Daily Brief Equity Bottom-Up: Fast Retailing: Inflated Earnings Expectations & Stretched Multiples and more

• Consensus FY+2 EBIT seems inflated by around 16%, driven by optimistic assumptions of recovery in China and growth in North America and Europe.
• However, apparel demand in China was lower than expected, while wage hikes and a potential US recession could negatively impact profitability in the short-medium term.
• As risks are skewed to the downside, we remain short Fast Retailing (9983 JP) leading up to 2QFY23 results.

• Shift Inc (3697 JP) reported 2QFY08/23 results on Monday. Revenue increased 34.7% YoY to ¥21.0bn (vs consensus ¥21.3bn vs guidance ¥21.1bn) while OP grew 74.8% YoY to ¥3.3bn (vs consensus ¥2.4bn).
• Both GPM and OPM improved significantly reaching record highs as unprofitable projects came to an end with cost optimisation initiatives removing previous concerns over declined margins in 1QFY08/23.
• Shift’s share price closed at ¥25,870 closing 15.8% higher than the previous close at the end of yesterday’s trading following its strong set of earnings.

• HPL Electric & Power (HPLE IN) is one of the key players in domestic electric meters market and domestic on-load, change-over switches market. The company also manufactures LED products.
• Forensic overview of the company indicates poor capital allocation in the past, along with cash generation issues.
• One must also keep a note of the inherent credit risk, as well as some interesting line items such as software and designs, on the balance sheet.

• Boryung Pharmaceutical (003850 KS) reported stellar Q4 results, with revenue increasing 21% YoY, driven prescription drugs. 2022 revenue and operating profit surged 20%+ YoY and surpassed guidance.
• Boryung has guided for 2023 revenue and operating profit of KRW810 billion and KRW61 billion, representing growth of 12% and 1%, YoY, respectively.
• Driven by in-licensed drugs and pipeline progress, Boryung’s target of KRW1 trillion revenue and KRW200 billion operating profit by 2026, seems achievable.

The Competition and Markets Authority (CMA) has rejected the remedy proposed by United Health (the bidder) and EMIS to reduce the risks to competition and has announced it is launching a Phase 2 investigation into the acquisition. The bidder and EMIS have confirmed they will proceed with the Phase 2 investigation. Due to the investigation, they have extended the long stop date for the deal and extended the period during which EMIS shareholders will be entitled to dividends by one year.

• We continue to view JUNSHI’s Phase III pipeline, consisting of Senaparib (JS109/IMP4297)(PARP), Ongericimab (JS002)(PCSK9), Bevacizumab (biosimilar) and VV116 (COVID)(RdRp) as unexciting; 
• Phase I/II drug Tifcemalimab (TAB004/JS004)(BTLA mAb) is interesting, but may not last to reach product sales;
• We acknowledge the bad news has already been priced in and raise the TP to HK$21, but JUNSHI still has unfavourable risk reward profile in our opinion.

• This is our first report on a global investment behemoth, KKR & Co.
• Inc.
• The company delivered strong set of quarterly results surpassing Wall Street expectations on all fronts.

• EBIT beat – loss came in lower by 2.43%, Δ $(0.73)m vs. ACF est.;
• EBITDA beat – loss came in lower by 2.43%, vs. ACF est.;
• EPS beat (+ fully diluted) loss 4.22% lower vs. ACF est.

• NTGR has been going through a product transition cycle in a soft demand environment for more than a year, but recent promotion activity suggests an end could be near
• The scale of promotions seems to have abated in the first quarter of 2023 even though demand has yet to return.
• NTGR had been projecting the first quarter would be the low point of the year with sequential revenue growth in the second quarter. 

• UnitedHealth Group Inc.’s first-quarter earnings report might settle lower than anticipated as prices on long-term solutions have softened.
• The company has a rich history of beating earnings estimates, and its cash-based earnings exceeded its accrual-based income in 2022.
• UnitedHealth Group Incorporated (NYSE:UNH) is set to release its first-quarter earnings results before trading opens on Friday, the 14th.