In today’s briefing:
- Rakuten (4755 JP) – A Tricky Offering But Lots of Non-Fundamental Long Demand
- Dickson Concepts 113 HK: Straight From The Ben Graham Stable, >40% Discount to NCAV
- Suzuki (7269) | EV Strategy – A Dead End?
- Manyo Factory IPO Bookbuilding Results Analysis
- Quiddity Leaderboard ES50 Sep 23: Ferrari RACEs into the Lead; US$1.2bn Potential Inflow
- Isn’t It Too Much to Expect Instantaneous Screening to Yield the Same Shares as Buffett’s Approach?
- Xinhua Winshare (811 HK): We Love the Boredom
- Itochu and Donki Tie on Retail Media to Create Major New Revenue Stream
- Pinduoduo(PDD US): The Worst Is yet to Come
- Buy Signals on Sand China Ltd. Getting Stronger as Macau Recovery Gains Steam
Rakuten (4755 JP) – A Tricky Offering But Lots of Non-Fundamental Long Demand
- The Rakuten (4755 JP) offering is producing interesting analysis. My read on the telecom side is that things are better (or less bad) than they were.
- Longer-Term, I see the idea. Shorter-term, there will still be questions until there are not. However, there could be a lot of non-fundamental “I want this” demand in the offering.
- Questions to ask yourself are: 1) how much will get placed with investors who want it 20+% lower than 15 May highs? 2) how many shorts will cover?
Dickson Concepts 113 HK: Straight From The Ben Graham Stable, >40% Discount to NCAV
- Dickson Concepts Intl (113 HK), an HK distributor of luxury goods, is a classic example of a Graham net-net with a >40% discount to NCAV (Net Current Asset Value).
- The company has 4.7 bn HKD of cash against total liabilities of 2.3 bn HKD (on a market cap of 1.6 bn HKD), thus representing deep value.
- With an economic environment in HK for retail sales improving + an existing 8% dividend yield, we could make a case for higher dividend payments.
Suzuki (7269) | EV Strategy – A Dead End?
- After reviewing Suzuki’s EV Strategy we turn Bearish on the outlook and see downside for the share price.
- We believe that Street has missed the rising costs associated with the electrification strategy. We see a period of weaker margins.
- Suzuki only targets 20% of sales to come from EVs in India, its largest market. It could be viewed as a laggard.
Manyo Factory IPO Bookbuilding Results Analysis
- Manyo Factory IPO price has been finalized at 16,000 won. The demand ratio for this IPO among institutional investors was very high at 1,800 to 1.
- Our base case valuation of Manyo Factory is target price of 29,555 won per share, which represents 85% higher than the the IPO price of 16,000 won.
- We believe a premium valuation multiple to the comps is appropriate due to Manyo Factory’s higher sales growth rate, operating margins, and ROE than the comps in 2020 to 2023.
Quiddity Leaderboard ES50 Sep 23: Ferrari RACEs into the Lead; US$1.2bn Potential Inflow
- The ES50 Index is one of the most highly-tracked indices in mainland Europe and the annual index review takes place in September.
- Historically, these Rebalance events have had significant volume and ADV impact and they generally involve large cap names.
- In this insight, we take a look the names leading the race to become ADDs/DELs for the upcoming index review in September 2023.
Isn’t It Too Much to Expect Instantaneous Screening to Yield the Same Shares as Buffett’s Approach?
- It’s doubtful that if the outcomes of factor analysis of Berkshire Hathaway’s portfolio stocks and screened to Japanese stocks would be the stocks that Buffett would want to invest in.
- Berkshire Hathaway wouldn’t invest in a Japanese company if there were companies in other countries with the same type of business that are more competitive and worthy of investment.
- Investors continue to look for companies that few investors are aware of, as stock prices are often high for companies that have competitive advantages and promising future cash flow growth.
Xinhua Winshare (811 HK): We Love the Boredom
- Despite solid outperformance, share price of Xinhua Winshare (811 HK) is more than 100% covered by net cash of Rmb7.6bn. DPS has also risen uninterruptedly in the last 3 years.
- 1Q23 result demonstrated operating resilience as recurring profit soared 48.5%. Its franchise in textbook publication and distribution stayed well protected, securing profitability outlook.
- We like XW’s boring businesses in the current depressed market. It trades on 4.5x PER with secured 6.6% dividend yield. The HA discount has widened to 10pp deeper than average.
Itochu and Donki Tie on Retail Media to Create Major New Revenue Stream
- Itochu, Familymart, PPI (Don Quijote) and their data analytics partners have come together in the first case of cross-retailer ad platform development.
- Itochu provides the central relationship that ties these companies together, and other deals are likely given the significant potential for retail media.
- The opportunity for brands to market to these retailers’ customers through highly targeted ads will become ever more compelling, delivering new revenue streams for Donki and Familymart.
Pinduoduo(PDD US): The Worst Is yet to Come
- The odds are high for PDD to miss consensus for 1Q results this Friday due to high base and deflating domestic growth drivers, despite TEMU’s momentum.
- Among major China tech companies, PDD is likely to be the only one to register stagnant or even negative earnings growth for FY23, which has not been in the price.
- A down cycle for PDD’s earnings growth leads us to assign 12x P/E to an estimated non-GAAP net profit of RMB39 billion for FY23, implying 15% downside.
Buy Signals on Sand China Ltd. Getting Stronger as Macau Recovery Gains Steam
- Since the January 6th end of zero covid, all macro developments impacting the Asia casino sector are proving bullish despite a lingering concern about long term recovery.
- SCL’s strengths play to the rapidly growing mass segment player base.
- SCL’s dominant room capacity is a de facto moat when peers are not even a close second in terms of percentage of available rooms.
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