In today’s briefing:
- Perfect Medical 1830 HK: The Perfect HK Recovery Play
- Giordano’s Retail Recovery Will Force the Cheng Family into a Rethink
- Seven & I: Positives All Around But Upside Is Limited
- KOSPI 200 December Rebelancing: Names Currently Close To & Out of Buffer Zone
- Seven & I (3382) | So What if Walmart Missed
- SoCar Pre-IPO – Peer Comparison – Highly Competitive Market with Thin Margins
- Weilong Delicious IPO: Not Very Delicious
- Giordano (709 HK): Cheng Family’s Offer (Even) Less Viable After Positive Profit Alert
- Torikizoku Holdings (3193): June SSS Recovered to 85% of Pre-Pandemic Levels
- Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com
Perfect Medical 1830 HK: The Perfect HK Recovery Play
- Perfect Medical Health (1830 HK) is a recovery play for HK/China beauty trading at 11.8x PE FY23, with a dividend yield of 8.5% (assuming a 100% payout).
- With net cash (including investments) of 565 mn HKD ( > 10% of market cap ), the company is primed for M&A in an environment where restrictions have weakened competitors.
- The chairman’s recent buying of shares ( representing a 0.41% stake ) and the company share repurchase ( representing 0.08%) indicate the company’s confidence in its prospects.
Giordano’s Retail Recovery Will Force the Cheng Family into a Rethink
- Giordano International (709 HK)’s 1H22 net profit is expected to be in the range of HK$91-101 million, which represents YoY growth of 52-68%. Interims will be out in early August.
- The clear sign of a retail recovery diminishes the prospect of the Cheng family’s low-ball offer of HK$1.88 per share hitting the 50%+ minimum acceptance threshold.
- The offer price has not been declared final suggesting that the Cheng family retains some room to test shareholder appetite with an improved offer.
Seven & I: Positives All Around But Upside Is Limited
- With OP up by 32.1% YoY, 1QFY23 was the first genuine sign of the realisation of synergies from the Speedway acquisition.
- There could be more good news on the horizon as various news outlets have reported that the sale of Sogo Seibu is moving closer.
- Yet we are neutral on Seven & I Holdings (3382 JP) in the short-term. We think investors needs to see the true colours of synergies for shares to break ¥6,100.
KOSPI 200 December Rebelancing: Names Currently Close To & Out of Buffer Zone
- At this point, Lotte Confectionery and Miwon Specialty Chemical are currently within less than a 5% increase in market cap to beat the buffer rule.
- Three constituents are out of the buffer zone: Cheil Worldwide, HDC Hyundai Development, and Boryung Pharmaceutical. Hanall Biopharma, Samyang Holdings, and Hyundai Home Shopping sit on the buffer zone borderline.
- We should target Samyang Holdings and Hyundai Home Shopping for a short position against Lotte Confectionery and Miwon Specialty Chemical.
Seven & I (3382) | So What if Walmart Missed
- Investors should ignore the news around restructuring….it’s nice but basically irrelevant
- The long-term valuation proposition is driven by the core convenience store businesses in the US and Japan
- Unlike Walmart, we think 7&I should have a good quarter in the US and beat analyst expectations for Q1
SoCar Pre-IPO – Peer Comparison – Highly Competitive Market with Thin Margins
- SOCAR (403550 KS) is looking to raise up to US$159m in its upcoming Korea IPO.
- While SoCar seeks to be an all-in-one mobility solution provider, the bulk of its revenues still come from its car sharing segment.
- The car sharing market remains highly competitive with existing players that are already profitable. In this note, we will undertake a peer comparison of SoCar vs its listed peers
Weilong Delicious IPO: Not Very Delicious
- Weilong Delicious is a is a leading spicy snack food company in China with a market share of 6.2% and ranked first among all spicy snack food enterprises in China.
- The company’s application for a HKEx IPO has been approved and plans to raise proceeds of about US$500m.
- Our analysis on the company’s financials reveal that its top line growth is slowing down while margins have come under pressure. We discuss the details below.
Giordano (709 HK): Cheng Family’s Offer (Even) Less Viable After Positive Profit Alert
- After the close of trading yesterday, Giordano International (709 HK) announced a positive profit alert
- Giordano expects an interim net profit of HK$91mn-HK$101mn, a 52%-68% increase over the corresponding period.
- The Cheng family’s HK$1.88/share Offer was low-balled from the onset. Substantial shareholder David Webb agrees. This deal is dead without a bump.
Torikizoku Holdings (3193): June SSS Recovered to 85% of Pre-Pandemic Levels
- Same-store sales were 643.8% vs. June 2021 (1648.4% for May), 115.9% vs. June 2020 (684.1% for May), and 84.7% vs. June 2019 (83.2% for May)
- Compared to June 2021, the guest count was 601.0% (1591.9% for May), and the average check was 107.1% (103.5% for May)
- The number of stores at the end of June was 617 (flat MoM). The number of company-owned stores was 386 (flat MoM)
Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com
- This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
- The reasons for the margin increases are sometimes unsustainable or fraudulent. The critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation.
- These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.
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