In today’s briefing:
- Sep24 Nikkei 225 Rebal – Last Minute Thoughts and Change in Predictions
- Midea A/H Listing – 1H24 Updates – Strong Growth, Margins Uptick Continues
- Midea Group H Share Listing: Latest Updates Points to a Business in Rude Health
- India: Potential Adds/Deletes from F&O Segment
- The Beat Ideas: EID Parry’s Strategic Transformation- Cane to Consumer
- Pinduoduo (PDD US): Oversold on Concerns About Slowdown
- BUY: First Pacific Company (142 HK): Right Stock Trapped in the Wrong Market
- India Autos: Expected Weak Wholesale Data. Hyundai Dispatches Drop in August
- Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play
- Trip.com Q224: Slower Growth | But Higher Margins | Competition Has Eased | BUY with US$58 Target
Sep24 Nikkei 225 Rebal – Last Minute Thoughts and Change in Predictions
- The last two reviews have been announced on the second business day of the month of the review. The one before that on the third business day.
- The review could be announced today or tomorrow. Wednesday would seem to be “late.”
- There are still questions about implementation – thus “care” in previous insights. Here I explore the possibilities/probabilities/issues around the edges. And a Dark Horse which may be lighter than thought.
Midea A/H Listing – 1H24 Updates – Strong Growth, Margins Uptick Continues
- Midea Group Co Ltd A (000333 CH), recently filed its PHIP as it aims to raise up to US$3bn in its H-share listing, as per media reports.
- Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
- We have covered the company and deal background in our previous notes. In this note, we talk about the updates from its 1H24 results.
Midea Group H Share Listing: Latest Updates Points to a Business in Rude Health
- Midea Group Co Ltd A (000333 CH), the world’s biggest home appliances maker, is premarketing an H Share listing to raise US$3 billion.
- Midea is the world’s largest home appliance company in sales volume and revenue in 2023. Its subsidiary, KUKA Group, is one of the world’s “big four” industrial robotics companies.
- The PHIP update shows that the business is in good health, with accelerating growth, rising margins, and strong cash generation. Therefore, a premium multiple to peers is justified.
India: Potential Adds/Deletes from F&O Segment
- Following SEBI’s review of eligibility criteria for entry/exit of stocks in the derivatives segment, there could be 18 deletions/79 inclusions in the F&O segment over the next 6 months.
- The new framework could lead to mechanical entry and exit of stocks in the F&O segment with minimal intervention from SEBI.
- The introduction of some large cap stocks in the F&O segment could lead to their inclusion in the NIFTY Index, SENSEX Index and other local indices.
The Beat Ideas: EID Parry’s Strategic Transformation- Cane to Consumer
- Eid Parry India (EID IN) A Murugappa Group Company setting stage for transformation from cyclical sugar business to more stable consumer and high margin business.
- The company has diversified into the non-sweetener segment and is emphasizing an asset-light model to drive further expansion.
- Eid Parry India (EID IN) is also the holding company of Coromandel International (CRIN IN), which holds substantial intrinsic value.
Pinduoduo (PDD US): Oversold on Concerns About Slowdown
- The market has lingering concern about substantial slowdown in PDD’s growth and has been pricing in the outlook for most part of the year.
- 2Q results did signal imminent growth deceleration, and management’s blunt yet honest comments about the pressure on margin further stoke fears.
- We regard 1/3 market cap wipe-out after the results as over-reaction. While risks have been reflected to large extent, we do not expect a meaningful re-rating until 2H25.
BUY: First Pacific Company (142 HK): Right Stock Trapped in the Wrong Market
- First Pacific Co (142 HK) is a Southeast Asian conglomerate that has been handicapped by its listing in the Hong Kong market over the last several years.
- As Southeast Asian markets (Indonesia and Philippines) begin to re-rate on the back of a more accommodating Fed policy, First Pacific is beginning to participate in the uptrend.
- Metro Pacific Investments Corp (MPIC), the second largest piece of the company’s NAV has been active in acquiring more infrastructure assets since being privatized last year.
India Autos: Expected Weak Wholesale Data. Hyundai Dispatches Drop in August
- Recent media reports on declining passenger vehicle (PV) sales in India for August are based on wholesale data and reflect expected weakness due to high dealer inventory levels.
- Hyundai Motor India (1342Z IN)‘s dispatches dropped by 8% in August, yet the company remains strong in the SUV segment, with the Creta, launched in January 2024, driving growth.
- Outlook for the passenger vehicle segment is cautiously optimistic, supported by monsoon impact, festive season, new product launches, but challenges like heavy rainfall, high inventory levels, and economic uncertainties persist.
Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play
- 1H24 results were below expectations, with profits halved YoY. Irrational competition with overzealous discounts, and general decline in preference of traditional luxury cars for NEVs is hurting Zhongzheng (ZS)
- Signs of bottoming as industry are trying to stop the discounting madness and instill some level of rationality
- ZS is trading at 0.47x book, its cash = MCAP, and FY25 PE of 3.7x. Ridiculously cheap for a profitable and positive FCF churning company.
Trip.com Q224: Slower Growth | But Higher Margins | Competition Has Eased | BUY with US$58 Target
- Despite slower top-line growth, Trip.com posted firmer margins in Q224
- Cash Operating Expenses as a % of Net Revenue fell by around -250 bps Y/Y
- Post-Covid, Trip.com has less competition; BUY with target of US$58 per ADS
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