In today’s briefing:
- Techtronic Industries (669 HK): JR Puts Down That Tool
- Star Entertainment (SGR AU): A$800m Equity Raise to Buy Some Time
- Alibaba (9988 HK): 3Q23, Growth Flat, But Margin Up, Buy
- Oasis Management Invests in KT&G
- Star Entertainment’s A$800mn Buffer
- Perfect Medical: Calm Start to the Year, Correction Provides Good Entry Point
- Trophy Asset
- Star Entertainment (SGR AU): A$800m Highly Dilutive Raise to Fix the Balance Sheet
- Aeon Retail: Profits Again After 4 Years
- Automaker GAC Seeks China-Made Chips to Ease Dependence on Foreign Suppliers
Techtronic Industries (669 HK): JR Puts Down That Tool
- Jehoshaphat Research (JR) argues the case that Techtronic Industries (669 HK) has been engaged in “snowballing” to maintain margin growth.
- JR flags TTI is the only public company in the world (with over $1bn in revenues) exhibiting positive sequential gross margin change in every semi-annual period over ten years.
- Short interest had been picking up ahead of the short sell report. Shares fell 19% before being suspended in the afternoon session.
Star Entertainment (SGR AU): A$800m Equity Raise to Buy Some Time
- Star Entertainment Group (SGR AU) is looking to raise A$685m via an ANREO of 3 shares in The Star for every 5 shares at a fixed price of A$1.2/share.
- The A$1.2/share price is a 21.1% discount to the last close and a 14.3% discount to the Theoretical Ex-Rights Price (TERP) of A$1.4/share.
- Short interest is near the highs and there is an index deletion pending. We’d look to buy the stock on a move lower, especially closer to index deletion.
Alibaba (9988 HK): 3Q23, Growth Flat, But Margin Up, Buy
- Revenue grew by 2% YoY in 3Q22, as the decrease of online sales offset the increase of physical stores.
- The operating margin began to improve, as the company cut sales and marketing expenses in minor businesses.
- We believe the stock has an upside of 78% for March 2024 and the price target will be HK$170.
Oasis Management Invests in KT&G
- It was reported on 22 February in numerous local Korean media that Oasis Management has invested about 1.5% stake in KT&G Corporation (033780 KS).
- This investment in KT&G is reportedly Oasis Mgmt’s first investment in Korea. For now, Oasis Mgmt has not made any public announcement about its investment in KT&G.
- With Oasis Mgmt investing 1.5% stake in KT&G, we believe it is increasingly likely that it could start its activist campaign on KT&G sometime in 2023.
Star Entertainment’s A$800mn Buffer
- Star Entertainment Group (SGR AU)‘s announced it intends to raise $800mn after reporting a statutory $1.26bn 1H23 loss.
- This equity raising will be broken down into a A$685mn non-renounceable entitlement Offer and a A$115mn institutional placement. The equity raising is fully underwritten.
- Star also announced it has secured covenant relief through to June 2025. Star’s immediate focus is to get its house in order and prove its suitability to hold casino licences.
Perfect Medical: Calm Start to the Year, Correction Provides Good Entry Point
- A correction in Perfect Medical Health’s (1830 HK) share price recently has led to it trading at a decent multiple of 15.2x/11.6x FY23e/24e PE(x) with a 6.9%/9.1% FY23e/24e dividend yield.
- We estimate the lockdowns in China from Oct-Dec last year will impact the H2 FY23 result, leading to softer revenue growth of 4.8% for FY23 (profit 11% YoY).
- We are optimistic about China re-opening and cross-border travel and believe that >20% revenue growth can materialize in FY24, led by a recovery in China/HK revenue.
Trophy Asset
- At 6.2x EV/Sales, ManU’s shares are trading well above any other listed European football club, which may increase if the Glazers manage to cash in at a trophy asset valuation.
- Suitors are queuing and prospective bids as high as about £5 billion ($6 billion, 8.4x EV/Sales) been made to restore the club to its former glory.
- Unlimited wealth and investments in players don’t guarantee winning a European Champions League, but Manchester United is still a unique asset, with more chances than not of changing hands.
Star Entertainment (SGR AU): A$800m Highly Dilutive Raise to Fix the Balance Sheet
- Star Entertainment Group (SGR AU) will raise A$800 million with a fully underwritten 3:5 pro rata accelerated non-renounceable entitlement offer and institutional placement at A$1.20, a 13.6% discount to TERP.
- The equity raise of A$800 million will maintain leverage within the targeted 2.0x-2.5x net debt/EBITDA long-term range in our fines high-case scenario.
- Adjusting for the raise, Star trades at a discount to peers. While the shares will be under short-term pressure due to the raise, there is long-term value for the brave.
Aeon Retail: Profits Again After 4 Years
- Aeon’s main GMS arm, Aeon Retail, is on track to post a net profit in FY2023 after a 4-fold increase in OP in 1H2022.
- This is largely thanks to stronger sales and footfall and the success of efficiency measures introduced over the past few years.
- The improvements look sustainable and should lead to improved results for Aeon longer-term adding to the already good results from the drugstore, real estate and overseas businesses.
Automaker GAC Seeks China-Made Chips to Ease Dependence on Foreign Suppliers
- Guangzhou Automobile Group Co. Ltd. (GAC) (601238.SH -0.51%) is working to get more domestically produced microchips into its vehicles.
- It relies on overseas suppliers for about 90% of its automotive chips.
- GAC Capital Co. Ltd. sees plenty of opportunity to increase the share of domestic chips in the automaker’s cars.
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