In today’s briefing:
- Samsonite (1910 HK) Takeover Interest: Hold on to These Shares
- [Baidu, Inc. (BIDU US, BUY, TP US$146)TP Change]: The Commercialization Path of AI Is Becoming Clear
- BFI Finance Indonesia (BFIN IJ) – Visibility Improves
- Cathay Pacific – Reported Air China Interest Prompts Assessment of Structural Disadvantages
- MTAR Technologies- Forensic Analysis
- Matahari Department Store (LPPF IJ) – Primed for Recovery
- Comfortdelgro (CD): March on Chinese Tourists
- [Luckin Coffee (LKNCY US, BUY, TP US$41) TP Change]: Weak Earnings Could Be Temporary…Reiterate BUY
- Air China (753 HK): Up Stakes in CX?
- Core Quality at Unjustified Discount
Samsonite (1910 HK) Takeover Interest: Hold on to These Shares
- Bloomberg reported that Samsonite (1910 HK) is considering several options, including going private, and there are several suitors including from buyout firms
- Share price has surged by 14% in the morning session. Stock is still very cheap, at 10.5x PE, 7.5x EV/EBITDA with an impressive ROE of 30%
- Our quick take values Samsonite at HKD34/share, based on its forecasted +1 year earnings multiplied to its average long-term PE of 15.5x
[Baidu, Inc. (BIDU US, BUY, TP US$146)TP Change]: The Commercialization Path of AI Is Becoming Clear
- We expect Baidu to report C4Q23 revenue, GAAP op. profit and GAAP net income inline, (2.3%) and (4.5%) vs. consensus.
- The slight bottom-line miss was mainly attribute to the increased marketing costs related to user acquisition. Baidu cloud revenue is robust due to AI product stimulating demand.
- We cut our target price to US$146 for the spendings related to the construction of future e-commerce business but maintain BUY for its cheap valuation.
BFI Finance Indonesia (BFIN IJ) – Visibility Improves
- BFI Finance Indonesia saw a marked turnaround in new bookings and a declining NPF ratio in 4Q2023, as its business recovered from the malware attack in May last year.
- The company has started to be more aggressive in non-dealer 4W space but remains cautious on 2W. Write-offs peaked in 4Q2023 and will decline in 2024, leading to lower CoC.
- BFIN will launch a tripartite collaboration with GoTo and Bank Jago which will help to drive future bookings growth. Valuations remain attractive with BFIN trading in 2.0x PBV
Cathay Pacific – Reported Air China Interest Prompts Assessment of Structural Disadvantages
- We publish a deep dive on historical margin management at Cathay Pacific following Bloomberg reports that Air China is considering raising its 29.99% stake.
- We see Cathay’s consistent underperformance of the global industry as due to structural disadvantages competing against lower cost competitors without the benefit of attractive joint ventures or M&A.
- Our deep dive comparing margin generation to ten major global peers highlights weak pricing power without sufficient offset from staff cost/other cost efficiencies as the key problem.
MTAR Technologies- Forensic Analysis
- MTAR Technologies (MTARTECH IN) is a precision engineered company that caters to customers in clean energy, Space, Defense sectors, etc.
- The company has done well over the last few years in terms of securing business, however there are concerns on the margins end, working capital and cash generation.
- There also exists a high business risk in terms of customer concentration since more than 75% of the revenues (F23) come from one single entity.
Matahari Department Store (LPPF IJ) – Primed for Recovery
- Matahari Department Store (LPPF IJ) reported another slow set of results in 4Q2023, as it saw slower demand and continues to clear aged inventory.
- The company is well-prepared for the upcoming Lebaran season with more conservative inventory levels. It will also see the benefits of new brands coming on stream this year.
- Matahari Department Store will open 4-6 new stores in 2024 but close 10 underperforming stores, with a continued focus on new DP brands like SUKO. Valuations remain attractive.
Comfortdelgro (CD): March on Chinese Tourists
- Comfortdelgro Corp (CD SP) share price has underperformed its tourism related transport operator peers.
- Key drivers are still strong, including the expected influx of Chinese tourists from visa-free travel arrangements.
- Valuation is still compelling, and it is not too late to own it.
[Luckin Coffee (LKNCY US, BUY, TP US$41) TP Change]: Weak Earnings Could Be Temporary…Reiterate BUY
- Luckin Coffee reported 4Q23 revenue/non-GAAP NI in-line/(39.8%) vs. our estimate due to (1) extra winter subsidies; (2) rental cost from new stores; (3) more operating expenditures.
- We view the non-GAAP NPM decline to 5.1% in 4Q23 as temporary and outlook for sequential improvements in 1H24 from (1)ASP rebound from easing competition, (2)efficiency improvement in rental cost
- We think Luckin’s profitability outlook is intact and maintain BUY rating, but lower TP by US$2 to US$41 to factor in the rising cost.
Air China (753 HK): Up Stakes in CX?
- Speculations on Air China Ltd (753 HK) seeking control of Cathay Pacific (293 HK) reappeared recently. We think a change in CX’s ownership is just a matter of time.
- CX has been a more important profit contributor to Air China after the pandemic, and depends on pricing, Air China is expected to benefit from such acquisition.
- Both are trading on 0.5SD below their 5-year P/B average and we prefer CX in the short term, but Air China looks to be a better long-term choice.
Core Quality at Unjustified Discount
- Inmobiliaria Colonial Sa (COL SM), with a quality portfolio, trades at 55% discount to NAV. Lacking short-term catalysts, buy on improving earnings guidance, rate cuts and favorable market conditions.
- Colonial probably has one of the best-quality office portfolio in Europe, with the great majority of its assets are situated in core areas of Paris, Madrid, and Barcelona.
- Colonial offers a 24.5% upside, which implies a 40% discount/NAV. The shares offer a 5.26% 2024e dividend yield (source: IBES), which I consider sustainable over time.
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