In today’s briefing:
- Nidec (6594) | Big Revision Down to E-Axle Sales
- Pinduoduo (PDD US): Resetting Expectations
- Yakult: Yakult 1000 Could Deliver a Surprise Yet Again
- Erajaya Swasembada (ERAA IJ) – In Ramping Up Mode
- China Resources Beer (291 HK): High Visibility; Steady Growth; Reasonable Valuation
- ASML. Sanctions? Moi?
- Acer Hardware Indonesia (ACES IJ) – Cementing a Positive Performance
- Huawei Launches AI for Commercial Use in Mining Sector
- SK Biopharmaceuticals (326030 KS): Starts 2023 on Strong Note; Unveils New Mid to Long-Term Strategy
- United Arrows Plans to Double Sales in 10 Years but 2x OPM May Come Sooner
Nidec (6594) | Big Revision Down to E-Axle Sales
- Nidec reported strong Q1 results – operating profit of ¥60.2 billion (+35% YoY), significantly above Street expectations of ¥45 billion
- The big positive was a rebound in profitability following successful structural cost cuts last year. The key negative is a cut to unit shipments for key growth driver, E-axles.
- We remain bearish for now given valuation of 25x EV/EBIT. We are not sure that the new growth driver in Motion & Energy will offset lowered expectations for EVs.
Pinduoduo (PDD US): Resetting Expectations
- We think the tailwinds of China’s consumption downgrade for PDD are overblown, while TEMU will be more of a drag than a support for bottom-line in quarters ahead.
- 2Q results to be announced next month will finally validate our thesis on the company’s earnings risk which we flagged back in last December.
- The markets have been pricing in a sharp slowdown after a short-lived euphoria around its seemingly strong 1Q results, yet downside surprises could still catch investors off guard. Stay neutral.
Yakult: Yakult 1000 Could Deliver a Surprise Yet Again
- Market expectations for Yakult’s 1QFY24 earnings seem weak, with consensus looking light, and the share price currently lingering near the lower boundary of the minus 2x trend channel.
- Therefore, we believe that even a minor earnings beat next week could potentially drive Yakult Honsha (2267 JP)‘s share price back up to the ¥10,000 level.
- We anticipate that Yakult 1000 has the potential to drive that earnings beat, as it is projected to grow by as much as 65% YoY this quarter.
Erajaya Swasembada (ERAA IJ) – In Ramping Up Mode
- Erajaya recently released its 1Q2023 results with net sales increasing by +29% YoY but with -20.5% decrease in net profit due to increased opex related to its expansion and inventory build.
- The company plans to add 400 new outlets this year, lower than last year’s 575, as it ramps up its newer stores, which should help to improve profitability in 2H2023.
- Erajaya continues to add to its stable of brands outside mobile handsets, including JD Sports, Wellings, Grand Lucky, The Face Shop, Paris Baguette, and has launched EraBlue with Mobile World.
China Resources Beer (291 HK): High Visibility; Steady Growth; Reasonable Valuation
- China Resources Beer Holdings (291 HK) is a USD21bn red-chip company, and the largest beer company in China in terms of sales volume.
- The company is a perfect fit for the GARP (growth at a reasonable price) strategy, and visibility in earnings is also high for the next 3-5 years.
- Weak sentiment in H-share stocks and in overall China macro/consumption numbers provide a good entry opportunity for the stock.
ASML. Sanctions? Moi?
- FY’23 growth forecast increased despite push outs in the EUV order book and lower than expected IBB revenues.
- Broad-Based recovery is now looking more like a H1’24 scenario with lingering uncertainty as to how it quickly it will unfold thereafter
- System sales to China increased from 8% of revenues in Q1’23 to 24% in Q2’23. Non-China DUV order cancellations are being snapped up by China at an unprecedented rate.
Acer Hardware Indonesia (ACES IJ) – Cementing a Positive Performance
- Ace Hardware‘s June SSSG confirmed very strong growth momentum and the positive impact of its BOOM sale, with headline SSSG at +10.7% YoY, after a flat post-Lebaran performance in May.
- The company’s strategy of using influencers to promote the company has been a great success for its #Bisakejadian campaign, and BOOM sale with foot traffic continuing to improve at stores.
- Ace Hardware plans to step up its store expansion and ramp up new store formats to drive growth, with up to 15 new stores this year. Valuations are attractive.
Huawei Launches AI for Commercial Use in Mining Sector
- Huawei Technologies Co. Ltd. on Tuesday launched the first commercial use of its artificial intelligence (AI) large language model (LLM) Pangu for the mining industry, as it seeks to make use of the next-generation technology to improve the sector’s safety and productivity.
- Developed in partnership with state-owned Shandong Energy Group Co. Ltd. and its unit Yunding Technology Co. Ltd. (000409.SH), the Pangu Mine Model has been deployed in the coal giant’s mines in East China’s Shandong province, Huawei said in a press release Wednesday.
- It also touted the launch as the world’s first commercial large AI model for the energy sector.
SK Biopharmaceuticals (326030 KS): Starts 2023 on Strong Note; Unveils New Mid to Long-Term Strategy
- In 1Q23, SK Biopharmaceuticals Co Ltd (326030 KS) recorded Xcopri U.S. revenue of KRW53.9B, up 70% YoY and 8% QoQ. Xcopri growth is expected to accelerate in US in H2.
- The company’s operating loss narrowed to KRW23B in 1Q23, recording the lowest level excluding the one-off sales, compared with operating loss of KRW45B in 4Q22 and KRW37B in 1Q22.
- The company is looking for Xcopri revenue of KRW300B in 2023. With stable cash generation and expansion into three new modalities, SKBP aims to become a $15B company by 2026.
United Arrows Plans to Double Sales in 10 Years but 2x OPM May Come Sooner
- United Arrows (7606 JP) is a bellwether retailer for the premium fashion sector.
- Its slow initial recovery after the pandemic worried many but the last year saw a solid improvement, even if sales are still well below the peak.
- Following rationalisation, the fashion firm has now put in place plans to double sales to ¥250 billion in the next decade and we expect a return to 10% OPM.
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