In today’s briefing:
- CGN Power (1816 HK): No Nuclear Jitters
- Prosus: 30% Discount Seems About Right
- Antony Waste Handling Cell Ltd – Forensic Analysis
- Ace Hardware (ACES IJ) – A Rebound in the Offing
- Observability Pair Trade: Long Elastic / Short Splunk
- Delta Electronics: Taiwan Vs. Thailand Pairs Monitor, Call with Management
- Two Niche Semiconductor Industry Stocks Highly Exposed to EV Acceleration
- Pinduoduo: Management Warns That 2Q22 Is Not a Good Benchmark For Future
- Shenzhen Intl (152 HK): The Toughest Time Should Be over Now
- Hangzhou Tigermed Consulting (3347.HK/300347.CH) 2022H1 – The Time Bomb Is Ticking
CGN Power (1816 HK): No Nuclear Jitters
- Nuclear power is a clean energy source that contributes to energy savings and emissions reduction in society.
- SASAC backed CGN Power (1816 HK) is China’s leading nuclear play, accounting for 55% of on-grid nuclear power generation, but just 1.2% of China’s total installed capacity of power generation.
- As one of the few listed nuclear -plays in Asia, CGN trades at undemanding multiples, together with an attractive ROE and yield.
Prosus: 30% Discount Seems About Right
- The initial impact, of the share repurchase program, was for Prosus’ simple discount to listed NAV to reduce from roughly 50% to around 25% within 4 weeks of implementation.
- The weekly size of the share repurchase program has been reduced by ~40%, on a 4-week rolling average basis, since the discount has been below 30%.
- We remain constructive on Tencent and, with Prosus at 25% or less simple discount to NAV, would own Tencent directly (long-only), or be long Tencent, short Prosus/Naspers.
Antony Waste Handling Cell Ltd – Forensic Analysis
- Antony Waste Handling Cell Limited (AWHCL IN) is one of the key players operating in the Municipal Solid Waste (MSW) industry.
- Key takeaways that warrant attention overlooked include disparity between accounting and management commentary on margins and reimbursements and stained auditor qualifications since F13
- Other forensic checks consist of poor quality of debtors, subsidiary stress and few eye-brow raising related party transactions.
Ace Hardware (ACES IJ) – A Rebound in the Offing
- Ace Hardware Indonesia (ACES IJ) 1H2022 results continued to reflect a hangover from COVID-19 in terms of slower growth although the company continues to demonstrate its resilience.
- The company’s store expansion continues with plans for 15 stores in total for 2022, whilst SSSG have seen a sharp recovery recently bringing YTD SSSG into positive territory.
- Ace Hardware is one of Indonesia’s top quality retailers with the potential for a sharp recovery and valuation looks attractive on 15x FY2023E PER versus 27x 5-year average PER.
Observability Pair Trade: Long Elastic / Short Splunk
- Like PANW and SNOW, Elastic continues to power through macro headwinds seen by many other software companies.
- Elastic has a Crowdstrike like dynamic, where it is capturing new workloads from incumbents, in the cloud. In this case, Symantec’s share donator role is being played by Splunk.
- In this tough volatile environment, we like an observability pair trade of Long ESTC / Short SPLK.
Delta Electronics: Taiwan Vs. Thailand Pairs Monitor, Call with Management
- We had a call with Delta Electronics (2308 TT) management to understand the company’s latest developments, particularly in relation to its growing automotive and EV businesses.
- Delta Thailand shares have rallied 55.4% in T$ terms, while Delta Taiwan has only rallied 9.3%.
- Delta’s EV business is growing 50% per year and has major customers including Tesla, GM, and Volkswagen, however, our sense is the Taiwan entity has an advantage.
Two Niche Semiconductor Industry Stocks Highly Exposed to EV Acceleration
- SDI Corporation (2351 TT) and Jih Lin Technology (5285 TT) are well positioned to generate significant long-term business from automotive end-market chip demand.
- The companies are the #1 and #2 leaders globally by market share respectively for power lead frames.
- Could receive earnings upgrades if CEV to EV market expectations are pulled forward.
Pinduoduo: Management Warns That 2Q22 Is Not a Good Benchmark For Future
- Pinduoduo (PDD US)’s 2Q22 was rather strong with revenue of RMB 31.4bn (consensus: RMB 23.6bn) and OP of RMB 8.7bn (consensus: RMB 3.6bn).
- However, the management was quick to dismiss the pretence that piduoduo would be able to maintain these elevated growth/margin numbers throughout the rest of the year and over the medium-term.
- This creates a lot of downside to consensus 2H22 and medium-term revenue and OP estimates in a time when valuation multiples have expanded over 70% from the March 2022 bottom.
Shenzhen Intl (152 HK): The Toughest Time Should Be over Now
- The 1H22 result of Shenzhen International (152 HK) is 4% ahead of indicated in profit warning. Key drags are toll roads and Shenzhen Airlines, but their 2H22 outlook is better.
- It will see many new logistics projects to commence operations in the next 12-18 months. Also, SZI guided that it will continue to realise underlying asset value through strategic disposals.
- We think the toughest time should be behind and expect more positive news on asset gains. The stock is very cheap at 0.41x P/B and 58% discount to appraised NAV.
Hangzhou Tigermed Consulting (3347.HK/300347.CH) 2022H1 – The Time Bomb Is Ticking
- Tigermed had high revenue growth in 2022H1 but with a YoY decrease in net profit attributable to the owners of the Company, mainly due to poor performance of investment business.
- Tigermed’s investment business is like a “time bomb” that would detonate in the future. Its “CRO+PE/VC business model” would trap its performance in a vicious circle due to unfriendly macro.
- We are conservative about Tigermed’s outlook and performance. Tigermed is difficult to achieve the V-shaped rebound. So we recommend investors to offload, or just do some short term trade.
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