In today’s briefing:
- Pair Trade: Want Want (151 HK) And Mengniu (2319 HK)
- Fu Shou Yuan (1448.HK) – Magic Is About to Disappear, but Is Still Undervalued
- H World Group (1179 HK): Uniquely Well-Placed for Lower-Tier Markets
- Elastic: 2Q’FY24 Earnings Review – Elastic Cloud Is a Bright Spot, PT Raised To $121
- IHH Healthcare (IHH MK): Double-Digit Growth Across Key Metrics for Q3; Bed Expansion to Continue
Pair Trade: Want Want (151 HK) And Mengniu (2319 HK)
- Want Want (151 HK) and China Mengniu Dairy Co (2319 HK) are both fairly liquid names in the China consumer staples sector.
- Both companies trade at virtually the same forward PE of 14x. However, I expect Want Want’s near term sales growth to be lower than market expectations.
- The upside risk for Want Want could be its overseas expansion efforts, as overseas sales now account for mid to high-single-digit of sales and grew high-teens yoy in FY1H24.
Fu Shou Yuan (1448.HK) – Magic Is About to Disappear, but Is Still Undervalued
- The high growth in 23H1 is unsustainable. 23H2 YoY revenue growth would be single-digit. Due to 23H1’s high base, we cannot rule out the possibility of negative growth in 24H1.
- In the case of lower-than-expected external M&A activities, Fu Shou Yuan has accumulated a large amount of cash, which would drag down ROE. So, current dividend policy still needs improvement.
- Fu Shou Yuan’s expansion would be relatively moderate. Double-digit revenue growth can still be expected in the long term. The market value of above RMB15 billion is more reasonable.
H World Group (1179 HK): Uniquely Well-Placed for Lower-Tier Markets
- H World Group (1179 HK) has been over-penalised by market weakness as its share price was off 16.8% YTD. It turned around in 3Q23 and guidance for 4Q23 is solid.
- Surge in operating and adjusted EBITDA margins indicated high operating leverage. Occupancy has not returned to 2019 level, but there will be more margin expansion when this happens.
- 55% of rooms in China are of economy type, and 82% are in tier-2 and below cities. Such characteristics allow it to benefit from the prevailing consumption downgrade.
Elastic: 2Q’FY24 Earnings Review – Elastic Cloud Is a Bright Spot, PT Raised To $121
- Elastic NV (ESTC US) reported a solid quarter, reflecting strong cloud revenue growth, ~13% non-GAAP operating margin and rapid adoption of ESRE.
- Elastic NV (ESTC US) shares rallied 35%+ during regular trading session and closed up ~37% on Friday at $110.20. I raised PT to $121 from $112.
- However, I downgrade Elastic NV (ESTC US) to Equal-weight from Overweight on valuation and expect the stock to trade in-line with peers.
IHH Healthcare (IHH MK): Double-Digit Growth Across Key Metrics for Q3; Bed Expansion to Continue
- IHH Healthcare (IHH MK) reported stellar performance in 3Q23 exceeding expectations, with double-digit revenue and EBITDA growth, while PAT more than doubles on higher patient volumes and improved case mix.
- To deliver profitable growth, IHH will continue its organic expansion, including adding close to 4,000 beds in the next five years to its existing 12,000 operational beds.
- Notwithstanding the strong underlying demand for quality healthcare services driving operational and financial growth, IHH expects cost pressures from elevated inflation, and rising interest rates.
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