In today’s briefing:
- Techtronic’s Rebuttal: Some Clarifications Are Too Good to Be True
- JD.com (9618 HK): 2022, Historical Low Growth, But Historical High Margin.
- Yashili (1230 HK): It’s Taken a While – Pre-Condition Satisfied
- DPC Dash IPO: No Match For Pizza Hut
- MGM China and Its US Parent Bought Together Maximizes Potential Returns on Covid Endgames
- Yashili (1230 HK): China Mengniu’s Scheme Triggered
- Perfect Medical: China Operations Update, Suggests 100% Upside From Here
- Continental: +12% in Under Three Weeks. Strong Results. Take Profit.
- Human Capital Measures Should Not Be a Case Of “Plowing the Field and Forgetting the Seeds”
Techtronic’s Rebuttal: Some Clarifications Are Too Good to Be True
- Following Jehoshaphat’s allegations that profits are inflated dramatically over a decade with manipulative accounting, Techtronic Industries (669 HK) has issued a rebuttal clarifying that the accusations are without any merit.
- TTI’s beyond comparison performance is due to world class brands such as Milwaukee, Ryobi and Hoover which have helped top line grow at 13% CAGR over the past 13 years.
- Nevertheless, we have assessed some of the company’s clarifications here which seemed too good to be true.
JD.com (9618 HK): 2022, Historical Low Growth, But Historical High Margin.
- JD’s revenue growth rate reached its historical low in 2022, but we believe it will recover in following two years.
- JD’s operating margin hit its historical high in 2022 and we believe the improvement will continue.
- We believe EPS will grow by more than 100% in 2022 and the stock has an upside of 42%.
Yashili (1230 HK): It’s Taken a While – Pre-Condition Satisfied
- Yashili International Holdings (1230 HK) announced that the pre-condition is satisfied – around 10 months since the 6 May 2022 announcement of China Mengniu Dairy Co (2319 HK)’s HK$1.20 offer.
- Yashili has received an extension for the despatch of the scheme document to a date no later than 31 August. We think the scheme document is despatched by early April.
- The scheme risk is low. At the current price and for a late May payment, the gross and annualised spread is 2.6% and 12.2%, respectively.
DPC Dash IPO: No Match For Pizza Hut
- After giving up the IPO plan late last year, DPC Dash (1405 HK) has restarted its IPO with hopes of capitalising on China’s reopening boom.
- DPC Dash is not positioned to benefit from the ending of lockdowns. It also didn’t outperform Pizza Hut when dine-in demand was absent.
- Therefore, DPC Dash is likely going to remain a minor player in a segment dominated by Pizza Hut.
MGM China and Its US Parent Bought Together Maximizes Potential Returns on Covid Endgames
- What may appear duplicative asset segment in MGM actually spreads risk and improves overall margin of safety for both stocks.
- MGM China is a pure Macau play while MGM Resorts International is a strong bet on global reach of its gaming properties.
- Buying both is insurance against a possible recession downside because of the geographically and demographically diverse customer bases of both enities.
Yashili (1230 HK): China Mengniu’s Scheme Triggered
- The 25% stake sale/acquisition in Yashili International (1230 HK) was expected five business days after the Dumex China Disposal – and that is what transpired. This satisfies the Scheme conditions.
- After ten months, Danone (BN FP) offloaded its chilled dairy business, acquired Yashili’s Dumex China baby formula ops, and offloaded its 25% stake in Yashili to China Mengniu (2319 HK).
- Now Yashili minority shareholders will get their chance to vote for China Mengniu’s Scheme, potentially in early May.
Perfect Medical: China Operations Update, Suggests 100% Upside From Here
- Perfect Medical Health (1830 HK) released an operating update during market hours (see: Operations Update) that signaled China has turned around to almost normalized (pre-covid) revenues.
- While Feb is very late in the financial year (March End FY), and data turning around now does not move the needle for FY23e, it bodes well for FY24e profits.
- The stock trades at 14.7x/11.5x FY23e/24e PE(x) with a 7.2%/9.2% FY23e/FY24e dividend yield with net cash and LT investments at 14% of market cap), making this an exciting investment.
Continental: +12% in Under Three Weeks. Strong Results. Take Profit.
- 2022: Consolidated sales of €39bn (+16.7 percent); Adjusted EBIT of €2bn (+5.2 percent). CEO: We succeeded in reaching sales and earning targets for the year, “a respectable result”
- 2023: Conti expects higher earnings supported by sustained market recovery
- Our TP remains €86. Given the strong performance since our initial note, the recovery in margins being better understood and €1bn in headwinds in 2023, we recommend taking profit here
Human Capital Measures Should Not Be a Case Of “Plowing the Field and Forgetting the Seeds”
- More companies have made progress in the last 6 months as more companies have made only human capital policies. Specific measures will probably not become visible until April or later.
- If companies are required to disclose their policies in a hasty manner, they may end up with a list of unrealistic measures in addition to policies that have no substance.
- Companies are expected to spend the next year disseminating their human capital policies internally and implementing specific human capital measures to strengthen their own competitiveness.
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