The group made partial divestments of its Retail and Distribution units in 2017. FPT has a global presence with total revenue of USD1.9bn and with more than 38% of their PBT generated in overseas markets.

Investment Thesis

Our investment thesis for FPT is centered on an expected business transformation and this thesis is playing out well. High ROIC businesses (i.e. FPT Software Outsourcing and FPT Telecom) are growing fast and continue to transform FPT’s growth profile. With recent divestments of its Retail and Distribution units, FPT clearly demonstrated the intention to focus and invest more in core businesses and this has led to a material improvement in ROIC. The company is gaining momentum in Japanese software market, especially in the automotive vertical. Japanese market now represents 58% of FPT software revenue, while automotive vertical represents 15% of total software revenue.

Recent developments

• FPT reported solid 7M18 performance with NPAT growth 20% YoY. Total revenue dropped by 49% due to de-consolidation of Retail and Distribution units following the divestment in 2017. On like-for-like basis, FPT's revenue and NPAT is expected to increase by 19% and 37%, respectively.

• FPT’s Software has succeeded in establishing itself as a key player in the Japanese software outsourcing market and expects strong growth momentum to continue. As of 7M18, FPT software recorded 30% and 29% YoY of revenue and PBT growth respectively. In June 2018, FPT successfully acquired Intellinet (U.S.) with an initial outlay of USD30m with option to increase stake to 100% within 3 years. Intellinet specializes in software consultation and solutions with 150 consultants and over 200 clients in its portfolio. Intellinet will enable FPT to expand its footprint in U.S. market and tap into a new sizeable client base, while FPT can offer cost-efficient execution platform from Vietnam.

• FPT Telecom also showed strong growth (PBT +18% YoY) from double-digit broadband subscriber growth and narrowing losses from Pay TV business. In July 2018, Vietnam Public Utility Telecommunication Service fund (VTF) has been reduced from 1.5% to 0.75% and should be beneficial to FPT telecom margin in 2H18 onwards.

• Education has always been central to FPT’s competitiveness in software outsourcing business, and this unit now is becoming another profit driver for the group. FPT University is on its way to establish itself as the leading IT university in Vietnam. In 2017, FPT University enrollment grew by over 50%. In total, FPT University has over 24,000 students now.


After deconsolidation of its retail and distribution units, FPT is currently trading on 14x FY19 PER with net cash of over USD100m and generating an ROIC trending toward 20%.

Telecom Services39%

Software Outsourcing35%

System Integration Business18%

Education & Investments

6%

Online Advertising2%

0

40,000

80,000

120,000

Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16

VND


Page | 12

Puregold (PGOLD PM)


Share price PHP 45.00

2018 high / low price PHP 54.00 / 44.00





Top 3 shareholders

1. Cosco Capital 51.0%

2. Lucio Lao Co 7.6%

3. Susan Pe Co 6.5%


Revenue PHPm 124,491 136,940 149,265 161,206

Recurring NP PHPm 5,840 6,354 6,942 7,472

EBITDA PHPm 10,292 10,955 11,941 12,896

EPS PHP/sh 2.10 2.28 2.49 2.68

EBITDA gr % 8.3 6.4 9.0 8.0

EPS gr % 5.3 8.4 9.3 7.6

PER x 21.4 19.7 18.1 16.8

Yield % 0.7 0.8 0.8 0.9

ROE % 12.8 12.5 12.3 11.9

ROCE % 16.6 17.2 17.5 17.0

EV/EBITDA % 11.8 10.8 9.7 8.7

Net DE (cash) % (8.2) (13.0) (16.9) (20.4)

P/BV x 2.6 2.3 2.1 1.9

FCF/EV % 3.4 3.4 3.6 4.1

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Puregold Price Club (PGOLD) is the Philippine’s leading mass market grocery retailer. It caters to both traditional trade stores and end consumers through 6 store formats: hypermarkets, supermarkets, discount stores, warehouse membership club, and quick service restaurant (QSR). PGOLD had a total of 393 stores with gross sellable area of 540k sqm as of June 2018.

The company was set up in mid-90s and opened the first hypermarket store under the brand “Puregold” in 1998 to cater for the mass market. PGOLD expanded to mid income segment through acquisition of imported grocery warehouse store “S&R” in 2013.

Investment Thesis

PGOLD is a thematic play on rising penetration of retail modern trade with increases in disposable income and urbanisation. Modern grocery retailing selling space in the Philippines is 37 sqm/1000 ppl, this is less than half of Thailand’s and around a third of Singapore’s.

With the population of more than 100m (2nd largest in ASEAN after Indonesia), rapid growth of Philippines economy, and rising GDP per capita, PGOLD is poised to become one of ASEAN’s leading grocery retailers.

Under PGOLD’s five years plan (2017-2021), management aims to open 25 Puregold stores per year and 2-3 S&R stores per year. The store opening is likely to be on track for 2018 with 15 Puregold and 2 S&R stores already opened in 1H18.

Recent developments

• PGOLD reported 1H18 net profit of PHP3.1bn, up 26% YoY. This was propelled by one off gain on divestment of its stake in Lawson Philippines, a convenience store joint venture with Lawson Japan. Excluding the one-off gain, 1H18 adjusted net profit was PHP 2.7bn, up 10% YoY driven by sales growth of 14% from SSSG of 5% coupled with new store openings. There was a minor EBIT margin compression to 6.2% (down 0.2 ppts YoY) due to expansion to provincial areas and new-store related expenses.

• We are positive on PGOLD’s divestment of its 70% stake in the Lawson JV as losses from JV had been increasing with limited visibility of a turnaround given the dominant presence of market leader 7-Eleven. Losses from Lawson JV doubled to PHP160m in FY17 (from loss of PHP61m in FY16) and accounted for 3% of PGOLD’s FY17 net profit.

• Management said that there were limited impact from the PHP depreciation against the USD as this had mostly been passed on to end consumers.

• PGOLD announced that it is entering the money remittance business which allows Filipinos working abroad to remit money to their families to be collected at PGOLD stores. The remittance business itself is unlikely to be a major earnings contributor but could be positive for in-store spending as the cash recipients are likely to be enticed to spend in the outlet.


PGOLD is trading on 18x FY19 PER and 0.8x sales. This is undemanding considering that Thailand-based food retailer BigC changed hands in early 2016 at over 30x PE and 2x sales. The Philippines’ offers a more promising growth outlook for grocery retailers.

Puregold79%

S&R21%

0102030405060

Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17

PHP


Page | 13

Silverlake Axis (SILV SP)


Share price SGD 0.440

2018 high / low price SGD 0.580 / 0.405


Market cap USDm 852



Top 3 shareholders

1. Goh Peng Ooi 64.3%

2. NTAsian Discovery Fund 5.0%

3. HNA Group 4.9%

Share Valuation Jun 18A 19F 20F 21F

Revenue MYRm 542 658 707 750

Recurring NP MYRm 140 251 264 274

EBITDA MYRm 189 296 311 322

EPS SGD/sh 0.02 0.03 0.03 0.03

EBITDA gr % (13.0) 56.6 5.0 3.6

EPS gr % (18.7) 79.4 5.2 3.5

PER x 25.2 14.1 13.4 12.9

Yield % 11.0 6.4 6.7 7.0

ROE % 16.3 46.9 47.1 46.5

ROCE % 16.9 50.3 51.7 51.1

EV/EBITDA x 17.2 11.0 10.5 10.1

Net DE (cash) % (52.7) (49.3) (48.3) (47.0)

P/BV x 6.8 6.4 6.2 5.9

FCF/EV % 3.7 6.8 7.5 7.7

Source: NTAsset



Share Price Chart

Source: Bloomberg

Background

Founded in 1989 by Chairman Goh Peng Ooi, Silverlake (SILV) provides state-of-the-art banking solutions via its flagship core banking product, Silverlake Axis Integrated Banking Solution (SIBS), now in its eleventh version. SIBS has a 40% share of the top twenty banks in South East Asia and SILV is the core system provider for three of the top five ASEAN super regional financial institutions. Silverlake also provides digital economy solutions to the Insurance, Retail, Payment and Digital Commerce ecosystems.

Investment Thesis

Silverlake’s core banking business is poised for a recovery from the extended trough seen over the last two financial years. Improvements in the regional credit cycle have lifted pressure on bank profitability, helping feed into a renewed IT capex cycle. This was first evident in Thailand and Malaysia where SILV has secured new core banking installations. Key clients in Indonesia, Vietnam and other regional markets are also likely to upgrade existing core banking systems over the next few years. SILV is well placed to tap into this market given its current strong positioning across ASEAN and an unparalleled 100% implementation success track record. SILV acquired three private entities from the Chairman as part of a reorganization to improve transparency and create additional economic opportunities for the company. As with past transactions, these acquisitions were based on a share swaps with earn-out clauses and were approval from minority shareholders. The three acquired entities extend Silverlake’s product suite to include digital banking products. SILV is also well placed to serve other enterprises seeking digital transformations as the group has added new product suites in areas relevant to the digital economy including mobile payment and insurance claim services. This includes Merimen, SILV’s Software as a Service (SaaS) platform for the auto insurance sector that dominates this market in Malaysia and Singapore and is expanding rapidly into other countries in Asia.

Recent developments

• Recognition of project-based revenue in FY6/18 was held back by delays in contract signing and project implementation. These contracts are now signed and under implementation with the confirmed orderbook now at MYR350m that will be recognized as project revenue over the next two fiscal years. M&E revenue has begun to grow again from 4QFY6/18. Earnings should improve sharply over the next four quarters.

• SILV announced a further special dividend of SGD0.005 along with a 4Q interim dividend of SGD0.003, lifting its dividend payout for FY6/18 to SGD 0.03, equivalent to a 7% yield on the current share price. SILV has continued with its share buyback program as part of its capital management strategy.


Given the expected cyclical improvement in profitability, SILV is trading on a FY19 PER of 14x. SILV is expected to see ROE improve to 47% which supports its PBV of 6.4x. The company maintains a strong net cash balance sheet which we expect to be used to support payment of further special dividends and share buybacks.

Maintenance & enhancement

72%

Software project services10%

Software licensing7%

Insurance processing6%

Credit card processing4%

Hardware software sales1%

0.0

0.4

0.8

1.2


SGD


Page | 14

Disclaimer

The contents of this message are intended for informational purposes only and are not for distribution to and does not constitute an offer to sell or the solicitation of any offer to buy or sell any securities to any person in any jurisdiction. While NTAsset has done its best to verify the accuracy of all information contained herein, no reliance should be placed on the information or opinions in this communication or their accuracy or completeness, for the purpose of making any investment or any other purpose. No representation, warranty or undertaking, express or implied, is given as to the information or opinions in this communication or their accuracy or completeness, by NTAsset or by their respective directors, officers, partners, employees, affiliates or agents, and no liability is accepted by any of the foregoing as to the information or opinions in this communication or their accuracy or completeness. Any investment information is intended for use by professional investors only. An offer to buy or sell any securities may only be made through offering documents in compliance with the Securities Act of 1933 or exemptive provisions there under. Past performance is not a guarantee of future returns. All investment strategies entail some risk. When an investment involves a transaction denominated in a foreign currency, it may be subject to currency fluctuations that will have an impact on the value of the investment in another currency. In addition, complex tax structures and delays in distributing important tax information, differences in regulatory requirements and fees. Investments in the emerging markets involve risks not normally associated with investments in more developed and economically stable jurisdictions with more sophisticated capital markets and regulatory regimes. Such risks include political, economic and currency risks and the risk associated with investing in underdeveloped legal, regulatory and accounting environments. In addition, investments are volatile, and have limited liquidity, transparency and depth, which may make it difficult to achieve a desired purchase or sale price for investments or to purchase or sell investments at any particular time. Any investment should not be made without careful reference to the relevant Prospectus. Nothing herein shall constitute an investment recommendation or investment, accounting, tax or legal advice. All content is for informational purposes only. Index MSCI AC (All Country) Asia ex Japan Net Total Return USD Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of Asia excluding Japan, taking into account the re-investment of dividends. MSCI AC Asia ex Japan Net Total Return USD Index consists of the following 11 developed and emerging market country indices: China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan, and Thailand. The Fund is an actively managed portfolio as compared to the index which is unmanaged. In addition, there may be significant differences between the Fund and the indices including liquidity and volatility.

ntasian merging leaders und2018...ntasian emerging leaders fund september 2018 page | 5 larsen &...

Documents