In today’s briefing:
- Nikkei 225 Sep22 Annual Review; Data Final, Predictions Unch’d; Strategy Involved
- Oriental Watch Update: June and July Improve, Cautious H1 FY23
- Zomato Placement – Opportunistic Selldown, Momentum Hasn’t Been the Greatest
- Pinduoduo: Community Group Buying Is Facing Multiple Challenges
- Chongqing Hongjiu Fruit Pre-IPO – PHIP Updates
- S&P 500 Reverses 4-Month Downtrend; Upgrading Consumer Discretionary to Market Weight
- Hyundai Motor 2P Reversion Trading Relative to Ordinary
- Tesla Inc.: Capacity Expansion
- Faraday Future (FFIE) Claims It Lined Up Funding but Details Are Vague
- Netflix Inc.: Ad-Supported Subscription To Counter Subscriber Losses & Other Developments
Nikkei 225 Sep22 Annual Review; Data Final, Predictions Unch’d; Strategy Involved
- The data is largely unchanged since the Nikkei 225 Sep Annual Review Predictions – 3 In, 3 Out set of predictions published 15 days ago.
- The consultation results are out. They are as expected too. This has the hallmarks of a VERY well-signalled trade. But it’s a biggie. The funding trade alone is ¥600bn.
- Because of the data, market conditions, and the variability of choice at the edges, I believe that warrants particular strategy.
Oriental Watch Update: June and July Improve, Cautious H1 FY23
- After a disastrous April and May due to lockdowns resulting in >-50% SSSGs, the company is seeing the situation stabilize in June and July.
- We remain cautious on H1 2023, as margins and revenue will likely decline, with gross margins likely to drop 300-400 bps and revenues down 10-15% YoY.
- Expect a generous dividend with over a 100% payout. Since >50% of the market cap is in cash, a special dividend could also be expected.
Zomato Placement – Opportunistic Selldown, Momentum Hasn’t Been the Greatest
- Uber (UBER US) is looking to raise US$420m in its share sale in Zomato (ZOMATO IN). The selldown will be a clean-up sale.
- Uber had earlier inherited its stake in Zomato in 2020 when it sold UberEats India to the latter.
- We had earlier flagged the possibility of a selldown given that most of Zomato’s investors would come off their respective one-year lockups.
Pinduoduo: Community Group Buying Is Facing Multiple Challenges
- Community group buying is starting to face multiple headwinds from funding shortages to excessive price competition.
- Even though Pinduoduo (PDD US) is yet to announce any job cuts or scaling back of operations, we think the operating environment shouldn’t be much different from competitors.
- With QoQ revenue growth at a standstill and sales and marketing cost cutting almost fully exhausted, we think the current consensus expectations are too optimistic and bound for a correction.
Chongqing Hongjiu Fruit Pre-IPO – PHIP Updates
- Chongqing Hongjiu Fruit (CHF HK) is looking to raise up to US$300m in its upcoming Hong Kong IPO.
- Chongqing Hongjiu Fruit (CHJF) is a multi-brand fresh fruit distributor in China with an end-to-end supply chain. They have 1.0% market share as China’s second largest fruit distributor.
- It appears that CHJF had benefited from a slight increase in margins of certain core fruit products. However, we continue to remain doubtful of its long-term prospects.
S&P 500 Reverses 4-Month Downtrend; Upgrading Consumer Discretionary to Market Weight
- In last week’s Compass (July 26) we discussed positive signals that we believe suggested the lows for this bear market may have already been established, or that downside is limited.
- We continue to see more evidence that supports this claim; as a result, we are upgrading our outlook to neutral.
- The SPX is reversing topside its 4-month downtrend, and the Russell 2000 (IWM), Russell Micro-Caps (IWC), and Russell 2000Growth (IWO) are each reversing topside their 9-month downtrends; the bottom’s in.
Hyundai Motor 2P Reversion Trading Relative to Ordinary
- The possibility that Ord’s current outperformance remains a structural trend is not high because of the 2P discount close to its YTD high and a price reversal with 1P.
- This price reversal has been a strong signal for reversion because 2P receives more dividends by ₩50 per share along with a liquidity premium compared to 1P.
- Also, the dividend yield difference with Ord is not small from a historical point of view. So, we should expect 2P reversion not only to 1P but Ord.
Tesla Inc.: Capacity Expansion
- Tesla had been in the process of carrying out upgrades which resulted in a lengthy shutdown of its Shanghai factory.
- The company faced its fair share of challenges but had a highly resilient quarter and managed to produce an all-around beat.
- The most significant accomplishment was setting production records in Shanghai and Fremont in June.
Faraday Future (FFIE) Claims It Lined Up Funding but Details Are Vague
- Fardaday Future (FF) announced it lined up at least $100m in funding from two investors but gave little detail. Deal is set to close on or before August 8th.
- Given that it’s a senior secured convert deal, we doubt more than $100m-$200m can be raised, despite FF’s release saying the deal has capacity for $600m.
- FF only had $222m in cash in April after -$173m in FCF in Q1. They need $1bn to last through 2023. Anything less than $600m in funding would be negative.
Netflix Inc.: Ad-Supported Subscription To Counter Subscriber Losses & Other Developments
- Netflix has had a bad 2022 so far.
- The company continued with its trajectory of subscriber losses in the most recent quarter and lost another million subscribers.
- Given the current uncertainty levels, we give Netflix a ‘Hold’ rating with a revised target price.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
