In today’s briefing:
- Nikkei 225 March 2023 Review Quiddity Leaderboard (Nov 2022)
- Alibaba (9988 HK): 2Q23, Better Growth, Better Margin, 38% Upside
- Taste Gourmet: Cash Generation Par Excellence
- Shimamura Set for Another Record
- STOXX Europe Quiddity Leaderboard Dec 22: ~7 Regular ADDs/DELs & ~5 Intra-Review ADDs/DELs Possible
- ADEA: Free Cash Flow & Valuation
- Lear Corporation: New Sustainability Solutions Addition & Other Developments
- Capri Holdings: Major Drivers
Nikkei 225 March 2023 Review Quiddity Leaderboard (Nov 2022)
- Early predictions for the March 2023 Nikkei rebalance (TBA early Feb) are little changed. One way turnover would still be about 1.4%. I see 3 ADDs and 3 DELETEs.
- The 3 ADDs should be Oriental Land (4661), Renesas Electronics (6723), and Japan Airlines (9201). The 3 DELETES Toho Zinc (5707), Toyobo (3101), and Nippon Light Metal (5703).
- Oriental Land is the one to watch in March. The Sep 2023 rebalance and subsequent ones are smaller in size but more interesting in impact.
Alibaba (9988 HK): 2Q23, Better Growth, Better Margin, 38% Upside
- Revenue began to grow in 2Q23 after the zero growth in 1Q23.
- The operating margin improved to 12.1% in 2Q23 versus 7.5% in 2Q22.
- We believe the stock has an upside of 38% and a price target of HK$108.
Taste Gourmet: Cash Generation Par Excellence
- Taste Gourmet Group (8371 HK) reported its H1 2023 result with profit of 32 mn HKD up 28% YoY, backed by subsidies due to restrictions earlier in the year.
- Net cash rose by 52 mn HKD (almost 12.4% of market capitalization) to 117 mn HKD HoH (28% of market cap). Nine mn HKD in subsidies are outstanding.
- The company declared 4.8 cents of dividend (9.1% annualized yield), in addition to repurchasing and canceling >2% of the shares outstanding recently.
Shimamura Set for Another Record
- Like Workman Co Ltd (7564 JP) and Honeys Holdings Co., Ltd. (2792 JP), Shimamura (8227 JP) has been a beneficiary of both household budget worries during Covid and inflation concerns since.
- The apparel retailer has also worked hard to develop better cost performance ranges and more exciting marketing through collaborations with influencers, helping regain footfall levels.
- Shimamura has clearly regained momentum and looks set to continue to benefit from consumer fears over inflation and ongoing shifts in spending towards low-price retailers.
STOXX Europe Quiddity Leaderboard Dec 22: ~7 Regular ADDs/DELs & ~5 Intra-Review ADDs/DELs Possible
- In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EuroSTOXX Indices for the December 2022 Rebalance.
- Including the addition of Porsche AG (P911 GR), there could be around 7 ADDs/DELs during the December 2022 Rebalance.
- In addition, there could be as many as five more intra-review changes before the end of the year.
ADEA: Free Cash Flow & Valuation
- ADEA reported third quarter results that still included the financial results of its products business prior to the spin-off. ADEA generates revenue from IP licenses, creating a steady revenue stream
- ADEA expanding its base of licensees over the next year should set a pathway to ADEA reaching baseline revenue of $500 million a year from $375 million currently
- ADEA applying free cash flow to reducing its debt balance should yield a higher valuation for the stock price
Lear Corporation: New Sustainability Solutions Addition & Other Developments
- Lear Corporation saw a significantly improved set of results in the last quarter and it managed to surpass Wall Street expectations on all fronts.
- The improved results reflect higher production volumes as well as its strong new business backlog.
- Core operating earnings and sales increased and in both e-Systems and seating, operating margins improved as compared to the previous year.
Capri Holdings: Major Drivers
- Capri Holdings delivered quite a strong result which happened to be an all-around beat.
- With the three pillars, Greca, Virtus, and La Medusa making significant progress, the goal of the company is to position Versace as the prominent luxury leather house.
- Capri also expanded its core lines that incorporate iconic house codes for broadening the reach of Versace.
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