In today’s briefing:
- Alibaba – Cash Cows in Trouble & Rapidly Rising COVID Creates New Headwinds
- Cie De Saint-Gobain (SGO FP): Deep Value
- Fu Shou Yuan (1448.HK)- China’s Soaring COVID-19 Death Rate Ignites High Demand for Funeral Services
- Korea Small Cap Gem #18: Shinwon
- New Relic: $1B+ Revenue By FY24. Cost Discipline Will Drive Profitability
- Hormel Foods Corporation: Initiation of Coverage – Investment In Garudafood & Other Drivers
- China Internet Weekly (2Jan2023): Alibaba, Tencent, Douyin, Bilibili, Uxin
- Norfolk Southern Corporation: Initiation of Coverage – Business Strategy & Other Drivers
- International Paper Company: Initiation of Coverage – Business Model & Key Drivers
- The Sherwin-Williams Company: Initiation of Coverage – Recent Acquisitions & Key Drivers
Alibaba – Cash Cows in Trouble & Rapidly Rising COVID Creates New Headwinds
- After bouncing more than 60% from a near-all-time low, Alibaba Group (9988 HK)’s progress seems to have ended abruptly with the share-price holding flat for almost a month in December-2022.
- Meanwhile, the company’s cash cows, Taobao and Tmall are losing market share. Rapidly rising COVID infections create new headwinds that could affect business performance for at least two more quarters.
- With the shares trading near the top end of the new downward trend channel, we are short Alibaba as earnings are expected to miss consensus estimates in the next two-quarters.
Cie De Saint-Gobain (SGO FP): Deep Value
- New Management, New Targets, New Profile. Mission to change the underlying culture to one of ‘accountability’ and ‘delivery’
- Launch of the Grow & Impact program which sets out a clear and coherent strategy to 2025, a plan designed to accelerate the group’s profitable growth.
- Valuation upside. The stock trades on EV/Sales below 0.5x. Historical multiple above 1x. We see rerating potential. Price could double if the Company delivers on targets
Fu Shou Yuan (1448.HK)- China’s Soaring COVID-19 Death Rate Ignites High Demand for Funeral Services
- China’s U-turn on COVID policy has led to skyrocketed infection cases/mortality. Demand for funeral services due to additional deaths would surge, so positive sentiment on Fu Shou Yuan could continue.
- Fu Shou Yuan’s performance is expected to rebound in 22H2 and 23H1 driven by high demand and relaxation of COVID-19 control measures. It’s a good short-term trade with strong catalyst.
- The acceleration and resonance of population aging trend, the new urbanization process and the increase of cremation rate of remains provide objective conditions for Fu Shou Yuan’s long-term upward performance.
Korea Small Cap Gem #18: Shinwon
- Shinwon Corp (009270 KS) is the 18th company in our Korea Small Cap Gems series.
- Established in 1973, Shinwon is a leading apparel company which has been in business for nearly 50 years. Its most popular apparel brands include Besti Belli, Si, Viki, and SIEG.
- The four key catalysts with Shinwon include significant share buybacks, strong growth in sales and profits driven by exports, potential change in the controlling shareholding structure, and discounted valuations.
New Relic: $1B+ Revenue By FY24. Cost Discipline Will Drive Profitability
- We double down on New Relic stock as we see operational improvement and a clear path to non-GAAP profitability. A strong balance sheet will help to survive an economic downturn.
- The company will repay 0.5% senior convertible notes in 2023 and is not interested in diluting existing shareholders. New Relic ended 2QFY23 with $833M in cash and cash equivalents.
- American activist investor Jana Partners held ~3.2M New Relic shares as of Nov-22. New Relic Inc (NEWR US) shares underperformed in 2022, with shares down ~49%
Hormel Foods Corporation: Initiation of Coverage – Investment In Garudafood & Other Drivers
- This is our first report on Hormel Foods Corporation, one of the leading protein food companies across the globe.
- Hormel achieved another quarter of growth in organic sales led by its solid performances from its food service businesses and its center store grocery portfolio.
- In the quarter, Hormel saw growth from its food and ethnic forward portfolios.
China Internet Weekly (2Jan2023): Alibaba, Tencent, Douyin, Bilibili, Uxin
- Alibaba’s CEO will lead the cloud business himself, because the retailing business faces headwind.
- Tencent will enter the short video market again, because the online game is till stagnant.
- Douyin will launch a car-hailing platform, which will compete with Meituan.
Norfolk Southern Corporation: Initiation of Coverage – Business Strategy & Other Drivers
- This is our first report on rail transport major, Norfolk Southern.
- The company delivered strong financial results in Q3 surpassing Wall Street expectations in terms of revenues as well as earnings.
- We initiate coverage on the stock of Norfolk Southern Corporation with a ‘Hold’ rating.
International Paper Company: Initiation of Coverage – Business Model & Key Drivers
- This is our first report on International Paper Company, one of the largest producers of renewable fiber-based industrial packaging and pulp products.
- It has been a challenging and dynamic environment for International Paper and the company experienced a sharp decline in the demand for its Industrial Packaging segment and higher cost headwinds significant from higher distribution and energy costs.
- Operating margins were lower because of significant macro headwinds and International Paper saw a decline across all the end-use segments.
The Sherwin-Williams Company: Initiation of Coverage – Recent Acquisitions & Key Drivers
- This is our first report on Sherwin-Williams, one of the largest distributors of paints and coatings in the U.S.
- The company had a stellar third quarter, with high teen sales growth leading to the first $6 billion sales quarter and significant sequential and year-over-year gross margin improvement which resulted in an all-around beat.
- In contrast to China’s and Europe’s persistent weakness, demand is still robust in the pro-architectural and North American industrial end sectors.
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