In this briefing:
- Goldwin Tops Sports Market Growth Through Store Investment
- Hengan Intl. (1044 HK): Our Analysis Suggests that Bonitas’ Allegations Have Some Substance
- SEAFCO (SEAFCO TB): Solid Backlog, Solid Profitability
- BreadTalk (BREAD SP): As Din Tai Fung Opens in London, CEO Puts Out Target to Double Mkt Cap
- Renesas: Visit Suggests Utilisation Rate Rebound Could Take Longer Than Sell-Side Expects
1. Goldwin Tops Sports Market Growth Through Store Investment
Marketing of sports brands has become increasingly retail-led in the last decade and a focus on retailing has enabled Goldwin (8111 JP) to make serious gains while the two biggest domestic brands, Asics Corp (7936 JP) and Mizuno Corp (8022 JP), have been distracted by overseas expansion.
Goldwin took a close look at its beleaguered business 15 years ago and decided retail could be its salvation.
At current rates it will catch up with Mizuno’s domestic sales in a few years.
Overall, we are bullish about Goldwin but also the wider sports category because sports and sports fashion is in many ways one of the few consumer categories to be largely immune to a demographically challenged market like Japan – all age segments are buying into sports apparel, including the over 60s.
2. Hengan Intl. (1044 HK): Our Analysis Suggests that Bonitas’ Allegations Have Some Substance
Hengan Intl Group (1044 HK), China’s leading sanitary towel and nappy producer, has been targeted by a short seller, Bonitas Research. Hengan has denied Bonitas’ allegations to which Bonitas has responded that Hengan’s response was weak and evasive. The shares have continued to slide suggesting that investors are less than convinced with Hengan’s rebuttal.
The aim of our note is to analyse alternative financial metrics to judge if Bonitas’ allegations are groundless or have some substance. Overall, our analysis suggests that Bonitas’ claims have some substance and investors should not be so quick to dismiss them.
3. SEAFCO (SEAFCO TB): Solid Backlog, Solid Profitability
- Sales on an upward trend, good core profit return, and earnings on an upward trend relative to its sector
- Well-positioned to win some upcoming bids for public and private projects such as the MRT Purple Line, expressway, and high-speed train to boost earnings moving forward, net profit up by 134% in 3Q18 YoY
- Strong backlog of public and private projects amounting to around Bt3bn to help sustain revenue growth, 104% in 3Q18 YoY
- Trades below Thai Industrials at 19CE* 4.1x PB, offers much higher ROE, and a solid balance sheet
- Risks: Delay in construction, volatility in raw materials prices
* Consensus Estimates
4. BreadTalk (BREAD SP): As Din Tai Fung Opens in London, CEO Puts Out Target to Double Mkt Cap
Breadtalk (BREAD SP) has been a great Singapore Inc story since its founding in 2000. The company, under the leadership of George Quek, has grown from a few bakery outlets to hundreds of outlets across Asia. Profitability at Breadtalk has been lackluster but shares remain cheap on an EV/EBITDA basis.
Meanwhile, the group has an aggressive target to achieve 8% NPM by 2020 which not a single sell-side analyst believes they can achieve. Over the past week, the CEO was quoted in a Business Times article saying that he wants to achieve a “1 billion SGD market cap” vs the 480 million SGD market cap currently. While this could be easily dismissed as marketing talk, this target is not unrealistic at all.
With the launch of its first Din Tai Fung outlet in London investors better take notice. One of the drivers of upside surprises might be the rapid roll-out of Din Tai Fung in the UK and the rest of Europe. The CEO is even keen to explore expansion in the US market and has done research trips to Texas, LA and New York.
With the shares having derated from 1.16 SGD in early August to 0.86 SGD recently the valuation (6.8x 2019 EV/EBITDA) is now attractive once again. My Fair Value estimate remains at 1.25 SGD (47% upside).
5. Renesas: Visit Suggests Utilisation Rate Rebound Could Take Longer Than Sell-Side Expects
We visited Renesas Electronics (6723 JP) this week to discuss progress on inventory reduction and its likely ramp of utilisation rates/wafer throughput, as well as to gather further details on the IDT acquisition and its long -term strategy. On the whole, we continue to like the long-term picture, consider the stock to be undervalued and believe investors with long time horizons should be looking at the stock on the long side. However, our discussions suggested to us that while production cuts to reduce inventory should be completed this month or at worst in 1Q2019, a ramp in utilisation rates could take longer than is implied by consensus.
