Daily Brief Equity Bottom-Up: Pacific Textiles (1382 HK): Material Benefits and more

• Back in June 2017, Toray Industries (3402 JP) acquired a 28.03% stake in Pacific Textiles (1382 HK) (@ HK$10/share). Rumours that Toray would take this stake to 50% never unfolded.
• Pacific Textiles is currently trading at HK$1.30/share, its lowest level outside of the GFC. 
• Relatively inexpensive, high digit yield and M&A angle, Pacific Textiles remains attractive. This is supported by the recent Offer for Weiqiao (2698 HK) and David Webb taking a 5% stake. 

• We forecast EBITDAR of KRW3.35trn for Korean Air in 2023 (KRW3.8trn previously) with EBITDAR/ATK up 50% on 2019/32% on 2018. We remain at KRW2.9trn in 2024 (EBITDAR/ATK +28% vs 2019).
• Unwinding cargo yields may fully eliminate earnings gains but cost management safeguards future prospects despite Asiana merger uncertainty.
• Cost inflation management inflected negatively in 3Q as labour costs rose – control crucial as market conditions normalize and low cost competitors expand.

• Xtep International (1368 HK) announced an operational update for 4Q23, with retail sales growing more than 30% for the Xtep brand (off of a low base in 4Q22).
• The overall quality of the retail sales growth is low, as the growth was mainly driven by higher discount level (around 30% compared to 25-30% in the previous quarter). 
• I still prefer Anta over Xtep at this stage, as Xtep is more of a beta play if the consumer sentiment turns around in China. 

• LG Energy Solution reported disappointing preliminary earnings in 4Q 2023. The company reported operating profit of 338.2 billion won (43.5% lower than consensus).
• Post a major earnings miss for LGES in 4Q 2023, the consensus is likely to reduce earnings estimates of the company in 2024 and 2025.
• Major EV players such as Tesla were reducing prices in the past year causing higher pressures on EV battery makers such as LGES to reduce their prices as well. 

• Pro-Dex specializes in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. 
• Pro-dex has patented adaptive torque-limiting software and proprietary sealing solutions which appeals to their customers, primarily medical device distributors
• They also manufacture and sell rotary air motors to a wide range of industries.

• Overview: arara primarily serves retailers such as supermarkets and restaurant chains, offering Dokuji Pay (branded currency payment + marketing) and high-speed e-mail delivery software as a service.
• With its Dokuji Pay service, where clients are the issuers, the company has a certain level of distinction from its competitors in this niche field, and is solidifying its market position.
• Starting in March 2024, the company plans to integrate its digital signage- related business as well, aiming to quickly accelerate its retail marketing platform strategy to help retail stores strengthen their connection with consumers both inside and outside their stores. 

• Hon Hai released its December revenue figures on January 5th; Revenue came in lower than any other December in recent history.
• Hon Hai’s MIH EV consortium is showcasing solutions at CES 2024 this week in Las Vegas.  In Taiwan, the Luxgen expects 9,000 customer deliveries for its ‘n7’ EV by June.
• Hon Hai is trading at less than 5x forward 2025E PE; and on a trailing basis one of the lower EV/EBITDA’s in history. Latest share drop is a buying opportunity.

• After 23H1 results were released, we have seen some positive business progress in internationalization. There has been no obvious negative news about performance. Acotec’s future prospects are still relatively optimistic.
• Contrary to solid fundamentals, Acotec’s stock price continues to decline. The sluggish stock price performance is not directly related to fundamentals, but rather to poor liquidity and unsatisfactory capital inflows.
• Stock price hasn’t bottomed yet, so investors’re not advised to rush to buy the dip.For market value management, Acotec’s management need to invest more energy/time to maximize shareholder value/investors’ returns.

• JPM generated USD 38.9B in profits for the first 9 months of 2023, or about 18% of the industry total.
• Since start of 2023, JPM has outperformed S&P by 450 bps and Invesco KBW Bank ETF by a staggering 32.47%.
• Tight financial conditions, inflation, elevated rates, & lacklustre M&A activity, will hammer Q4 bank earnings. But JPM will buck the trend.

Oryzon Genomics has announced top-line results for the Phase IIb trial (PORTICO) assessing vafidemstat in borderline personality disorder (BPD), and while the primary endpoints (Borderline Personality Disorder Checklist (BPDCL) and Clinical Global Impression – Severity Agitation/ Aggression (CGI-S A/A)) did not reach statistical significance, vafidemstat was favoured over placebo in all efficacy measures, with nominal statistical significance in two key secondary endpoints (Borderline Evaluation of Severity (BEST) and State-Trait Anger Expression Inventory 2 (STAXI-2) Trait Anger). Further, the drug was found to be safe and well-tolerated, consistent with prior studies. Management plans to conduct a detailed analysis of the trial data across the coming months and intends to request an end-of-Phase II (EoP2) meeting with the FDA in early Q224 to discuss a potential registrational Phase III programme. There are currently no approved drugs for this indication and hence gold-standard endpoints are yet to be established. We therefore believe that there is still a significant opportunity for Oryzon in this space, however, further clinical progression will be heavily reliant on the EoP2 meeting request and outcome.