In today’s briefing:
- Fast Retailing (9983) | Is China Still Recovering?
- Hugel: A Solid Turnaround Story With Resumption of Botulax Sales in China
- Five Star Business Finance (FIVESTAR IN) | A Five Star Business
- Short Note: CTF, Shareholder of NWD 17 HK, Announced Proposed Privatization for NWS, Positive to NWD
- Hugel Inc (145020 KS): Expanding Global Presence Provides Solace Amid Patent Tussle with Competitor
- Meta’s Achilles Heel(s)
- PT Surya Citra Media (SCMA IJ) – Catalytic Converter
- Ford: Surprisingly Still Undervalued
- Manchester United’s Q3 Earnings Reviewed (Rating Downgrade)
- Guangzhou Baiyunshan Pharmaceutical (874.HK) – When Valuation Is Low Enough, Drawbacks Are Tolerable
Fast Retailing (9983) | Is China Still Recovering?
- Fast Retailing’s stock price is overvalued and faces downside risks from its Q3 results (maybe), China outlook (perhaps), and index rebalancing (most likely).
- Fast Retailing has enjoyed a premium over its global peers largely due to its higher exposure to China growth. Any wobbles here could be negative catalyst
- There is also a technical issue that will likely cap the weighting of Fast Retailing in the Nikkei 225 = index selling pressure
Hugel: A Solid Turnaround Story With Resumption of Botulax Sales in China
- Hugel is a solid turnaround story. The recent resumption of its Botulax product sales in China is likely to boost the company’s sales and profits in 2023 and 2024.
- Despite this important catalyst, Hugel continues to face potential legal battle with Medytox over the botulinum toxin-related patent in the United States.
- The overall valuation on Hugel remains attractive and it is trading at EV/EBITDA of 7.1x and P/E of 18.2x in 2023.
Five Star Business Finance (FIVESTAR IN) | A Five Star Business
- Five Star Business Finance (FIVESTAR IN) is a NBFC based in India, specializing in providing financial services to small and medium-sized enterprises (SMEs) in the informal and semi-formal sectors.
- The focus on in-house sourcing, collection, and risk management aids in maintaining strong asset quality.
- In terms of valuations, FIVESTAR trades at a premium. However, considering its competitive moat and growth potential, any available opportunities should be capitalized upon.
Short Note: CTF, Shareholder of NWD 17 HK, Announced Proposed Privatization for NWS, Positive to NWD
- In this note, we looked at the privatization offer from Chow Tai Fook, and its impact on NWD 17 HK
- The proposed transaction will help NWD unlock its value and reduce gearing, which has been investor’s major concern
- It is only the beginning of part of strategic review of NWD group. We view more positive catalysts are coming
Hugel Inc (145020 KS): Expanding Global Presence Provides Solace Amid Patent Tussle with Competitor
- Hugel Inc (145020 KS) is expected to start shipment of Botulax to China this month. Moreover, the company will launch its HA filler in China by middle of 2023.
- Hugel plans to focus on expanding into the global market in 2H23. The company began full-scale sales of Botulax in Australia in April and plans to enter Canada this year.
- Preliminary ruling regarding legal dispute in US is expected in November, while final ruling will come in March 2024. Hugel pushed back its US entry to 2025.
Meta’s Achilles Heel(s)
- First some caveats: while we have all probably read Charlie Munger’s quote “I never allow myself to hold an opinion on anything that I don’t know the other side’s argument better than they do”, the reality is this is exceptionally uncommon and challenging.
- In fact, when investors mention risks about a company they like, they often deliberately choose strawman arguments from the other side and advertently or inadvertently ignore steelman arguments.
- I will try to avoid strawman bear cases (and boy there are many), and only outline the bear cases that indeed concern me as a shareholder.
PT Surya Citra Media (SCMA IJ) – Catalytic Converter
- PT Surya Citra Media had strong start to the year in terms of audience share but advertising revenues were slightly disappointing with a poor showing for the overall market.
- Advertising revenues were impacted by a slowdown in e-commerce activity but overall the market adjusted downwards with 2Q expected to be slow but with a strong recovery expected in 2H2023.
- PT Surya Citra Media continues to invest in original content but less aggressively, with cashflows expected to be stronger in 2023. There are also potential catalysts ahead from listing subsidiaries.
Ford: Surprisingly Still Undervalued
- Receding credit risk and a more predictable inflationary environment will likely deliver tailwinds to cyclical stocks.
- The U.S. Government is set to throw its support behind the EV industry, and Ford might be a primary beneficiary.
- However, we are giving the stock the benefit of the doubt.
Manchester United’s Q3 Earnings Reviewed (Rating Downgrade)
- Manchester United plc blitzed past its fiscal third quarter revenue estimate.
- However, key risks have surfaced, and limited transparency exists regarding its pending takeover.
- Manchester United’s brand engagement is scaling due to its growing YouTube and Instagram exposure.
Guangzhou Baiyunshan Pharmaceutical (874.HK) – When Valuation Is Low Enough, Drawbacks Are Tolerable
- Baiyunshan is not a typical TCM company. As Great Commerce accounts for the majority of revenue, it clearly drags down the quality of total assets and growth expectation for valuation.
- As Jin Ge and Wang Lao Ji are facing different challenges, the overall growth/profitability of Baiyunshan is under pressure.Due to uncompetitive product line, Baiyunshan’s future growth appears to lack momentum.
- The valuation of Baiyunshan-A share is still expensive, but Baiyunshan-H share is attractive. After all, the future consumption recovery would be beneficial for boosting Baiyunshan’s valuation. Then, trading opportunity occurs.
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