In today’s briefing:
- NIFTY NEXT50 / NIFTY100 Index Rebalance: Flows Change as Index Capping Methodology Changes
- Rakuten Bank IPO Points That the Market Could Be Undervaluing Rakuten’s Businesses & Investments
- Oisix Hit as People Return to Work
- XPeng Predicts Revenue, Deliveries to Nosedive in the First Quarter
- Samantha Thavasa Attempts Rebirth but Losses Continue
- Do Companies Tend to Focus on Shareholder Returns Because They Can’t Find Investment Opportunities?
- [JD Health (6618 HK) Target Price Change]: Strong Execution but Industry Glass Ceiling Remains
- Indian Home Decor Unicorn Livspace Slashes 100 Jobs
- Central Garden & Pet: Undervalued With A Seasonal Uptick En Route
- [Tencent Music (TME US) Target Price Change]: Cut TP for Competition Pressure and Cost Rebound
NIFTY NEXT50 / NIFTY100 Index Rebalance: Flows Change as Index Capping Methodology Changes
- On 17 February, NSE Indices announced the results of the March index review for the Nifty Next 50 Index (NIFTYJR INDEX). There are 5 adds and 5 deletes.
- Last evening, NSE Indices announced a change in the index methodology where the cumulative weight of non-F&O stocks in the index will be capped at 10% (down from 15% earlier).
- This changes the flows at the March rebalance that will be implemented at the close of trading on 29 March.
Rakuten Bank IPO Points That the Market Could Be Undervaluing Rakuten’s Businesses & Investments
- As Rakuten Bank (5838 JP) prepares for an IPO in April 2023, we see the potential for Rakuten’s NAV discount to narrow significantly from its current level of over 52%.
- We think the market could be unaware of the hidden value in smaller Rakuten businesses and other investments.
- Rakuten-Bank, which seems like a small piece of Rakuten’s ecosystem producing as much as 26-31% of Rakuten’s market-cap could open markets’ eyes to the undervaluation of Rakuten businesses & investments.
Oisix Hit as People Return to Work
- Oisix is Japan’s largest online food retailer but sales were flat in 1Q-3Q2022 as people returned to work and cooked less, and profits suffered as inflation brought increases in costs.
- The company’s US operation also shrank as fewer people bought food online now that many Japanese are back to normal working patterns again.
- But other international subsidiaries and its expanded wholesale businesses at home all grew strongly.
XPeng Predicts Revenue, Deliveries to Nosedive in the First Quarter
- XPeng Inc. has predicted that revenue and vehicle deliveries will nosedive in the current quarter after the Chinese electric-vehicle (EV) upstart reported slowing sales growth and a loss that nearly doubled in 2022.
- The company’s revenue will likely plunge 43.7% to 46.3% year-on-year to between 4 billion yuan ($581 million) and 4.2 billion yuan in the first quarter of 2023.
- The outlook is based on an estimate that its deliveries will plummet 45% to 47.9% year-on-year in the same quarter to around 18,000 to 19,000 vehicles.
Samantha Thavasa Attempts Rebirth but Losses Continue
- Once a major hit with young women, Samantha Thavasa has struggled to find relevance in the past five years.
- Despite an injection of capital and management from new parent, Konaka, the business has continued to close stores.
- While Konaka is restructuring the business, the brand’s low levels of recognition with the younger generation will likely mean further retreat.
Do Companies Tend to Focus on Shareholder Returns Because They Can’t Find Investment Opportunities?
- Looking at all listed companies over past 10 years, despite the gradual dissolution of cross-holdings, the Total Asset Turnover has not increased and the Equity Ratio level has not changed.
- Reducing equity capital through shareholder returns is effective in raising ROE, but ROE is unlikely to rise continuously if the company’s cash flow does not continue to increase.
- ROA is the product of the ROE components of net sales and asset turnover, excluding financial leverage. ROA is a key factor for increasing valuations.
[JD Health (6618 HK) Target Price Change]: Strong Execution but Industry Glass Ceiling Remains
- JDHealth (JDH) reported C2H22 top line, non-IFRS operating profit and IFRS net profit 9.2%, (25%) and (54%) versus our estimates, Annual active customers beat our estimate by 6.5%;
- Gross margin, however, continued to deteriorate, mainly due to another all-time low (the 5th consecutive interim) of product gross margin.
- The company however, showed strong ability in OPEX and working capital control; We raise TP from HK$39 to HK$44 and maintain SELL.
Indian Home Decor Unicorn Livspace Slashes 100 Jobs
- KKR-backed home decor unicorn Livspace said it has let go of 2% of its over 5,000-member workforce as it aims to hit profitability as early as this year.
- Founded in 2014, Livspace offers tech-enabled interior design and renovation services, positioning itself as the Amazon of home decor.
- One of its notable offerings is Canvas, a SaaS platform that lets designers engage with their customers.
Central Garden & Pet: Undervalued With A Seasonal Uptick En Route
- Historical data suggests that the company’s gardening sales are set to surge.
- However, the stock’s price multiples reveal that it is at a deep discount relative to its cyclical average.
- A peer-based analysis implies that the stock is undervalued, but dividends remain astray, according to the company.
[Tencent Music (TME US) Target Price Change]: Cut TP for Competition Pressure and Cost Rebound
- TME reported 4Q22 results with topline beat our est. by 3.6% and bottom line beat our est. by 2.4%.
- While the growth of online music gradually stabilizes without large catalyst in near future, its social entertainment segment continues to decline due to competition pressure.
- Maintain SELL and cut TP to US$ 6.2 to reflect limited top line growth and possible cost rebound. Our TP implies 13.6X PE in 2023.
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