Brief Consumer: Aristocrat Leisure Ltd near 52 Week Low Has Runway Based on Positive Earnings Outlook Through 2021 and more

In this briefing:

1. Aristocrat Leisure Ltd near 52 Week Low Has Runway Based on Positive Earnings Outlook Through 2021
2. Hanon Systems (018880): Overvalued Stocks in The Low Margin Sector
3. Hyosung Holdings: Current Status & Trade Approach

1. Aristocrat Leisure Ltd near 52 Week Low Has Runway Based on Positive Earnings Outlook Through 2021

• Australia’s big gaming tech maker spurs organic growth with its entry into the digital gaming space.
• A balance of a strong international footprint and big US presence in the casino sector show up in dramatic forward earnings estimates by analysts.
• Sharp decline in entire gaming sector since last summer has kept the ARISTOCRAT story below the radar.

2. Hanon Systems (018880): Overvalued Stocks in The Low Margin Sector

The recent negative sales in the Chinese auto industry and Nissan’s case of Carlos Ghosn removal could put additional pressure on the already thin margin of auto supplier industry. One of the Carlos Ghosn early contribution to Nissan was to cut cost and outsource the auto parts maker to a wide variety of suppliers including to Hanon Systems (018880 KS) . Nissan’s new management may want to undo some of Carlos Ghosn’ legacy including changing the selection criteria of parts supplier.

Hanon’s global peers also experienced a decrease in the inventory turnover and most of them have been priced at PER <10 but Hanon is still trading at 24x PER while its sales growth and profitability is still in low single digit? Facing the onset of the slowdown in the Chinese auto industry, won’t it be another headwind for Hanon Systems?

3. Hyosung Holdings: Current Status & Trade Approach

• Local institutions are busy scooping up Hyosung Corporation (004800 KS) shares lately. The owner risk is now gone. There are increasing signs of improving fundamentals on all of the four major subs. Some are already expecting ₩5,000 per share. This is a 9.2% annual div yield at the last closing price.
• Discount is also attractive. It is now at 46% to NAV. With this much div yield, discount should be much below the local peer average of 40%.
• I’d continue to long Holdco. Hedge would be tricky. Heavy is up 15% YTD. I admit that there is no clear cointegrated relationship between them. But Heavy’s recent rally is more of a speculative money pushing up on the hydrogen vehicle theme. I’d pick Heavy for a hedge.