In today’s briefing:
- Nio: Difficult to Refute Most of Grizzly’s Allegations
- GOME Retail Placement: The Crisis Persists
- Tesla May Struggle as Rivals Rebuild Inventory
- Weilong Delicious IPO: In a Pickle
- Ardent Leisure’s EGM Approves the Main Event Sale
- Johnson Controls-Hitachi (JCHAC IN) | Irreparable Loss in Market Share
- Dish TV: Promoters Left in the Dark, or Is There Something Else?
- SOCAR IPO Post-Listing Flow: VC-Triggered Overhang Vs. Lotte’s Counter Move
- Pinterest “Ready” For Commerce
- Liquidity Risk Short Candidates: Carvana, Exact Sciences, Inspire Med, Freshpet, Enviva
Nio: Difficult to Refute Most of Grizzly’s Allegations
- Nio Inc. was targeted by Grizzly Research and accused of likely using an unconsolidated related party to exaggerate revenue and profitability. This unconsolidated related party was named as Wuhan Weineng.
- As per the report, Weineng had helped Nio inflate revenue and net income by approx. 10% and 95% respectively in 9M2021, and FY2021 earnings beat by at least 60%.
- In this insight, we take a look some of the allegations and have assessed the merits of the claims by Grizzly Research.
GOME Retail Placement: The Crisis Persists
- As the mismatch between short-term assets and liabilities expands, GOME is raising HK$776.5m at HK$0.40 per-share, which is a 12.1% discount to the closing price on 27th June 2022.
- This is clearly insufficient to pay down GOME Retail Holdings (493 HK)‘s RMB 40.0bn short term debt and accounts payable obligations falling due in the next 12 months.
- With the omni-channel transformation taking longer than expected to turn around performance, the company might find it difficult to refinance the debt and maintain the supply chain as usual.
Tesla May Struggle as Rivals Rebuild Inventory
- Tesla faces stiffer competition in 2H 2022 as chip supplies at rivals recover faster than expected. This will put pricing pressure on Tesla amid rising costs.
- Cash could be tight in 2H 2022 as Tesla ramps up 2 new factories. There is a distinct possibility of Tesla resorting to equity financing.
- If the drop in Q2 earnings doesn’t return to high growth again from Q3, Tesla could finally see its valuation fall down to earth. Its premium has already shrunk.
Weilong Delicious IPO: In a Pickle
- Weilong Delicious Global (WDG HK) has refiled its PHIP with an aim to raise US$500 million, half of its previous ambition to raise US$1 billion.
- We have previously discussed the IPO in Weilong Delicious IPO Initiation: Tasty Bite and Weilong Delicious IPO: Mixed Update.
- The PHIP which discloses the 2021 results and recent developments point to reducing growth rates and cost pressures. We would pass on the IPO.
Ardent Leisure’s EGM Approves the Main Event Sale
- Ardent Leisure Group Ltd (ALG AU)‘s shareholders have approved Dave & Buster’S Entertainment, Inc (PLAY US) acquisition of Main Event business. Ardent will receive A$670.3 million.
- Shareholders will receive a total return of A$0.95 through capital return (A$0.46) and unfranked special dividends (A$0.49) on 13 July.
- Precedent transactions and peer multiples suggest that the remaining business is worth A$0.23-0.30, implying a 16%-21% upside to the last close. The remaining business would be attractive to private equity.
Johnson Controls-Hitachi (JCHAC IN) | Irreparable Loss in Market Share
- Our checks suggest Hitachi Home & Life Solutions India Ltd (JCHAC IN) has lost market share this season.
- Market share loss has come on the back of poor product quality due to focus on costs and competition, which is irreparable in spite of the strong dealer network.
- Poor capital allocation, high receivables and low-profit margins, all warrant attention.
Dish TV: Promoters Left in the Dark, or Is There Something Else?
- The legal tussle between promoters of Dish TV India (DITV IN) and Yes Bank (YES IN) has again entered into the limelight.
- The promoters of Dish TV, after repeatedly attempting to block Yes Bank from voting, have been left in the dark by the Bombay High Court’s verdict.
- However, Mr. Goel still continues to sit on the board which irked several investors. This indicates that the story is not over and there are still some grey areas.
SOCAR IPO Post-Listing Flow: VC-Triggered Overhang Vs. Lotte’s Counter Move
- In SOCAR’s IPO, the early investors’ post-listing flow direction draws the market’s attention as much as the valuation issue.
- Even this pricing level is high enough to infer that these VCs will be tempted to consider exiting after listing. A significant level of short-term overhang risk is inevitable.
- Then, we need to factor in the Lotte factor, which will likely expand its stake after listing to secure management rights for Socar.
Pinterest “Ready” For Commerce
- Pinterest co-founder/CEO Ben Silbermann is replaced by Google exec Bill Ready.
- Ready is a payments industry veteran and is perfectly suited to drive commerce adoption at Pinterest.
- Unique pay package incentivizes Ready to succesfully pivot the business.
Liquidity Risk Short Candidates: Carvana, Exact Sciences, Inspire Med, Freshpet, Enviva
- Liquidity shorts can be great short candidates. The key characteristic is that the company may not be viable, economically, given their cash flows and cash requirements.
- Liquidity shorts have built-in catalysts, have moderate to higher betas, and can have strong down moves if a crisis develops. They can go bankrupt, pushing the stock price near zero.
- Today we are flagging Carvana, Exact Sciences, Inspire Med, Freshpet, Enviva .
Before it’s here, it’s on Smartkarma
