Daily Equities Bottom-Up: Prataap Snacks Ltd – Q2 Results; Will Acquisition of Avadh Snacks Be a Game Changer for Prataap and more

In this briefing:

1. Prataap Snacks Ltd – Q2 Results; Will Acquisition of Avadh Snacks Be a Game Changer for Prataap
2. Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement
3. Sell General Electric (GE US): Lots of Liabilities, Limited Cashflow – Target $1
4. New Oriental (EDU): Do Not Fear Q2 Record Losses, 27% Upside
5. Meet, Beat or Miss Q4 Estimates, Both Las Vegas Sands and Sands China Are Solid Bets

1. Prataap Snacks Ltd – Q2 Results; Will Acquisition of Avadh Snacks Be a Game Changer for Prataap

In Q2 of FY19, the company has grown at 10.15% with revenue of INR 2.92 bn. EBITDA was INR 0.24 bn and EBITDA margin stood at 8.4%  down by 167 bps, Net profit stood at 0.113 bn with margins at 3.87% down by 102 bps. Raw materials cost has increased in the first half of the year leading to lower margins. 

The company has acquired 80% in Avadh Snacks, a Gujarat based snacks company for INR1.48 bn, we have discussed the implications in the report.

The stock is currently tradings at its 54x its FY18 EPS (Pre-acquisition) and 42x its FY19 EPS (post-acquisition), we believe the stock is currently overvalued but are positive on the long term prospects of the firm.

2. Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement

Total Access Communication (DTAC TB) recently settled a number of outstanding cases with CAT, one of the two Thai Telecom authorities (the other being TOT). DTAC agreed to pay THB9.5bn ($300m) to CAT to settle a number of outstanding disputes. They did NOT clear all their disputes and there are substantial remaining potential liabilities. In the past, The Thai telcos have tended to ignore these cases given the glacial moves through the system (some are 20+ years), but DTAC’s moves suggest it is time to take a closer look. The total numbers for the industry are substantial at around $20bn and, following DTAC’s settlement, Chris Hoare thinks the risk of crystallizing losses has increased. We have cut our target prices as a result. The industry was already facing headwinds from the business revival at DTAC now that it has secured access to spectrum.

3. Sell General Electric (GE US): Lots of Liabilities, Limited Cashflow – Target $1

GE’s business reality is far removed from management’s up-beat message. Creative accounting enabled management to line their pockets, while the underlying business deteriorated. A bloated board sanctioned poor disclosure, leasing, restructuring provisions and asset trading that obscured the decline. In FY 2018, we expect underlying Industrial profits of US$3.4bn and unlevered sustainable cashflow of US$5.1bn, down 50%. Change is coming, but it is too little, too late…

4. New Oriental (EDU): Do Not Fear Q2 Record Losses, 27% Upside

• The record net losses were mainly due to a seasonally weak quarter and recognition of the impairment in a subsidiary.
• Q2 revenues did not slow down and management does not believe Q3 revenues will slow down.
• EDU will not be negatively impacted by the new law from the Ministry of Education.
• The P/E band suggests an upside of 27% and a price target of USD90.

5. Meet, Beat or Miss Q4 Estimates, Both Las Vegas Sands and Sands China Are Solid Bets

• LVS shot at Japan license enhanced by his role in lobbying US Justice Department’s reverse opinion on online gambling published last week. Read why in this insight.
• Owning Sands China makes a strong case based on an ROCE analysis vs. the hospitality sector.
• Owning both at current trade is one of the screaming bargains in the entire sector