In today’s briefing:
- Fast Retailing (9983) | Time to Ditch the Shorts
- Tencent/Netease: Under Pressure with No Game Approval in July
- Tencent – Excluded Again from New Game Approvals
- Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
- Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
- Eisai Co (4523 JP): Trying Another Luck for Alzheimer’s Disease; Strengthening Presence in Oncology
- TMT Pre-2Q Earnings: The TikTok Impact
- Lawson: Profitability to Expand with Slowing Growth Investments
- TCAP : A Dividend Play
Fast Retailing (9983) | Time to Ditch the Shorts
- We turn bullish on Fast Retail as the current quarter marks the bottom for China sales
- The company continues to surprise in its mastery of gross margins and operating costs
- China is key, but the US is emerging as a new (and profitable) growth driver
Tencent/Netease: Under Pressure with No Game Approval in July
- China just announced game approval for July batch. More games were approved in July compared to June and May.
- Pace of China game approval has picked up albeit at a much slower pace than pre-tightening.
- Tencent and Netease will be under pressure as they continue to score zero in July domestic game approval.
Tencent – Excluded Again from New Game Approvals
- China’s NPPA issued a list of 67 new games approved for July 2022, and once again, Tencent (700 HK) and its smaller rival NetEase were excluded from the list.
- The nine-month long freeze on new game approval was lifted in April, however, none of Tencent’s new games were included in the approved lists in April, June and July.
- This further affirms our view that the anti-monopoly crackdown on tech firms hasn’t slowed down, but regulators are probing on dominant players such as Tencent to level the playing field.
Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
- Topsports suffered the first decline in performance since FY2018. Besides pandemic outbreaks and inventory shortage due to global supply chain disruption, over-reliance on Nike and Adidas is also the reason.
- This is the best opportunity to reduce the number of stores based on “Select+Optimize” strategy. With resumption of sports events and good prospects of China’s sports industry, Topsports could rebound.
- Topsports is undervalued compared with its peers, but we are now in a complicated macro environment. Share prices may not rise as expected, which should be aware of by investors.
Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
- One of the key reasons why we are bearish on this stock (despite cheap valuations) is that the valuations may become even cheaper.
- The CCP remains intent on maintaining its ZERO COVID policy which means continued sporadic lockdowns and social distancing measures, which is negative for sports apparel products.
- All in all, we believe that a better time to get back into Topsports International is when the CCP becomes more vocal about finally relenting on its ZERO COVID policy.
Eisai Co (4523 JP): Trying Another Luck for Alzheimer’s Disease; Strengthening Presence in Oncology
- Eisai Co Ltd (4523 JP) has been granted priority review by the FDA for its second Alzheimer’s disease drug candidate, lecanemab. Approval is expected in Q1 2023.
- Lecanemab could become the first anti-amyloid antibody to obtain full approval for Alzheimer’s disease in the U.S. Eisai is aiming for submission of lecanemab in Japan and EU this fiscal.
- Anticancer agent Lenvima is the largest selling drug of Eisai. Revenue from Lenvima increased 44% in FY22. The drug has taken top share in hepatocellular carcinoma market.
TMT Pre-2Q Earnings: The TikTok Impact
- TikTok’s business model advantage: short form video creates greater signal for algorithmic addiction is forcing rivals to react (where possible).
- META is best positioned to copy TikTok, and is trading at a valuation approximating cable networks during cord cutting.
- Netflix is worst positioned… as YouTube, Instagram, and Snap incorporate TikTok’s short form video, more attention will be drawn away from the streaming services. Tough spot to be in.
Lawson: Profitability to Expand with Slowing Growth Investments
- Lawson Inc (2651 JP)’s Q1 OP of ¥13.3bn (consensus: ¥10.6bn) seems to suggest that the company’s profitability is heading up following the upfront investments in store renovations.
- After beating consensus OP by more than 25% in Q1, we think the company is being overly conservative by maintaining the OP guidance around ¥10.0bn below the pre-COVID level.
- Based on the FY+1 OP to share price trend historically, our FY23 OP estimate of ¥63.0bn suggests that Lawson should trade at around ¥6,500 per-share, an upside of around 36%.
TCAP : A Dividend Play
- We initiate coverage of TCAP with a HOLD rating and a target price of Bt39.00. We expect TCAP’s net profit will decline by 10% YoY in 2022 before turning
- Positive lending growth intact despite uncertainties The Bank of Thailand (BOT) estimates Thailand’s economy will expand by 3.3% YoY in 2022 on the back of an improvement in domestic demand
- We expect TCAP’s lending growth to continue rising by 10% YoY in 2022 (2021:+7% YoY), supported by higher demand for hire purchase lending via Ratchthani Leasing (THANI) and higher SME
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