In today’s briefing:
- Essity Mulls Holding In Vinda (3331 HK)
- China Education Group (839 HK): Sustaining the Healthy Track Record
- [Luckin Coffee Inc. (LKNCY US, BUY, TP US$41) ]: Temporary Price Competition Has No Impact on Margin
- Tencent: Internet VAS Business Still Playing Catch Up
Essity Mulls Holding In Vinda (3331 HK)
- Tissue-Maker Vinda International (3331 HK) closed down 6.4% yesterday, recovering from a 13.8% fall intra day.
- Vinda said its 1Q23 operating profit declined 85.4% to HK$65mn. Vinda also announced its controlling shareholder Essity (ESSITYB SS) will commence a strategic review of its 51.59% ownership.
- A long-term shareholder potentially seeking a possible divestment, shortly after a company announces poor results, is not a great look.
China Education Group (839 HK): Sustaining the Healthy Track Record
- Adjusted net profit at China Education Group (839 HK) grew 15.1% in 1H23, accelerated from 5% in 2H22. We are delighted to see resumption of interim DPS at Rmb0.164.
- FY23 outlook will be underpinned by higher education student enrollment and tuition increase. Strengthened financial position offers opportunities for both organic and M&A growth.
- Potential upside will also come from completion of for-profit conversion at Jiangxi University of Technology. We consider its 7.9x PER, 1x P/B, 13.3% ROE and 5.5% yield attractive.
[Luckin Coffee Inc. (LKNCY US, BUY, TP US$41) ]: Temporary Price Competition Has No Impact on Margin
- We think the coffee price competition, mainly between Luckin and COTTI, is temporary, and will have little impact to Luckin’s gross margin.
- We also think COTTI’s low pricing strategy is unsustainable, and its franchisees are keen for price hike.
- We maintain the stock as BUY and maintain TP at US$41.
Tencent: Internet VAS Business Still Playing Catch Up
- Tencent will report 1Q2023E earnings on 17th May. Online gaming revenues have declined YoY for 4-consecutive quarters while social networks revenue has been down for the last two quarters.
- Our app data analysis suggests that grossing ranks of some of Tencent’s key domestic titles have dropped during 1Q2023 while international titles show an improvement during the quarter.
- Our regression model suggests that Tencent’s internet value-added services biz’s revenues would grow at lower single digits in 1Q2023E and is still playing catch up with its own self.
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