In today’s briefing:
- Rakuten (4755) – TSE Neglects Its Ad Hoc Powers – Less Bigly Index But Biglier Non-Index
- Pinduoduo (PDD): 1Q23, Up by 58% YoY, 40% Upside
- Zomato (ZOMATO IN) | The Big Picture
- Pinduoduo: Margin Downtrend and Temu’s De Minimis Risk
- Japan Pachinko Sector Meets Secular Decline with Pivots in Strategy
- Pinduoduo (PDD US, BUY, TP US$95) Earnings Review: A Long Term Buy Amid Challenges in 2Q23
- Colgate-Palmolive Company: New Cost Management Initiatives & Other Drivers
- Lear Corporation: The I.G. Bauerhin Acquisition Upside & Other Drivers
Rakuten (4755) – TSE Neglects Its Ad Hoc Powers – Less Bigly Index But Biglier Non-Index
- The index announcements regarding the the changes to indices following the Rakuten (4755 JP) offering have been a bit weird.
- Some of that may have to do with timing. Some is just weird
- The result is that there is less to buy this week than I previously expected, and the buying gets dragged out longer.
Pinduoduo (PDD): 1Q23, Up by 58% YoY, 40% Upside
- In 1Q23, total revenue grew by 58% YoY and the operating margin improved to 18% versus 9% in the same period last year.
- We believe the company benefited from its low-price products and the low comparison base last year.
- We conclude the stock has an upside of 40% and a price target of US$100.
Zomato (ZOMATO IN) | The Big Picture
- The street is excited about Zomato (ZOMATO IN) ‘s profitability, we are not.
- Zomato’s execution is strong, driving improved profitability despite the margin-dilutive Gold offering.
- Caution warranted due to market dynamics: slow growth, margin pressure, and increased competition.
Pinduoduo: Margin Downtrend and Temu’s De Minimis Risk
- PDD Holdings Inc (PDD US) shares rose 19% on last Friday following 1Q23 revenue of RMB 37.6bn (consensus: RMB 31.9bn) and OP of RMB 6.9bn (consensus: RMB 5.0bn).
- The declining margin trend is a significant concern as Pinduoduo won’t appear cheap if margins fall short of expectations.
- Meanwhile, the existence of Temu could be at risk if the US government takes measures to address the De minimis loophole.
Japan Pachinko Sector Meets Secular Decline with Pivots in Strategy
- Universal Entertainment and Dynam Japan bave moved off total dependence on pure historic pachinko revenue flows as total market continues to slide.
- Universal’s move to the casino sector as a core profit center and Dynam’s strong hall closure strategy are keys to future of the sector.
- Dynam has been fighting off inflationary headwinds in opperating costs of their halls and sharp depreciation of equipment responsible for profit decline.
Pinduoduo (PDD US, BUY, TP US$95) Earnings Review: A Long Term Buy Amid Challenges in 2Q23
- PDD once again surprised by reporting revenue/non-GAAP net income 16.5%/68.8% higher vs. cons. We suggest the beat is due to the moderate competitive landscape in 1Q23 and strong consumer demand
- Yet, we don’t expect PDD to be able to surprise again in 2Q23 because of the intensified competitive landscape, and its new ecosystem strategy;
- PDD remains a long run BUY as it’s a key beneficiary of the downward trend of Chinese and global consumption. We slightly raise our forecasts for PDD’s 2023 EPS.
Colgate-Palmolive Company: New Cost Management Initiatives & Other Drivers
- Colgate-Palmolive had a good start to 2023, and delivered an all-around beat in the first quarter.
- There was a boost in the company’s projections for net and organic sales growth as well as base business earnings per share growth for the year.
- Colgate-Palmolive is facing headwinds with respect to its earnings per share growth given the impact of raw and packaging materials costs, foreign exchange, and below-the-line costs.
Lear Corporation: The I.G. Bauerhin Acquisition Upside & Other Drivers
- Lear had a solid start to the year, with an all-around beat in the recent quarterly result.
- The management intends to start making full seats with essential thermal components for these vehicles.
- Besides, the company acquired IGB, which will be essential to growing its Thermal Comfort Systems business and boosting its market share and profits in the seating industry.
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