In today’s briefing:
- A Pair Trade Between Emart & Coupang (Potential End of Mandatory Shut Down Rules for Hypermarkets)
- Tencent/Netease: Increasing Pressure with Zero Approval in August Batch & Thoughts on Trading
- A Pair Trade Between Krafton & NCsoft (India’s Crackdown on Krafton’s BGMI)
- Raffles Medical (RFMD SP): Stellar H1 Performance Driven by Resumption of Medical Tourism
- HSBC – Tax Income Grossly Distorts
- Amazon 2Q22: Delivering an Inflection Point
- WuXi AppTec (603259.CH/2359.HK) 2022H1 – The Concerns Behind and the Outlook
- Discount Retail Gets Mainstream Support: Yaoko Expands Discount Supermarket
- Texas Instruments: New Semiconductor Plants & Other Developments
- Daikin (6367) | Keep Cool and Carry On
A Pair Trade Between Emart & Coupang (Potential End of Mandatory Shut Down Rules for Hypermarkets)
- In this insight, we discuss a pair trade between E Mart Inc (long) and Coupang (short). At current valuations and business outlook, we like the risk/reward of this pair trade.
- The end of the mandatory shut down rules on major hypermarkets is likely to have a major positive impact on Emart and negative impact on Coupang and Kurly.
- Although this has not been made into law, we think there is relatively high probability that this will eventually be made into law sometime this year.
Tencent/Netease: Increasing Pressure with Zero Approval in August Batch & Thoughts on Trading
- China just announced game approval for August batch. More games were approved in August compared to July and June.
- Pace of China game approval continued to pick up albeit at a much slower pace than pre-tightening.
- Both Tencent and Netease will be under increasing pressure as the duo continue to score zero in August, making it the fourth time with no games approved since resumption .
A Pair Trade Between Krafton & NCsoft (India’s Crackdown on Krafton’s BGMI)
- In the past several days, there have been numerous news accounts about the Indian government cracking down on Krafton’s Battlegrounds Mobile India (BGMI) game.
- We believe there are several reasons why Indian government is cracking down on BGMI including concerns about this game potentially leading to greater violence among children and ties to Tencent.
- At current valuation levels, we like a pair trade between Krafton (go short) and NCSOFT Corp (036570 KS) (go long).
Raffles Medical (RFMD SP): Stellar H1 Performance Driven by Resumption of Medical Tourism
- Raffles Medical (RFMD SP) reported strong H1 2022 results, with double-digit growth in revenue and net profit. With the resumption of international travel, the company is seeing increasing patients.
- While COVID-related revenue is declining, the company’s hospital business will benefit from the returning of foreign patients as well as resumption of elective surgeries for the domestic patients.
- Raffles Medical has received the approval to set up an IVF clinic in Hainan province of China.
HSBC – Tax Income Grossly Distorts
- HSBC saw its net interest income rise substantially in the year, but it did not flow through
- The delta in credit costs was one major negator to the bank’s higher core income
- Tax expenses turned to tax income, is the ultimate distortion to net profit
Amazon 2Q22: Delivering an Inflection Point
- Profitability ready to kick in again as Amazon grows into the overbuilt warehouse capacity and headcount from the past few quarters. 3Q22’s guidance clearly conservative based on 2Q22’s outperformance.
- Revenue reacceleration beginning to play out. 2Q22’s 7% leading to 3Q22’s 15%, and back to the 20%s by 2023.
- AWS continues its indomitable run. $79B TTM revenues are growing 37% with 31% margins.
WuXi AppTec (603259.CH/2359.HK) 2022H1 – The Concerns Behind and the Outlook
- It seems that Mr Market was not satisfactory with WuXi AppTec’s 2022H1 performance. If excluding COVID-19 projects (which are regarded as a one-time increment), the performance growth was not high.
- Considering that the CXO preliminary bid winning has declined largely in the US, domestic CXO would not begin to gradually reflect the slowdown of newly added orders until Q4.
- We are concerned about WuXi AppTec’s performance in 2023. As an old generation CXO, it’s hard to achieve V-shaped rebound. So, 2022 is a good time to offload the Company.
Discount Retail Gets Mainstream Support: Yaoko Expands Discount Supermarket
- Yaoko opened a discount supermarket last year and added a second in March, using knowhow acquired from the Ave chain it bought in 2017.
- The new store is purpose built to save costs and offer lower prices, and should prove popular as inflation rises, while delivering higher margins than supermarkets typically achieve.
- The format stands in marked contrast to other discounters such as Kobe Bussan (3038 JP)’s Gyomu Super but both formats show that discounters can make more money than other supermarkets.
Texas Instruments: New Semiconductor Plants & Other Developments
- Texas Instruments delivered its third consecutive all-around beat in the recent result with a reported revenue of $5.21 billion this quarter.
- Among major developments, Texas Instruments has recently broken the ground on the new semiconductor plants of 300-mm for water fabrication in Sherman, Texas.
- Texas Instruments has a strong balance sheet and the management continues investing in building capacity.
Daikin (6367) | Keep Cool and Carry On
- We turn bullish on Daikin ahead of Q1 results as we become less concerned about growth risks in China and the US
- Peer results suggest that air conditioner demand is stronger than expected due to record high global temperatures
- Company management has a good track record of pushing through price hikes and cutting costs. We expect the company to beat guidance this year
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