Brief Consumer: After You Looks Beyond Thailand For Opportunities and more

In this briefing:

1. After You Looks Beyond Thailand For Opportunities
2. Hyundai Autoever IPO Bookbuilding: Surprising Results, Local Street Bets on Autoever/Glovis Merger
3. NVIDIA’s $6.9 Billion Mellanox Band-Aid Is A Strategic Misstep
4. HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)
5. SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap

1. After You Looks Beyond Thailand For Opportunities

We met up with management of two companies whose industries couldn’t have been more different. This is the quick run-down on what they are up to recently:

• After You posted 14% earnings growth on the back of 20% revenue growth. While this remains healthy, it realizes that domestic market opportunities will become more limited and has started to look abroad with HK as its first market.
• Locally, the desserts leader is still planning a slew of new products and some in exclusive partnerships with various airlines such as Air Asia and Thai Smile.
• In an effort to reduce storefront expenses, they will start selling certain products outside stores and even online, now 3% of total sales.
• Amata’s earnings crashed 28% in 2018 on the back of 2% revenue decline, as Vietnam retroactively forbid certain land sales and even fines the company for past transactions that abided with the law back then!

2. Hyundai Autoever IPO Bookbuilding: Surprising Results, Local Street Bets on Autoever/Glovis Merger

• Subscription rate is 797 to 1. Offer price was fixed at ₩48,000, substantially higher than the upper end. Deal size is now ₩168.5bil. Company value is put at slightly higher than ₩1tril. Demands are spread out pretty well between long-term funds and hot money and local and foreign investors as well. All of the orders are universally placed at 75% of upper end or higher.
• Local street is betting on Autoever/Glovis merger not long after this IPO. That is, HMG is still wanting the initial Glovis/Mobis merger plan. To better manage to win shareholder support, they must be thinking that bigger Glovis can be an answer. This means HMG should do whatever it takes to make Autoever bigger in the immediate future.
• This is what local street is betting on and why they went really aggressive on this IPO. As witnessed in the bookbuilding results, this street mentalitywon’t be changed any time soon. We should expect even stronger prices after new shares are listed on Mar 28.

3. NVIDIA’s $6.9 Billion Mellanox Band-Aid Is A Strategic Misstep

On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA. 

However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.

It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition. 

4. HK Connect Discovery Weekly: Eligibility Adjustment (2019-03-15)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week. 

5. SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap

Sutl Enterprise (SUTL SP) did not grow revenues in 2018 as it continued to operate only its flagship Sentosa marina. Change is coming as it has 9 projects in the pipeline which could dramatically alter the financial future of the company by FY21. 

The biggest news is the groundbreaking of Puteri Harbor in Malaysia last week. With a sales gallery opening by May 2019, it will be very interesting to follow the progress on this project and its contribution to SUTL’s top/bottom-line results in FY19/FY20.

SUTL is misunderstood by investors because management disclosure is lacking and liquidity is poor. The valuation of SUTL could be improved if investors had a better understanding of the earnings trajectory we could expect in FY19-FY21.

We realize the Tay family is not looking to sell its stake anytime soon so is not concerned about its current market cap. We caution that this might not be a smart way to run a publicly listed company as a more expensive ‘currency’  (stock price) might help the company be taken more seriously when attempting to make acquisitions overseas. 

However, this does not alter the fact that 84% of the market cap is cash and the EV of this consistently profitable company is barely 6.7M USD. SUTL is undeniably one of the cheapest stocks on SGX.