In today’s briefing:
- Astra International (ASII IJ) – Rewarding Investors for an Extraordinary Year
- Varun Beverages Ltd- Forensic Analysis
- What to Check at Coupang Earnings Call Tomorrow
- FEMSA/Heineken Holding Chain: Stake Sales and Share Price Spread
- Japanese Convenience Stores: Back with a Plan but Muted Growth Ahead
- Sheng Siong (SSG SP): Slowing Sales. Dividend Yield Not Rewarding Enough
- L’Oreal: Beauty in the Making
- On the Path to Recovery
- China Yuhua Education (6169 HK): Issues Are Not over Yet
- Bangladesh Stock Picks | Quarterly Updates | OLYMPI, SQTT, BPML
Astra International (ASII IJ) – Rewarding Investors for an Extraordinary Year
- Astra International’s results reflected its exposure to commodities, especially coal, through heavy equipment and mining through United Tractors (UNTR IJ) but most divisions booked growth as the economy recovered.
- The company’s core auto and financing business made much more than half of its profits and also contributed to its growth with a slower performance from agri-business and construction.
- Astra International (ASII IJ) announced a generous 85%-dividend payout to reward investors for its coal exposure in 2022, implying a 10% dividend yield. Valuations remain significantly below historical averages.
Varun Beverages Ltd- Forensic Analysis
- Varun Beverages Ltd (VBL IN) is engaged in manufacturing, selling, bottling and distribution of beverages of Pepsi brand.
- It operates mostly in India but also looks after, Sri Lanka, Nepal, Zambia, Morocco and Zimbabwe, as per franchisee agreement with PepsiCo India.
- Key forensic concerns include unusual accounting with respect to containers, trend in discounting, advances to a related entity, etc and some governance alarms.
What to Check at Coupang Earnings Call Tomorrow
- We first check whether additional cost savings have been achieved in the center and whether there has been any deterioration in short-term liquidity due to the hasty pursuit of automation.
- Then, we check the soundness of new businesses such as quick commerce, which boasts delivery within 30 minutes but carries the risk of deteriorating short-term profitability.
- Lastly, we check how seriously Coupang’s real estate cost structure has deteriorated and assess the risk that this could lead to devaluation by potentially undermining Coupang’s growth premium.
FEMSA/Heineken Holding Chain: Stake Sales and Share Price Spread
- Following an accelerated bookbuild, Femsa’s interest in Heineken decreased to 5.1% and in Heineken Holding to 6.3%. Overall the economic participation in Heineken Group decreased from 14.76% to 8.13%.
- At current market prices, Heineken could afford buying half of the remaining holdings of FEMSA (both Heineken and Heineken Holding), and still be within 2.5x leverage target (2023e consensus estimates).
- The discount has been tightening since Q3 2022, so far to 16.3%, still above the 10.4% average of the last ten years, and rather large considering such a simple structure.
Japanese Convenience Stores: Back with a Plan but Muted Growth Ahead
- The convenience store sector was one of the worst hit by a downturn in sales during the early pandemic, but all three major chains have implemented changes and improvements.
- Results for the first three quarters of FY2022 show that the big companies are almost all trading above 2019 levels already.
- While top line growth at home will be increasingly hard to come by in a saturated sector, innovations will help boost same-store sales a little and profit a bit more.
Sheng Siong (SSG SP): Slowing Sales. Dividend Yield Not Rewarding Enough
- Sheng Siong reported a notable decline in same-store sales and operating profits (ex-one off income) for 6M/FY Dec2022 even as it marginally increased annual dividend payout to 70.5%.
- With Singapore’s 10-year Gov. bond yields at 3.34% (vs. sub1%, 3 years ago), dividend yield players like Sheng Siong (SSG SP) may not offer attractive risk-reward at current levels.
- Sheng Siong has traded at dividend yields ranging 3%-3.9% over past 3 years, mostly at a premium to Gov. bond yields. Given muted dividend growth potential, stock faces downside risk.
L’Oreal: Beauty in the Making
- L’Oréal is a high-quality company that will keep delivering in the years to come and keep outperforming the market.
- In the short-term, we see further growth drivers moving forward, such as the reopening of China, as well as a resumption of Chinese outbound travel.
- In the longer-term, L’Oréal sees untapped market opportunities in many growth regions, such as Brazil, India, Indonesia, and Mexico; markets that are seeing new interest in Beauty.
On the Path to Recovery
- Trip.com reported a strong growth in booking volumes during CNY. Booking volumes remain strong in Feb 2023
- Outbound travel is likely to accelerate in 2H 2023
- Ending almost three-years of zero-Covid policy, China’s domestic and outbound travel enjoyed a long-awaited boom post China’s reopening and lifting of travel restrictions.
China Yuhua Education (6169 HK): Issues Are Not over Yet
- Despite the rally in share price after trading resumption and a reasonable FY22 result, there are still several tough issues faced by China Yuhua Education (6169 HK).
- Cash management, especially for offshore; no dividend payout in the near term; availability of CB refinancing and weakened margins are just some of the challenges.
- Conversion to profit-basis for its schools and the operating outlook for new schools are also added issues that it needs to address. In our view, risks still outweigh return.
Bangladesh Stock Picks | Quarterly Updates | OLYMPI, SQTT, BPML
- Olympic Industries (OLYMPI BD) posted a strong set of financial results, and the current valuations are not overly demanding, making OLYMPI attractive.
- Square Textiles (SQTT BD) was impacted by a strong dollar and a weak demand environment. The current valuations reflect the worst-case scenario, which makes SQTT an attractive candidate to watch.
- Although Bashundhara Paper Mills (BPML BD) revenues have remained steady margins have been impacted. Therefore, it may be wise to wait for a better entry point before investing in BPML.
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