In today’s briefing:
- HK Electric Investments (2638 HK): MSCI Deletion Could Mark a Bottom
- Oriental Watch: Management Meet, HK Slow + China Resilient, 50% of Mkt Cap Cash + 15% Yield
- [JOYY (YY US, SELL, TP US$25.1) Target Price Change]: Price Correction to Come Amid Global Headwinds
- 2023 High Conviction Update: Sonoscape Medical (300633.CH) – High Growth Is Expected to Continue
HK Electric Investments (2638 HK): MSCI Deletion Could Mark a Bottom
- HK Electric Investments (2638 HK) will be deleted from the MSCI Hong Kong Index at the close on 28 February. This was largely expected.
- We estimate passive MSCI trackers will need to sell 172.3m shares (US$111m; 19.1 days of ADV to trade). That is a lot. But there are pre-positions on the stock.
- HK Electric Investments (2638 HK) has underperformed its peers and now trades at a lower price to book. There could be outperformance post the MSCI deletion.
Oriental Watch: Management Meet, HK Slow + China Resilient, 50% of Mkt Cap Cash + 15% Yield
- We met with the management of Oriental Watch (398 HK). HK demand continues to be sluggish, while China sales were resilient with single-digit SSSG growth.
- The company will continue with its conservative policy of not expanding as Rolex/Patek restrict watch supply. It will only foray into boutique expansions if KPIs on return/brands etc., are met.
- With its generous >100% payout ratio, the stock trades at a 15% dividend yield based on our estimated 6.9x FY23 PE, with >50% of its market capitalization in net cash.
[JOYY (YY US, SELL, TP US$25.1) Target Price Change]: Price Correction to Come Amid Global Headwinds
- We estimate JOYY’s 4Q22 top line/bottom line to miss cons. by (3%)/(12%), as TikTok’s influence in major market expands.
- We suggest that a much slower recovery in 1Q23 does not bode well for its full year outlook. Our top line and bottom line are (2%)/(14%) lower than cons.
- Maintain SELL and cut TP to US$25.1, implying 12.8X PE in 2023.
2023 High Conviction Update: Sonoscape Medical (300633.CH) – High Growth Is Expected to Continue
- We are optimistic about Sonoscape’s 2022 annual results, which was an important turning year. Due to policy catalyst/China reopening, Sonoscape would maintain high growth in 2023, with relatively high certainty.
- Sonoscape has established a high moat in the field of soft endoscopes. Even if new manufacturers enter this market, they are hard to affect the market pattern in short term.
- Although the current valuation is not cheap, based on our forecast of its business lines, there’s still growth space in valuation. Under positive momentum, this stock can be traded repeatedly.
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