Daily Brief Equity Bottom-Up: Fushan Energy Shareholder Selldown Implications and more

• Funde Sino Life Insurance, a significant shareholder of Shougang Fushan Resources (639 HK), has sold down its stake in the company by 3.31% to  27.96% as per recent filings.
• Along with coking coal prices remaining weak, this creates a massive overhang clubbed with uncertainty on the share price in the short term. 
• It also creates an opportunity as the stock has almost 70% of its market capitalization in cash, a low-cost advantage, and a dividend yield of at least 12% for FY23e.

• Japan Post Bank is no ordinary bank, without much loans, and mostly investments
• It is well-known for its US CLO exposure, but also moving more into private equity
• Many moving parts to the bank’s earnings, where we see downside risk on profit

• Nitori, Japan’s largest furniture retailer, once again grew consolidated revenues in its extended financial year to March.
• Despite the increased costs of imports, profits also rose, although net profits saw a rare decline.
• The group still has strong growth potential: it continues to diversify, including into apparel, expand its omnichannel operations and is now building more stores overseas. 

• We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .
• Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. 
• We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.

• China Dongxiang (3818 HK) posted good FY22/23 result, supporting by sharp recovery in its investment portfolio contribution. Its apparel business also witnessed narrowing losses.
• It trades on 0.2x P/B, with most of book value being cash and investment portfolio. It is true that it deserves a discount but this is just too deep.
• Fading pandemic impact should be positive to CNDX’s apparel business – it has already witnessed a 5.6pp increase in offline sales. More brand promotion should be a positive driver.

• Polaris Group (6550 TT) is in a process to file first BLA to the FDA for its lead drug candidate ADI-PEG 20 as a potential treatment of malignant pleural Mesothelioma.
• Although Polaris announced positive top-line result from Phase 2/3 study of ADI-PEG 20, overall survival was shorter than existing FDA-approved treatment, causing a massive sell-off in Polaris shares.
• However, the results are not fully comparable due to the different mechanism of action of the drugs under trial. Future growth prospect is not reflected in current share price performance.

• BlackRock, Inc. stock is overlooked, as most market participants have yet to recognize the firm’s recent inflection points.
• The firm’s base rates improved in Q1, which we think will continue into late 2023 and early 2024.
• However, we still back BlackRock’s stock to succeed.

• In May, average pricing fell again Y/Y, and volume growth moderated somewhat vs April
• We look forward to learning more about J&T Global Express IPO and its path to profits
• Check out the weird China-US postage fraud case and YTD share performance

• The pricing of core product Envafolimab doesn’t have an advantage over competitors. Its market opportunities and profit margins are very limited if seen from both production side and sales side.
• 3DMed clearly faces financial pressure, and may not smoothly promote other pipelines. Under current market environment, it’s almost impossible to achieve substantial refinancing. The survival of 3DMed cannot be guaranteed.
• The fundamentals of 3DMed are not strong enough to justify high valuation. Current share price is clearly overvalued.Eventually the market will return to rationality. We recommend investors offload in time.

Nanoco has announced its intention to return £33–40m of the funds won through the settlement with Samsung to shareholders, retaining £20m to execute its growth and intellectual property (IP) licensing strategy. Management expects to start this programme after it has received the second $75m tranche in February 2024 from the Samsung litigation. Operationally, multiple end-customer trials via Nanoco’s major partner are ongoing and it is seeing renewed interest from the display market. The group also intends to seek further value from its IP portfolio, having identified a number of other potentially infringing third parties.