In today’s briefing:
- Where Does Melco’s Discount To NAV Go From Here?
- HSCEI Index Rebalance Preview: Shenhua Energy (1088) Could Replace China Feihe (6186)
- ATRenew (RERE US): Pre-Owned Satisfaction
- China Internet Weekly (5Dec2022): JD.com, Baidu, IQiyi, Alibaba Health, ZTO, Pinduoduo, KE
- Meituan (3690 HK): 3Q22, Growth Higher, Loss Close to Zero, 90% Upside
- Bilibili: Earnings Recovery to Continue with Improvement in Mobile Games and Cost Controls
- DPC Dash IPO: Dominos Getting Dominated
- ATRenew: A Turnaround Story With Material Increase in Profit Margins + Remaining Share Buyback
- Weilong Delicious Global IPO – Tepid Recent Performance Still Makes It Look Expensive
- Weilong Delicious IPO: Valuation Insights
Where Does Melco’s Discount To NAV Go From Here?
- On the 26 November, Macau’s government renewed the concession periods of the city’s six incumbent gambling concessionaires for another 10 years.
- Genting Malaysia (GENM MK), a last-minute interloper, failed in its bid to secure a license. It scored lowest under the government’s bidding review. MGM China (2282 HK) topped the scoresheets.
- As with all incumbents, Melco International (200 HK) and Melco Resorts & Entertainment (MLCO US) eked out strong gains following the renewal. Melco’s current discount to NAV is currently 20%.
HSCEI Index Rebalance Preview: Shenhua Energy (1088) Could Replace China Feihe (6186)
- Nearing the end of the review period for the March rebalance, we see China Shenhua Energy Co H (1088 HK) replacing China Feihe (6186 HK) in the HSCEI INDEX.
- Estimated one-way turnover is 1.64% resulting in a one-way trade of HK$1.02bn with passives needing to buy 1x ADV on China Shenhua Energy and selling 1.7x ADV on China Feihe.
- The change will lead to an increase in the fair value of the HSCEI 2023 dividend futures by over 3 DIPS. Could be more if China Shenhua pays a special.
ATRenew (RERE US): Pre-Owned Satisfaction
- ATRenew (RERE US) operates the largest pre-owned consumer electronics transactions and services platform in China. It is listed in June 2021 at US$14 per ADS.
- The shares are down 63% YTD largely due to the tech market sell-off. Unlike most tech companies, ATRenew is starting to deliver growth with profits, cash generation and share buybacks.
- The valuation is undemanding compared to a peer group of pre-owned marketplaces and global online retail marketplaces. It will also appeal to investors with an ESG mandate.
China Internet Weekly (5Dec2022): JD.com, Baidu, IQiyi, Alibaba Health, ZTO, Pinduoduo, KE
- Richard Liu came back to manage JD.com after he resigned half a year ago.
- Alibaba Health revenue increased 23% YoY in 1H23, which benefited from hospitals being closed.
- Pinduoduo revenue increased by 65% YoY and operating profit increased 388% YoY in 3Q22.
Meituan (3690 HK): 3Q22, Growth Higher, Loss Close to Zero, 90% Upside
- The revenue growth rate accelerated to 28% YoY in 3Q22 versus 16% YoY in 2Q22.
- Operating Loss was close to zero in 3Q22 and we believe it will turn positive in 2023.
- According to price / sales history, we believe the company has an upside of 89% for year end 2023.
Bilibili: Earnings Recovery to Continue with Improvement in Mobile Games and Cost Controls
- Bilibili Inc (BILI US) reported 3Q2022 results Tuesday. 3Q revenue increased 11.3% YoY to RMB5.8bn (vs consensus RMB5.7bn) while operating losses for the quarter dropped to RMB1.8bn vs consensus RMB2.1bn.
- Recovery in mobile games biz alongside aggressive cost cutting measures supported improvement in Bilibili’s profitability during the quarter.
- Pandaily reported that Bilibili is exploring expanding into the SEA region and increased R&D spending could be an indication that plans are underway.
DPC Dash IPO: Dominos Getting Dominated
- DPC Dash (DPC HK) is the exclusive master franchisee of Domino’s Pizza (DPZ US) in mainland China, Hong Kong and Macau with around 546 stores as of 9M2022.
- The company has refiled for an IPO on the Hong Kong Stock Exchange after failing the first time to raise around US $100m in March 2022.
- Discounted pricing has failed to propel the Dominos brand to the top in many Asian markets where pizza is considered a luxury meal. DPC-Dash is experiencing the same in China.
ATRenew: A Turnaround Story With Material Increase in Profit Margins + Remaining Share Buyback
- ATRenew (RERE US) is one of the stocks in China that is starting to look very attractive after a sharp decline in its share price since its IPO.
- ATRenew has achieved noticeable improvements in operations and profitability in the recent quarter.
- Our base case valuation analysis suggests an implied market cap of US$720 million, representing an implied price of US$3.15 per share, representing an upside of 43% from current price.
Weilong Delicious Global IPO – Tepid Recent Performance Still Makes It Look Expensive
- Weilong Delicious Global (WDG HK) a spicy snack food company in China, aims to raise around US$140m in its Hong Kong IPO.
- According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
- We have covered various aspects of the deal in our previous notes, in this note, we will talk about the final valuations.
Weilong Delicious IPO: Valuation Insights
- Weilong Delicious Global (WDG HK), a leading spicy snack food company in China, has launched its IPO to raise up to US$141 million.
- We previously discussed the IPO in Weilong Delicious IPO: Remains in a Pickle, Weilong Delicious IPO: In a Pickle, Weilong Delicious IPO: Mixed Update, Weilong Delicious IPO Initiation: Tasty Bite.
- In this note, we present our forecasts and look at valuation. Weilong is unattractively valued at the IPO price range. We would pass on the IPO.
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