In today’s briefing:
- China Tourism Group Duty Free (1880 HK): Headwinds Persist
- Vinfast (VFS US) – Some Respite from the US
- Nike Inc.: A Tale Of Brand Elevation Through Greater Market Presence! – Major Drivers
- Pullback Underway; Further Downside Limited?; Buys in Defensives and Commodity-Related Sectors
- More Companies Will Choose to Go Private Because They Can’t Find an Effective Use for Their Cash
- ADEA: Not Just Another Licensing Deal
- WK Kellogg Co: Positive Price/Mix and Revenue Growth Management Initiatives! – Major Drivers
- BWMX: 1Q Preview: Moving to the Offensive; Reiterate Buy, $22.50 PT
- AKA: Initiating Coverage of a.k.a. Brands with Buy and $14 PT: Upside Ahead
China Tourism Group Duty Free (1880 HK): Headwinds Persist
- Since my previous insight on China Tourism Group Duty Free (1880 HK) in October 2023, the stock has declined 33%, and year-to-date, the stock has declined 13%.
- The company faces headwinds from continued overall weakness in Hainan duty free sales and potentially increased competition in Hainan.
- The company already announced preliminary 1Q24 results, with sales down 9% yoy and net profit flat. The company is trading at 18x 2024 earnings.
Vinfast (VFS US) – Some Respite from the US
- Vinfast (VFS US) released 1Q2023 results, with its revenues increasing three-fold YoY but falling QoQ due to the seasonal impact of Lunar New Year on both EVs and EV motorbikes.
- The company saw a significant pick up in its sales to the US and continued to increase its dealer network which should drive future sales along with new models.
- More than half of Vinfast sales were to related parties, which is an overhang in terms of the sustainability of its business models, whilst valuations remain above peers.
Nike Inc.: A Tale Of Brand Elevation Through Greater Market Presence! – Major Drivers
- In the Q3 2024 earnings, NIKE, Inc. outlined how it is driving growth despite not performing to its potential.
- The company is focusing on four key areas: a sharpened focus on sport, continuous product innovation, bolder and more distinctive brand marketing, and collaboration with wholesale partners to expand the marketplace.
- A significant measure of progress is the alignment of the organization to focus on the consumer and sport.
Pullback Underway; Further Downside Limited?; Buys in Defensives and Commodity-Related Sectors
- A pullback in global equities is underway following steep uptrend violations on MSCI ACWI (ACWI-US) and EURO STOXX 50. Both are 4-5% off their highs; further downside may be limited.
- Several 5%-10% pullbacks are to be expected in any given year, particularly after the historic 5-month rallies, so we view this as healthy and normal within the ongoing bull market.
- ACWI-US is currently testing important support at $105; if this area were to break, next major supports are $102 and $99; this is where we would be buying.
More Companies Will Choose to Go Private Because They Can’t Find an Effective Use for Their Cash
- The problem lies in the fact that even with a 10% increase in net profit, ROE only grew by 0.5%. This is due to having too much cash on hand.
- TSE has provided an opportunity for companies to develop measures to increase their corporate value. However, not many companies can derive concrete ways to effectively use cash.
- Since many companies are expected to take time to find concrete solution to this problem, an increasing number of companies are expected to go private once they have done so.
ADEA: Not Just Another Licensing Deal
- ADEA announced it has licensed its intellectual property to Austrian service provider Magenta Telekom in what could be of bigger significance than what ADEA’s stock price portrays
- The license is the first for ADEA with a European service provider. This is also the first major customer win ADEA has announced since becoming a standalone IP company
- The size of the deal with Magenta is most likely small, but our focus is on what it could mean for ADEA. Magenta is owned by T-Mobile parent Deutsche Telekom.
WK Kellogg Co: Positive Price/Mix and Revenue Growth Management Initiatives! – Major Drivers
- During the latest earnings, W.K. Kellogg Co demonstrated its strategic plans for the future and reported strong financial results for the fourth quarter and fiscal year 2023.
- The CEO, Gary Pilnick, emphasized the company’s commitment to delivering on its promises and its focus on execution and engaging its team.
- The company achieved net sales at the high end of their guidance range and EBITDA margin above their guidance range indicating effective business planning.
BWMX: 1Q Preview: Moving to the Offensive; Reiterate Buy, $22.50 PT
- We are reiterating our Buy rating, projections and $22.50 price target for Betterware de Mexico with the company announcing 1Q24 (March) results after the close on Thursday.
- We believe, with momentum returning at the Betterware division, JAFRA remaining on a new product and marketing focus, the United States market becoming a larger emphasis and BWMX continuing to offer a compelling (and secure) dividend yield of 8.5%, BWMX remains well positioned to reward investors on multiple levels, and we reiterate our Buy rating and $22.50 price target.
AKA: Initiating Coverage of a.k.a. Brands with Buy and $14 PT: Upside Ahead
- We are initiating coverage of a.k.a. Brands Holding Corp.
- (“a.k.a. Brands” or the “company”), a leading owner of primarily online apparel-based brands focused on Generation Z and Millennial consumers, with a Buy rating and $14.00 price target, or 10.9X our 2025 EBITDA projection of $20.2 million.
- The company’s brands include: 1) Princess Polly, focusing on 15 to 25 year-old women; 2) Petal & Pup, which offers feminine styles for 25 to 34 year-old women; 3) Culture Kings, a street wear destination; and 4) mnml, a high-quality street wear designer focused on bottoms.
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