In today’s briefing:
- Fast Retailing (9983) | Fantastic Execution at Fantastical Valuation
- Sea Ltd – No Bringing Back to Life For Free Fire, Shopee’s Top Line Growth Could Disappear
- Suzuki (7269) | Small Cars at Tiny Valuations
- Keepers Holdings: Global Market Weakness Creates Opportunity
- TikTok Dives Into Southeast Asia With E-Commerce Push
- Ship Healthcare Holdings (3360 JP): Continues to Be a Strong Beneficiary of Japan Reopening
- IRay Technology (688301.CH) – Overvalued; Performance Deceleration Will Lead to Valuation Correction
- Korea Consumer Discretionary: A Pair Trade (Long CJ ENM and Short HYBE)
- PetroTal Corp (AIM: PTAL): Barge constraints should be alleviated in 4Q22
- Mahindra EPC – A Proxy Play on MIS Opportunity
Fast Retailing (9983) | Fantastic Execution at Fantastical Valuation
- We were Bearish on Fast Retailing, mainly due to valuation concerns against global peers. That view still stands.
- We expected cautious guidance reflecting a harsh macro environment. Fast surprised with bullish guidance. That could be a risk.
- We highlight the key slides from the results presentation and re-iterate our view that Fast should not trade at such a premium to its global peers
Sea Ltd – No Bringing Back to Life For Free Fire, Shopee’s Top Line Growth Could Disappear
- Garena has introduced nine major updates to “Free Fire” since June last-year but none of them has managed to turn around the game’s declining trend and regain the lost users.
- With Sea Ltd (SE US) no longer capable of funding Shopee’s growth, we are expecting e-commerce to start losing its top-line growth potential from 4Q22.
- Even though we are predicting a lot of downside to Sea Ltd over the medium term, an okayish Q3 could see shares bouncing back from the bottom.
Suzuki (7269) | Small Cars at Tiny Valuations
- We are bullish on the share price of Suzuki given its exposure to secular growth in India
- The ex-Maruti business is recovering as supply chain constraints ease.
- We see at least 25% upside to the share price and believe the non-Maruti business is significantly undervalued
Keepers Holdings: Global Market Weakness Creates Opportunity
- The Keepers Holdings, Inc. (KEEPR PM) correction in share price by 23% from the peak provides an opportunity with the stock trading at 7.4x/6.1x PE FY22e/23e (excluding Bodegas W&H earnings).
- The company will release its Q3 2022 earnings in early November, and we expect revenue and earnings growth to be >25% YoY.
- We also eagerly await more color on accretion to earnings from a 50% stake in Bodegas W&H post which we expect the stock to be even cheaper.
TikTok Dives Into Southeast Asia With E-Commerce Push
- ByteDance’s TikTok is cranking up its e-commerce foray into Southeast Asia as the Chinese tech giant pushes to commercialize the popular short video app to create a new revenue stream.
- During the first half, TikTok launched e-commerce businesses in Thailand, Vietnam, Malaysia, the Philippines and Singapore, expanding its presence to all major markets in the region.
- TikTok has been operating online shopping services in Indonesia, Southeast Asia’s largest economy, since early 2021.
Ship Healthcare Holdings (3360 JP): Continues to Be a Strong Beneficiary of Japan Reopening
- Ship Healthcare Holdings (3360 JP), being a leading supplier of hospital consumables in Japan reported stellar Q1 results, with 7% y/y revenue growth in its medical supply business.
- The impact of COVID-19 is easing in Japan and economic activities are gradually returning to normal. The number of surgeries is recovering due to increasing number of medical consultations.
- Ship Healthcare is expected to report high-single-digit revenue growth in FY23, accelerated from low-single-digit revenue growth reported in FY21 and FY22.
IRay Technology (688301.CH) – Overvalued; Performance Deceleration Will Lead to Valuation Correction
- IRay Masters all the major core technologies. It has a complete technical system of TFT SENSOR design and invention patents in the field of scintillators,setting it apart from domestic peers.
- The market where iRay is located has slow growth rate and obvious growth ceiling. The higher the short-term performance growth of iRay, the faster it would encounter a growth bottleneck.
- IRay is overvalued. The valuation has already overdrawn the performance of the next few years. Any deceleration in revenue/profit in any given year would lead to a significant valuation correction.
Korea Consumer Discretionary: A Pair Trade (Long CJ ENM and Short HYBE)
- In this insight, we discuss a pair trade of going long on CJ ENM and going short on HYBE.
- CJ ENM’s valuations are much more attractive and offer higher value as compared to HYBE. CJ ENM shares are trading at EV/EBITDA of 2.7x versus 10.9x for HYBE in 2023.
- The Korean government is likely to require BTS members to conscript for military service which is likely to lead to sharp decline in earnings estimates for HYBE.
PetroTal Corp (AIM: PTAL): Barge constraints should be alleviated in 4Q22
- 3Q22 production was ~12,229 bbl/d. This is below the guidance of 14.25 mbbl/d due to a continuing shortage of barges caused by the low level of the Amazon river during the dry season.
- With the upcoming end of the dry season, the shortage of barges is expected to disappear in 4Q22. The eventual goal is to send 600,000 bbl per month (~20 mbbl/d) eastbound to Brazil and Iquitos.
- No firm date for the restart of the ONP pipeline has been provided yet and the company is now excluding any contributions from sales through the ONP in its new guidance of 16.5 mbbl/d for 4Q22 (19.5 mbbl/d previously).
Mahindra EPC – A Proxy Play on MIS Opportunity
- Micro Irrigation firms > reeling under commodity stress > cut in Govt budgets > long wcap cycle
- Long term outlook, however is robust > revival in spends likely
- Negative sentiments > low earnings visibility > low valuation offers entry opportunity
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