In today’s briefing:
- Country Garden Services (6098 HK): 1H23 Profit Warning A Good Read-Across For The Sector
- [Luckin Coffee (LKNCY US, BUY, TP US$43) TP Change]: Economies of Scale Brings Margin Improvement
- Korea Small Cap Gem #23: Hanwha Galleria (Deep Value + Five Guys + Chairman’s Son Buying)
- 2 Rakuten Subsidiaries’ Listings Run Counter to the Dissolution of Parent-Subsidiary Listings
- Taste Gourmet: Q1 FY24 Preview, Another Strong Quarter in the Making
Country Garden Services (6098 HK): 1H23 Profit Warning A Good Read-Across For The Sector
- Country Garden Services (6098 HK) announced a profit warning for 1H23 last night, expecting sales to increase by 3-4% yoy and net profit to see a 0-10% drop yoy.
- The company also announced the intention to repurchase up to 10% of total shares outstanding.
- Share price up +18% following the profit warning and share buyback announcement – a good read-across for the rest of the sector that will report interim results later this month.
[Luckin Coffee (LKNCY US, BUY, TP US$43) TP Change]: Economies of Scale Brings Margin Improvement
- Luckin Coffee reported 2Q23 revenue beat our est. by 7.5%, and non-GAAP NI beat our estimate by 84.1%.
- The top-line beat is driven by stronger product sold on average store sales, the bottom-line beat is driven by economies of scale and less than estimated sales promotion.
- We maintain the stock as BUY rating and raise TP by US$5.5 to US$43/ADS (27x PE in 2023) to factor in the outlook of sustainable margin improvement.
Korea Small Cap Gem #23: Hanwha Galleria (Deep Value + Five Guys + Chairman’s Son Buying)
- Hanwha Galleria (452260 KS) is the 23rd company in our Korea Small Cap Gems series.
- Hanwha Galleria is a spun-off company from Hanwha Solution. Hanwha Galleria’s shares have declined 39% since being relisted on 31 May 2023.
- Hanwha Galleria is a deep value stock with undervalued real estate assets. Chairman’s son is also buying aggressively and there is a big catalyst for Five Guys launch in Korea.
2 Rakuten Subsidiaries’ Listings Run Counter to the Dissolution of Parent-Subsidiary Listings
- Cash generation through the subsidiaries’ IPOs will only buy time, and investors are likely to focus on when Rakuten will move to solve the problems in its cell phone business.
- In recent years, TSE’s market reorganization has focused attention on parent-subsidiary listings, and there’ve been moves to convert listed subsidiaries into wholly owned subsidiaries or sell subsidiaries to other companies.
- For Rakuten, subsidiary IPOs are an essential means of raising cash, but TSE’s recognition of the governance issues involved in parent-subsidiary listings raises questions about Rakuten’s two parent-subsidiary listings.
Taste Gourmet: Q1 FY24 Preview, Another Strong Quarter in the Making
- We estimate Taste Gourmet (8371 HK) to deliver 39% YoY revenue growth and about 13% YoY profit growth (adj 350% YoY) for Q1 FY24e, to be declared on August 10th.
- The company is expected to go ex-dividend on the 4th of August and pay out a 5.2-HK cent final dividend by the 24th of August for FY23.
- Trading at 6x FY24e PE /20% of the market capitalization in cash and a 9-10% dividend yield ( based on a 50-60% payout ratio) represents a great investment opportunity.
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