Daily Brief Equity Bottom-Up: LG Chem: Considering a Block Deal Sale of About 2 Trillion Won of LG Energy Solution: A Big Overhang and more

• After the market close on 16 June, it was reported in the local media that LG Chem is close to selling about 2 trillion won worth of LG Energy Solution.
• This block deal sale is likely to pose overhang on more stake sales of LG Energy Solution (about 10% stake) in the next 3-5 years.
• Our NAV valuation analysis of LG Chem suggests an implied price of 1,057,770 won per share, which is 41% higher than current share price.

• HUTCHMED developed Fruquintinib has demonstrated positive results in a Phase III FRESCO-2 study which reduced the risk of death by 34% in patients with previously treated metastatic colorectal cancer.
• In addition, Fruquintinib also has been validated and accepted for regulatory review (for marketing authorization) by the European Medicines Agency (EMA) last week.
• In January 2023, Takeda Pharmaceutical (4502 JP) entered into an exclusive licensing agreement with HUTCHMED to further develop and commercialise Fruquintinib outside of Mainland China, Macau and Hong Kong.

• We expect June quarter results to beat consensus and demonstrate a balanced growth across topline and bottom-line.
• During a time when headlines drive BABA share price, it is more important to stay grounded in numbers, see what is in price and make trades accordingly.
• We maintain US$500 billion target market cap on 20x RMB180 billion non-GAAP net profit by FY25.

• Alteogen Inc (196170 KS)‘s partner has submitted marketing application for Herceptin biosimilar in China. Alteogen will be entitled for royalty after the product is approved and sold in China.  
• In April 2023, Alteogen announced that the company will receive additional milestone of $3 million (~KRW4 billion) from its first ALT-B4 technology transfer partner.
• Alteogen has completed patient recruitment for global phase 3 trial for Eylea biosimilar. Marketing application is expected to be filed in early 2024, with marketing expected to start from 1H25.

• Japan’s strong domestic demand and a rebound in China fuel optimistic growth outlook for Fast Retailing (9983 JP) in the short term.
• Furthermore, the markets such as Europe, North America, South East Asia, India, and Australia present promising long-term growth opportunities.
• However, Fast Retailing’s valuation is a cause for concern as it currently trades at a consensus FY27 OP of 20.0x.

• During the weekend, I asked my twitter followers: What do you think Facebook’s DAU to MAU ratio was in 2009?
• The number that got the highest votes was ~80% even though I mentioned the most recent number was ~68%.
• I asked this question a couple of friends in real life too and they too picked the ~80% number.

• In the past few years, the investment business and M&A of Viva accelerated based on a series of financing tools such as IPO/placement/convertible bonds. Thus, Viva’s scale has grown rapidly.
• Continuous decline in stock price ultimately triggered a “redemption crisis” for Viva’s convertible bonds.Although Viva resolved it by transferring equity in its CRO subsidiary, the prospects are still not optimistic.
• Due to the downturn in innovative drug industry and deterioration of financing environment,whether the high valuation of Viva’s CRO business would be recognized by secondary market is a question mark.

1Spatial has won its first two contracts for 1Streetworks, the company’s SaaS-based Traffic Management Plan Automation product. This is an important development for the company in that the potential addressable market for this product is large; management estimates around £250m for low speed roads in the UK alone and 1Spatial looks well positioned to gain a significant market share. 1Streetworks also runs on the company’s newly launched cloud-based platform, representing an important milestone in 1Spatial’s migration to a scalable, SaaS-based model. Both contracts are for a three-month term initially, with the intention to move to annual or multi-year contracts upon successful completion. We are not changing our estimates at this stage. Further deal flow for 1Streetworks (or other SaaS products), together with the continuation of these initial deals to longer engagements, could be the catalyst for stronger growth and margin expansion to become priced in.

• Previously, we criticized CJ Logistics as unfocused, pursuing deals in low-margin segments around the world as if to fill a logistics ‘Bingo!’ card rather than in-line with a rational strategy
• In recent years, investors have punished the company’s shares, which have fallen by more than half since reaching a high of over 184,000 won per share in March 2021. 
• However, with management de-emphasizing its Global segment and focusing instead on the more promising Parcel / E-commerce line of business, there is cause for optimism, in our view