In today’s briefing:
- Fast Retailing: The Fast Retailing to Topix Ratio Hitting Resistance Near The Pre-COVID Peak
- SK Square: The Excessive NAV Valuation Gap Is Likely to Narrow
- Orient Overseas Intl (316 HK): Don’t Overlook the Downhill Risks
- Ford Motor Company: Divestment Of India Unit & Other Developments
- BeiGene (6160.HK/BGNE.US) 22H1- It Is an Indisputable Fact that BeiGene Is Difficult to Make Profits
- Domino’s Pizza: Sources of Competitive Advantage
- Darden Restaurants Inc.: Growth Strategy
- NetApp Inc.: Initiation of Coverage – Hybrid Cloud Capabilities
Fast Retailing: The Fast Retailing to Topix Ratio Hitting Resistance Near The Pre-COVID Peak
- Fast Retailing (9983 JP) has rallied 60% during the last three-months on better-than-expected Q3 performance and a relatively strong bounce in Topix exceeding the upper-end of the trend-channel by 3%.
- Although 20% below the all-time high, reached during the COVID pandemic, the Fast Retailing to Topix ratio is currently near the pre-COVID peak and starting to show some resistance.
- We would look to short Fast Retailing with expectations of weakness in overseas markets such as North America and Europe in addition to the already struggling Chinese market.
SK Square: The Excessive NAV Valuation Gap Is Likely to Narrow
- After the disappointing withdrawal of two IPOs (SK Shieldus and One Store) in 2Q 2022, shares of SK Square are starting to recover in the past seven weeks.
- On a NAV basis, shares of SK Square are deeply undervalued. The current valuation reflects a NAV holdco discount of nearly 72.5%.
- If we assume a moderate 50% holdco discount, this would suggest a NAV of 74,677 won per share, which would be 81% higher than current price.
Orient Overseas Intl (316 HK): Don’t Overlook the Downhill Risks
- 1H22 is a fantastic period for Orient Overseas International (316 HK) with record earnings. However, with retreat in freight rates YTD, it is likely to mark the cycle peak.
- OOIL has not seen the usual peak season for transpacific market yet. Also, supply pressure is mounting as record vessel delivery is scheduled for the next two years.
- The elevated share price has not reflected that profitability will decline in FY23 and FY24. We see significant downside risk as the market becomes more realistic on earnings.
Ford Motor Company: Divestment Of India Unit & Other Developments
- Ford performed well during the second quarter despite a difficult environment that included supply chain disruptions, numerous new economic challenges, and general uncertainty.
- It managed to surpass Wall Street expectations in terms of both, revenues as well as earnings.
- The Ford+ strategy, which is Ford’s best chance to add value since they scaled the Model T, is why they achieved these achievements.
BeiGene (6160.HK/BGNE.US) 22H1- It Is an Indisputable Fact that BeiGene Is Difficult to Make Profits
- BeiGene’s product sales in 2022H1 more than doubled YoY, which was a positive sign for commercialization. However, net loss further widened, mainly due to significantly high R&D and SG&A expenses.
- Tislelizumab and zanubrutinib are not enough to support BeiGene’s high valuation. The success or failure of TIGIT project will be the key to determine how far BeiGene will go.
- So far, it is still an indisputable fact that BeiGene has profitability issues. That’s why it’s hard for us to be optimistic about this company.
Domino’s Pizza: Sources of Competitive Advantage
- Given the impact of inflationary headwinds, Domino’s has been working out ways to improve its consumer pricing architecture in the U.S.
- The management saw the average price rise close to 6% in the last quarter which helped the company surpass revenue expectations of Wall Street.
- In the new season of Stranger Things, they also introduced their Mind Ordering app, which offered a new ordering experience.
Darden Restaurants Inc.: Growth Strategy
- Darden Restaurants delivered a decent quarterly result exceeding sales expectations and having fairly good earnings despite the highly inflationary environment.
- The 2022 fiscal has been good for the company despite the impact of the Omicron variant as its brands continue to strengthen their business models.
- While LongHorn and other business segments saw lower segment profit margins in the last quarter due to higher inflation levels and other investments made in those businesses since pre-COVID, Olive Garden and Fine Dining segments saw segment profit margin growth this quarter.
NetApp Inc.: Initiation of Coverage – Hybrid Cloud Capabilities
- NetApp has been seeing strong growth in object storage products and an all-flash array.
- The public cloud business of the company expanded with a strong expansion of customers, routes to market, innovation, and ARR.
- While the company’s demand environment remained quite strong, there was an increase in geopolitical conflict, inflation, rising interest rates, and supply constraints.
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