Micron Tech: Technical Update

 

Micron Tech (MU), daily chart

After issuance of our research report on Micron (MU), a strong rally of about 7.7% transpired, pushing the stock to the first price target of ~$90, presenting a profit-taking opportunity.

Micron has now reversed on high volume amidst the pullback in NASDAQ today. $85 and below will be good to accumulate this growth stock in the face of unprecedented semiconductor shortages further exacerbated by an exuberant, rapid growth of data centers. Prices remain technically supported by the 100SMA, and a bottom of about $83-84 might be observed in the coming trading days. At worst, an entry price of $80 will be possible. It is extremely unlikely for prices to go below $70.

Previous price targets remain unchanged.

CapitaLand Short Report (TP: $3.35)

 1. Price action shows lower lows being formed with triple bearish tops, each top being lower than each other . This shows declining interest in the stock despite the recent CityDev and Straits Trading and TQ5 Frasers Pty rallies. Looks likely that there will be filling of the gap with a fall back to the technical support level of 3.35 within a matter of days or weeks. Prices have already broken the 20-day simple moving average (SMA) and the 20-SMA is now pointing down, signalling a bearish trend. 

2. Broader context of STI weakness and reemergence of COVID will greatly threaten CapitaLand gross profit margins as well as debt position and net income positions. Already, CapitaLand recorded not only a 96 percentage drop in operational profits from 4bn to 180mn pursuant to the FY20 report but also a staggering net loss of 1.6 bn in 2020. Indeed, with property developers like Citydev plummeting from $8.38 to $7.83 recently, there is no guarantee that Capitaland's price will remain supported at $3.7, especially amidst pellucid technical weakness.

3. With net cash position being 9 billion and net liabilities having increased drastically to 35 billion, it isn’t hard to predict that the financial status of the company will drastically decline especially if there is an epidemic resurgence within and without Singapore. There is not enough cash runway for the ailing company. This means a possible equity fundraising exercise or share placement just like Frasers Ppty.

4. The privatisation of the property development arm of Capitaland is not confirmed yet and there isn’t any update from the company on this. Even if the deal goes ahead, Capitaland is a high-beta stock which fluctuates up and down in a volatile manner. There is no guarantee that prices will remain supported at the 3.70 level until the end of the year, which is the supposed date of realisation of the privatisation scheme. There is more than ample time for the share price to dip, before, if at all, rising. There is too much uncertainty in that the scheme is not even prima facie confirmed.

5. With COVID resurgence all around the world, it is unclear how CLIM will be profitable (or as profitable as before). It may even need to raise funds. As such, CLIM may trade below its book value, which means the implied upside to $4+ is just theoretical. As a result of the Sincere saga, we are particularly worried how Capitaland China Retail Trust will perform and how its performance will affect CLIM.

6. With companies adopting a work-from-home arrangement, it is uncertain how useful the CICT (Capitaland Integrated Comm. Trust C38U)  shares will be in terms of unlocking shareholder value. Furthermore, the C38U shares will likely be in odd lots which makes selling them difficult or expensive. We expect CICT as well as Retail REIT prices to drop in coming weeks, in tandem with the rise in share performance of COVID stocks, in light of vaccine ineffectiveness, new virus strains and potential upcoming mis-management of the COVID situation in Singapore and outside of Singapore.

7. Capitaland is not privatised yet until the end of the year. It is unclear how the property development arm will function in light of a COVID resurgence threat in Singapore - with construction suspended and attraction of ABSD as well as cooling measures upcoming, the company's performance is likely to be adversely and severely impacted. These will manifest into Capitaland's price-action so long as the deal has not completely materialised.

8. It is uncertain how the market will reach to postponement of the deal, due to its manifest complexity, or other reasons. 

For the foregoing reasons, an investment in Capitaland is unsound and we expect prices to quickly and substantially decline to $3.35.

SgHuat Research: Micron Tech - A Memory Play (OUTPERFORM)

Micron Tech (MU), TP: $97, $108

What the company does

Micron Tech makes memory chips - DRAM (Dynamic Random Access Memory) and Nand flash memory.   DRAM accounts for more than 70% of Micron Tech's revenue. DRAM functions as the key memory in PCs, laptops, smartphones and other electronic or electronic-related gadgets such as electric vehicles. Nand flash drives, on the other hand, provide longer-term storage.

Who are its competitors

DRAM: Samsung, SK Hynix

Nand flash: Western Digital, Intel, Samsung SK Hynix

Fundamental Analysis

Micron Tech's current PE (TTM) is 30.7 and its average PE (TTM) is 26.4. This may be expected to change (decrease) when its upcoming earnings report gives a clearer picture of the latest developments, particularly in terms of the semiconductor shortage we are seeing globally.

At the end of March, March 31st, Micron beat analysts' targets for its fiscal Q2, and MU soared 4.8% on the news release.

This is Micron Tech's fourth quarter of sales growth on a YOY basis, after five quarters of suppressed sales. Its earnings have risen for the third consecutive quarter, after six down quarters.

Significantly, in mid March, Micron indicated that it will stop developing 3D XPoint, which has low profit margins and has affected its earnings negatively. Upon release of this news, the market rallied 3%.

Company's debt position is healthy, with total assets of $53.68 bn (2020) and total liabilities of $14.68 bn (2020).

Technical Analysis

Lower lows on the weekly with engulfing bearish candles. Sellers have obviously been in control since 13 April 2021 and the stock is currently down 12% from its all-time high of $97. Possible entries into Micron Tech will be at: $84-85, $83 and $80. If $80 breaks, MU will hit $73-75 (corresponds approximately to the average PE TTM of 26.4). This is extremely unlikely given the strong tailwinds (chip shortage).

Take partial profits at $97, implied upside of about 15% from last traded price ($85.03). Consensus price target is $108, so a secondary profit taking region can be between $100-110.

Positive Catalysts

Earnings report demonstrating stronger-than-expected financial performance. Continued chip shortage given the rate at which digitalisation is taking place in developing regions and given the burgeoning middle-class in China & India. More contracts and renewal of contracts with big players such as Apple. Disruptors such as Work-from-Home (WFH), AI, AR, 5G, Data Centres and Cloud Computing and Internet of Things (IOT, eg smart-homes and improved tech-heavy Industry 4.0 processes) may bring sustained rise in demand for chips amidst continued technological disruption. Continued prudent management of CAPEX (capital expenditures) due to the semi-permanent nature of cleanrooms and fabs as well as the volatility of memory-chip prices in response to supply/demand forces (company should, with Samsung and Hynix, not over-supply the market - this can lead to razor-thin margins).

Investment Risks

Stiffer competition from other memory providers, resulting in reduced profit margins. As a result of stiffer competition, non-continuation of key contracts. Over-supply of the market with memory chips, akin to the situation in 2019.

Conclusion

A safe and rewarding long-term investment due to continued technological demand for memory chips, despite possible short-term risks in terms of memory chip ASP (average selling price) volatility.

Disclaimer: The writer holds 6 shares of Micron Tech and is looking to significantly scale up his position as the price falls. 

Diginex - Addendum to Investor Brief

Key highlights from SgHuat's communications with Investor Relations team 

1. Most clients are institutional at present and institutions have been keen on the cryptocurrency trading and asset management solutions that Diginex is offering, particularly as a result of its focus on regulation, transparency and security. One of the products is Diginex Access: front-to-back trading, portfolio, risk management solution that enables trading of cryptocurrency and derivative instruments over various platforms. It is powered by Iviti's Tbricks platform. 

2. In terms of the retail space, there are increased options for retailers being rolled out continuously: increased array of coins including Bitcoin, Ethereum and their autochthonous EQO token,  greater range of fiat/withdrawal currencies, a mobile app and lending (margin) options. This will greatly increase retailer uptake and present a significant competition within the cryptospace.

3. Diginex has broken into Asia and EU, and is now targeting USA market. A significant revenue stream is EQUOS, Diginex's cryptoexchange platform. Commission-based fees are also generated from OTC Trading and Diginex Access. Diginex relies on a diversified revenue stream. Other revenue sources: Bletchley Park, a multi-manager fund, Digivault - a digital asset custody solution, and EQUOS Capital - a digital securitisation and advisory firm. Diginex's revenue streams are complementary, yet diversified.

4. With monies raised via convertible bond/listing late last year, Diginex balance sheet is cleared of debt and with the recent Share Warrants exercise, as well as recent $30 mil+ private placement at $15, Diginex is flush with case, and therefore there is less risk of share dilution in the coming months.

5. Coinbase is different from Diginex because Diginex offers institutional-focused derivative trading options, advanced asset management and structured products. Diginex believes that derivatives will enable it to pull ahead of the competition. Cryptoderivatives market is only a few times of the spot market, but for FX, the derivative market is 100x of the spot trading volume.  Bitcoin Perpetual Futures contract has been launched in Jan 2021, with volumes reaching US$25 mn/day. ETH Perpetual Futures contract launching shortly. 

6. Full licence application to SG's Monetary Authority Singapore submitted in May 2020. In HK, they have Type 4 and 9 licences. In fact, Diginex is already operating in most parts of the world, except a few countries, in particular, the United States.

Diginex (EQOS) - Investor Brief - The dark horse runs today

Update: More will be published on this counter tonight in terms of the investment thesis.

Currently trading pre-market: $11.67

Entry point: $10.50 - $11.5

Target Prices: $20.50 as first exit point, $23 as second exit. Over the long-term, we are looking at $62, $100.

Diginex (Ticker: EQOS, listed on NASDAQ) is an institutional-grade cryptocurrency exchange with headquarters in HKG and SG. While the focus is on institutional clients, there is a growing pool of retail clients all around the world. Their address in Singapore is: 6, Eu Tong Sen Street, Singapore 059817 (at Clarke Quay).

Investment Highlights:

1. Experienced management team. Chairman of the company is ex-UBS CEO, Mr Chi Won-Yoon. He had previously worked at 22 years with UBS, and has also worked with Merrill Lynch & Lehman Brothers (HK, NY). As Mr Yoon is Korean, he has been instrumental in pushing Diginex within the Korean market. They have a Telegram group which is actively managed: https://t.me/equoskr. At this juncture, it is also noteworthy that the executive team is very proactive in engaging customers on their 10000+ member-strong Telegram presence: https://t.me/equosio 

Indeed, the management team is very experienced, with many of them having distinguished careers in the accounting and finance sectors. This means that they can easily leverage on connections to establish Diginex as a leading cryptocurrency exchange in Asia and beyond.

Independent director Lisa Theng is Managing Director of an established law firm in Singapore, CNP Law and has been practising law since 1991. It is the duty of independent directors to flag out potential conflict-of-interest situations and other red-flags. She holds a Bachelor of Laws degree from NUS.

Director Andrew Watkins was partner with PWC in HK and Mainland China for 20 years. Director Paul Smith was CEO and President of the CFA Institute from 2015-2019. Prior to which, he was holding senior positions with the Institute. Smith is a fellow of the Institute of Chartered Accountants of England & Wales. Richard Petty works in academia and has been a key adviser to corporate projects in Asia. Petty holds a CPA (Australia/NZ). As far as the executive team is concerned, CEO Richard Byworth has 20+ years of experience in the financial markets, holding important positions in the Blockchain industry.  Being able to speak French fluently will grant Diginex potentially unfettered access to the French-speaking markets, in France and beyond.

2. Availability of crypto-derivatives such as futures and perpetuals. Diginex is the first NASDAQ-listed cryptocurrency exchange which offers crypto derivative trading on their institutional-grade trading platforms. There are Youtube videos which document the elaborate trade management and technical analysis systems that Diginex has to offer. Many cryptoexchanges, however, are very basic, with only spot trading options.

3. Coinbase IPO tonight, 14 April 2021. This widely-expected debut of the world's largest cryptocurrency exchange potentially means an unlocking of Diginex's value as the market discovers how to price cryptocurrency exchanges on NASDAQ.

4. Based on our discounted cash flow valuation (DCF), Diginex should trade at a minimum of $62. This unlocking of fair value can happen in a burst tonight, and then progressively over the next few weeks.

Figure A: Discounted Cash Flow valuation of Diginex, with very conservative internal rate of return, perpetual growth rate and with a 50% margin of safety. It is of note that we used 1/3rd of Management's forecast for their future revenue growth. This returns a fair value of $62.

5. Diginex has partnered with Treasury Management International recently: https://www.diginex.com/news/treasury-management-international-engages-diginex-to-put-bitcoin-on-balance-sheet/ This opens the door for Diginex to be the cryptocurrency exchange and cryptoasset storage facility on choice for companies who want to use Bitcoin as part of their treasury assets. A prime example is Tesla. We are likely going to see waves of corporates choosing to hold Bitcoin as a treasury asset, instead of cash.

6. From the technical charts, it is clear that higher lows are being formed. It is also evident that Diginex is a very powerful stock, able to move 30-50% within a matter of days, as a result of its small market capitalisation and low market float.

7. Diginex is operating in Singapore under an exemption under the Payment Services Act (under the Monetary Authority of Singapore). They have a parallel application with the MAS for a Major Payment Institution licence to enable Diginex unfettered access to the Singapore market. This will greatly unlock the value of the Company.

8. Increased 24 hour trading volume on the EQUOIS exchange, fast approaching US$100 mn/day. Note that this is before penetration into the retail US market.

9. The only NASDAQ-listed company which is producing their own crypto-token, EQO. EQO is an alt-coin and has reached an all-time high of $1.5. You can trade USD/EQO and/or get it when you trade more on the Diginex crypto platform.

10. A proactive executive team with great customer service is essential for retaining and attracting retail customers. This is evident on their Telegram group and their active engagement with users on Twitter. If this is how they help retailers with their requests, it is pellucid how they will (similarly) treat their institutional customers and their investors.

Investment Risk:

1) Competition from other cryptocurrency exchanges. However, this is mitigated by the fact that Diginex is domiciled in Singapore, a jurisdiction which puts a premium on regulation and consumer safety, and this is just one of many factors which show the company's emphasis on a fair, secure, transparent and secure cryptoexchange system which is institutional quality. Indeed, this is the differentiating factor which differentiates Diginex from other crypto-exchanges: security. transparency and quality.

Technical Analysis:

1. At an entry point of $11, Diginex will present 110% returns if it goes to $23. Considering our fair-value estimate of $62 (bear in mind that this is after 50% margin of safety), this investment can easily 5x your capital.

2. EQOS is currently trading above the Kijun line and below the Tenken line. So far as Diginex goes past the Tenken line (around $11.64), we can see a push up towards $14.20 (SSSA line), $15 (static support/resistance line), $16.50 (SSSB line), $20.50 (static support/resistance line) and finally to reach our eventual first target price of $23 (110% upside)

Figure B: Projection to reach the second target price of $23. An implied upside of more than 100%.

Conclusion:

 EQOS is a highly differentiated company within the crypto industry with diversified revenue streams. It prides itself upon fairness, transparency, security, service and institutional-grade performance. We are fully convinced that the market will continue to realise the potential of this Company and as a corollary, that the stock performance of this counter will soar. The unlocking of value of EQOS (Diginex) might happen over a few days, weeks or months. This is hard to predict. But the stock's performance has to reflect financial reality. So long as management can provide results, we will see the stock price reach $30 eventually (and even $100).

SPH - Upgraded TP $2.29

 1H FY21 Results Summary (Half year ended 28 Feb 2021)

- Revenue decreased 4.2% YOY to $460.3 mn

- Operating profit increased 16.6% YOY to $119.8 mn (contributions of $15mn from JSS)

- Continued decline in media arm, with revenue falling from $253.8 mn (1H FY20) to $193.1 mn (1H FY21). Profit before tax dropped from $10.6 mn to $3.1 mn. Without JSS, the pre-tax loss will be $9.7 mn.

- Print advertisement revenue dropped 29% YOY (partly due to COVID), with falls in display and classified ads.

- Digital revenue growing, with digital circulation contributing 31.6% of total digital revenue, increasing from 23% a year ago.

- Total circulation now comprises 53% digital, showing a clear shift towards digital circulation.

- Revenue for SPH's retail and commercial division (SPH REIT) increased 4.4% YOY to $154.6 mn, with tenant sales in Paragon and Clementi Mall (SPH REIT's Singapore properties) reverting to normal as COVID restrictions eased.

- SPH REIT launched Woodleigh Residences in Feb 2021, with 62% of total units sold to-date, with PSF prices increasing

- Net profit for SPH's retail and commercial division therefore remained flattish, dropping 1.4% YOY despite COVID.

- Student accommodation in UK showed strong revenue growth, rising 24.2% YOY to $35.3 mn (Student Castle portfolio), despite the COVID situation (students deferring studies and lower occupancy rates in general).

- Net profit before taxes for the Student accommodation division was $22.4 mn

- Orange Valley nursing home and Japan aged care facilities showed a small profit before tax of $0.3 mn for the half year

- Investments portfolio showed significant gains: iFAST (SGX: AIY) and Coupang IPO (NYSE: CPNG). Both iFAST and Coupang doing well in the market. 

- Strategic review to unlock shareholder value, with Credit Suisse appointed as group's financial advisor.

- Interim Dividends doubling from $0.015 a year back to $0.03.

Upcoming Catalysts

- Strategic review to unlock shareholder value, such as privatisation of its print and media arm

- Swing into profitability owing to increased focus on digital divisions; and owing to investment division and aged care facilities reaping fruits over time. This will also be aided by further easing of COVID restrictions, with possible resumption of tourism: SPH REIT (Clementi and Paragon malls), UK Student Accommodations being key contributors to profit

- More positive announcements pertaining to its venture capital division; its investments into new and promising companies should reap fruits over time (one example was Coupang)

- Further increase in dividend payout ratio and yield

- Further indications as to how SPH plans to diversify away from its ailing print and media arms and take further steps to become a diversified conglomerate

Technical Analysis

Weekly chart: When sghuat first discussed SPH, SPH was trading in the $1.2x range and has since burst up almost 50% to $1.78

Key support levels to accumulate SPH in increasing batches: $1.72-1.75, $1.6 and $1.5

First Target Price: $1.95

Second (Final) One-Year Target Price: $2.29

Every loss is an important lesson

 "The willingness to accept responsibility for one's own life is the source from which self-respect springs" Joan Didion

Whenever we make a mistake, it is important that we learn from it. No different is this in the stock market. Bad investment decisions can wipe you out quicker than you think, obliterating the profits you have painstakingly accrued over months or years. That is why risk management is key to investment success. Even the most promising of investment theses can end up very badly.

If you are losing money in stocks, then it is crucial to re-examine your investment strategy so that future losses can be minimised:

1. Are you taking profits too soon and taking too long to cut losses?

2. Are you  cutting losses too early without letting the stock have a chance to recover? As the saying goes, you can die of a thousand paper cuts.

3. Are you trading on emotions when you have a PNL target to meet or after a huge loss or series of losses?

4. Did you do your due diligence before hitting the "buy" button? "Hot stocks" and hype is not a substitute for thorough research into the company and its prospects

5. Do you have the discipline to cut losses and manage your risk when it comes to that? It is my belief that for investments in which you are less confident of, a 15-20% cut loss margin is appropriate. On the contrary, for blue chips with strong fundamentals, there may be no need to cut loss until the 30-50% mark, by which time you should thoroughly re-consider whether it does in fact have the strong fundamentals you think.

6. Since a 15% cut loss margin is used, do you ensure that you let your winners run past the 15% mark so as to generate positive expectancy? The worst mistake investors make is to take profits too soon and to let their losses run too long.

7. Is your investment approach suitable? If you tried day trading and it did not end up well, then maybe you are more suited to swing trading or long term dividend investments. Examine your personality and disposition, risk profile, investment goals and then decide which investment approach is most suitable for you and your lifestyle. A swing trading approach may not be suitable for you if you find that timing the market does not work very well for you - in that case, try to reduce market timing and instead focus on trade management strategies (eg, taking partial profits on your winners and re-investing it in batches in laggard low-valuation stocks) or even a more passive investment approach.

8.Are you chasing the highs? Too often, we get too excited when a stock is trading high but for fundamentally sound companies, it is best to buy low for maximised margins. Examine whether contrarian investing suits your personality (eg, buying the lows in fundamentally sound companies, preferably blue chip stocks)

We are always learning and as long as we take responsibility for our mistakes, and not push it to bad luck, stock market weakness, and so on, we can reduce the chance of making the same mistake again. 

As Rayner Teo, an esteemed investment guru has mentioned, a big gain is fine, a small gain is fine, a small loss is fine, but never a huge loss which will wipe your portfolio out.

Until then, safe trading!