In today’s briefing:
- Nintendo (7974) | Game Over for Switch
- Hong Kong Property: Retail Reopening Front-Runners
- Softbank Group (Neutral) – Q3 22 Results Reaction: Defensive Stance Intact as VF Losses Continue
- Pinduoduo: Untaming TEMU Through $100 Coupons
- Consun Pharmaceutical (1681.HK) – Still Has Investment Value Even Without High-Priced Acquisition
- Z Holdings (4689.JP) Upgrade to BUY: Leaner Business Lines with PayPay Drives Growth
- Burberry: Too Far Too Soon
- Taiwan Tech Weekly: Balloon Incident Could Worsen China Restrictions & Key Earnings Readthroughs
- Long Apple Vs. Short Quanta & Pegatron Update: Apple Outperformed 12%, Consider Unwind
- US Neobanks; Warning Signals from SoFi and Varo 4Q Results
Nintendo (7974) | Game Over for Switch
- Nintendo reported operating profit of 190b yen (-8% YoY), falling far short of Street expectations
- The Nintendo Switch is now a six-year old console and demand is exhausted. A normalization of chip/supply chain issues benefits the newer PS5
- Our thesis is that the hardware cycle has peaked and that the share price will head lower in tandem with the dwindling top line
Hong Kong Property: Retail Reopening Front-Runners
- China’s swift and sudden abolishment of its Covid rules triggered across-the-board outperformance for Hong Kong stocks. The HSI is up ~13% since early December 2022.
- A strong rebound of inbound tourism and the resumption of normalised travel between Hong Kong and the mainland should underpin the city’s recovery.
- The retail sector, notably the high street shop segment, should lead this post-Covid recovery in terms of both rents and prices.
Softbank Group (Neutral) – Q3 22 Results Reaction: Defensive Stance Intact as VF Losses Continue
- Management pushed a conservative / defensive line for Q3 as markets remain uncertain and investment losses continue
- Revenue growth at ARM was better than expected as licensing revenues rebounded strongly. Guidance for the timing of an IPO (sometime in 2023) remains unchanged
- This was a slightly disappointing quarter but hopes were not high heading into the print with the discount hovering around 35%
Pinduoduo: Untaming TEMU Through $100 Coupons
- The market seems to be expecting quite a bit from Pinduoduo (PDD US) in upcoming earnings with consensus expecting the company to make around RMB 11.4bn OP in 4Q22.
- With CCP’s anti-monopoly drive on hold, Pinduoduo may need to persuade customers and merchants a bit more than usual via sales and marketing to further improve its market position.
- TEMU was anyway going to be a significant burden on profitability. With aggressive discounting and coupons, we think that burden has gotten significantly heavier.
Consun Pharmaceutical (1681.HK) – Still Has Investment Value Even Without High-Priced Acquisition
- The potential high-priced acquisition proposed by Wepon failed. In fact, Wepon is in a vicious circle. So, terminating the acquisition is not a bad thing for Consun Pharmaceutical (1681 HK).
- Consun kept positive momentum and its performance was strong in 22H1. Such growth is expected to continue after China reopens as non-COVID related medical demand returns to normal.
- Considering its solid business performance and large cash balance, Consun is obviously undervalued. In our view, even without Wepon’s deal as the catalyst, Consun still has investment value.
Z Holdings (4689.JP) Upgrade to BUY: Leaner Business Lines with PayPay Drives Growth
- ZHD F3Q22 (C4Q22) net revenue slightly missed our est. and cons. by (2%) and (1%). Adjusted EBITDA margin was in line with our est. excluding impact from PayPay consolidation.
- PayPay will continue to be the growth driver for ZHD with increase in unit spending supported by premium credit card offering and deepening integration with group’s other services.
- We upgrade ZHD to BUY and raise our TP to JPY 435 to reflect beat in profitability and upsides in PayPay
Burberry: Too Far Too Soon
- Expectations of the new CEO Jonathan Akeroyd and the new creative director Daniel Lee uplifting the business and accelerating sales are priced in
- Resumption of Chinese outbound travel will surely happen, but it will take time
- No valuation upside at these levels. We are bearish on the stock
Taiwan Tech Weekly: Balloon Incident Could Worsen China Restrictions & Key Earnings Readthroughs
- China Balloon Incident — Negative news for China semiconductor restrictions; Up to 45nm may now be hobbled by Japan & Netherlands joining.
- Hon Hai — January sales results strong, could help market look forward to Hon Hai’s future growth.
- Mediatek Results & Upcoming Results — Signs of slight smartphone stablization, also we highlight key Auto & Industrial Semiconductor related results ahead.
Long Apple Vs. Short Quanta & Pegatron Update: Apple Outperformed 12%, Consider Unwind
- Since our Long Apple vs. Short Quanta & Pegatron piece, Apple has outperformed by 11.7% in USD-adjusted terms.
- Apple has reported results recently, thus the next major events could be Quanta and Pegatron results.
- Given Apple has outperformed by a significant amount, we believe the best of Apple’s relative outperformance is done for the near-term. One can thus look for levels to unwind.
US Neobanks; Warning Signals from SoFi and Varo 4Q Results
- Varo bank published 4Q22 results that revealed lower quarterly cash burn through cost control, but revenue per client declined and the very high customer acquisition cost
- SoFi’s cost reduction success in 4Q22 seems, in contrast to Varo, to have limited revenue loss, thereby bringing SoFi closer to breakeven; it trades at a premium to peers
- These early 4Q22 results signals may provide some read across which we believe could be negative for Dave in particular, as well being a reality check for Inter’s US ambitions
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