In today’s briefing:
- Alibaba: Freshippo Seeks Funding at a Lowered $6.0bn Valuation, An Indication of Financial Troubles
- China Stimulus: Big Loan Growth Numbers, Good for FMG?
- Yamazaki Baking (2212) | Price Hikes to Test Consumer Appetite
- HRTech Sector Series: Changing HR Landscape Post-Covid Create Opportunities
- Piramal Enterprises (PIEL IN): Demerger to Create a Differentiated and Niche Pharmaceutical Business
- WDFC: Spraying on a Sell Rating, Initiating
- SCGP : Time to Repack for Brighter 2H22 Outlook
- Declining Business Short Candidates: PRA Grp, Herbalife, DISH, DXC Tech, Corsair Gaming, Ubiquiti
Alibaba: Freshippo Seeks Funding at a Lowered $6.0bn Valuation, An Indication of Financial Troubles
- According to Reuters, Alibaba Group (9988 HK)’s supermarket chain Freshippo is seeking to raise around $400-500m from a fresh funding round which values the loss making company at $6.0bn.
- The fact that Alibaba is willing to dilute ownership at a significant discount to its expected valuation is an additional sign that Alibaba could be running into some financial difficulties.
- Having slashed spending budgets of its smaller investments and more down rounds expected in ventures that are considered too big to fail, we anticipate a challenging time ahead.
China Stimulus: Big Loan Growth Numbers, Good for FMG?
- Fortescue Metals (FMG AU) has corrected due to the iron ore price dropping. China’s massive stimulus could provide an impetus to demand in 6-8 months and revive pricing.
- Substantial correction of steel margins is halted. Iron ore the inventory at the mills and ports has now stabilized. We believe this provides support to pricing at these levels.
- Fortescue Metals (FMG AU) yields at the spot have dropped to 12% FCF and 9% dividend yields, but we believe there is an upside to this.
Yamazaki Baking (2212) | Price Hikes to Test Consumer Appetite
- Strong Q1 results have pushed up the share price offering a good entry point for Shorts
- We think that full year guidance remains a risk given input costs and ability to push through higher prices
- Given the risks, persistently low margins and returns to equity, we remain bearish
HRTech Sector Series: Changing HR Landscape Post-Covid Create Opportunities
- The global HRTech market is forecast to grow at a CAGR of 5.8% between 2022-2028E to US$35.68bn driven by increased investment in product and technology development.
- We have chosen four companies that will have an exciting year ahead (either bullish or bearish) and have discussed their business models, key drivers, fundamentals and their valuation.
- We have chosen two stocks from the US (Ceridian and Automatic Data Processing) and two from Japan (Recruit and Visional) with a market capitalisation of >$1bn and ADTV>$1m.
Piramal Enterprises (PIEL IN): Demerger to Create a Differentiated and Niche Pharmaceutical Business
- Piramal Enterprises (PIEL IN) obtained shareholders nod for demerging its pharma business and consolidated under Piramal Pharma Limited (PPL). Later, PPL will be listed on India stock exchange.
- PPL has a differentiated pharmaceutical business model, with three business verticals. CDMO, the largest revenue contributor, has track record of consistent above-market growth due to its niche and complex capabilities.
- Listed as a separate entity, PPL will see multiple expansion and command premium valuation over other Indian generic drug makers, due to its niche and limited competition portfolio.
WDFC: Spraying on a Sell Rating, Initiating
- We are initiating coverage of WD-40 Company (WDFC) with a Sell Rating and $88 target.
- We believe WDFC is prone to an earnings decline stemming from higher input costs and the Company’s first in first out accounting practice.
- People are no longer staying indoors. The squeaking door is not bothering anyone like it used to. WDFC benefited from people staying home during pandemic. Now inventory is rising
SCGP : Time to Repack for Brighter 2H22 Outlook
- We retain our BUY rating with a TP of Bt66 derived from 33xPE’22E which is close to its 3-years trailing mean. We recommend investors to increase position in SCGP ahead
- Modest recovery in 2Q22, post 1Q22 bottom : We estimate 2Q22 core profit at Bt1.9bn (-8%YoY, +12%QoQ) based on assuming gross margin of 17.4% (-3.1ppts YoY, +0.3ppts QoQ).
- Likewise, we forecast the company to register revenue at Bt38.1bn (+28%YoY, +4%QoQ). The YoY rise is attributed to healthier demand volume and M&Ps contribution, upon the resumption of economic activities
Declining Business Short Candidates: PRA Grp, Herbalife, DISH, DXC Tech, Corsair Gaming, Ubiquiti
- Sales declines, margin compression, cuts in SG&A and cuts in guidance and estimates feature in our Declining Businesses model.
- Declining business shorts tend to be lower beta, have longer time horizons, and tend to produce steadier (although slower) short returns.
- Today we are flagging PRA Grp, Herbalife, DISH, DXC Tech, Corsair Gaming, Ubiquiti .
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