In today’s briefing:
- PayPal: Elliott Sees Opportunity, So Do We
- Disco (6146 JP): YoY Growth Headed Toward Zero
- Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance
- Komatsu (6301) | Back Test Suggests 56% Upside from Here
- Mesoblast (MSB AU): Trading Halt; Decreased Net Cash Usage in Q4; Positive Clinical Trial Results
- Shandong Weigao Orthopaedic – 2022 Is the Real Test. Short-Term Performance Pressure Is Inevitable
- COSCO Shipping Energy (1138 HK): Stay Away at the Moment
- Back From the Grave
PayPal: Elliott Sees Opportunity, So Do We
- Elliott Management has bought a $2B stake in PayPal and seeks cost cutting measures.
- PayPal has started to take action through cost cutting, a new buyback, new organizational measures, and increased focus on revenue strategy.
- The wild card that would get us more bullish is Elliott forcing a merger with Pinterest, which would yield a readymade Dan Schulman replacement in Bill Ready.
Disco (6146 JP): YoY Growth Headed Toward Zero
- After beating guidance every quarter last fiscal year, Disco fell short in the three months to June.
- Management is guiding for the usual seasonal rebound in 2Q, but year-on-year growth rates are forecast to drop sharply – most likely on their way to negative territory in 2H.
- Disco has stopped disclosing orders data, reducing visibility for investors. 2Q results are likely to be the next catalyst. We see no reason to jump in now.
Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance
- Since our first bullish note on GrafTech International Ltd (EAF US) the stock is down -31% due to softer ASP’s and cost inflation. We believe these headwinds will persist.
- Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF.
- Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.
Komatsu (6301) | Back Test Suggests 56% Upside from Here
- At 1.1x PB, Komatsu’s stock price has already discounted a severe recession
- Our back test suggests a 56% return over 12-months from this level (100% hit rate)
- We see little risk of balance sheet impairment and believe the stock is trading at attractive valuations for long-term investors
Mesoblast (MSB AU): Trading Halt; Decreased Net Cash Usage in Q4; Positive Clinical Trial Results
- Mesoblast Ltd (MSB AU) shares have been put on trading halt on August 4 due to pending announcement on private placement. The company undertook last private placement in March 2021.
- Net operating cash usage has been declining over the last six quarters. In Q4FY22, net cash usage for operating activities decreased 33% y/y to $13.9 million.
- Last month, Mesoblast announced promising results from rexlemestrocel-L trial in chronic heart failure patients. Rexlemestrocel-L delivered an improvement in left ventricular ejection fraction at 12 months.
Shandong Weigao Orthopaedic – 2022 Is the Real Test. Short-Term Performance Pressure Is Inevitable
- Although Weigao achieved solid growth in 2021 after pandemic was under control,the real test will come in 2022. The implementation of centralized procurement will have a significant impact on performance.
- After spinal implants are included in centralized procurement this year, all of Weigao’s three major businesses (spinal implants/trauma implants/joint implants) are within the scope. Short-term performance pressure is inevitable.
- As a result of the pandemic/lockdown in 2022H1, we lowered our performance forecast on Weigao.
COSCO Shipping Energy (1138 HK): Stay Away at the Moment
- At 0.71x 12-month forward P/B multiple, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) has overly discounted the earnings recovery for FY22 and FY23.
- VLCC rate has rebounded since end-Jun but are still at unexciting US$10,000/day level only. This is below an estimated cash breakeven level of US$25,000/day for its fleet.
- Tanker demand-supply balance looks to be at equilibrium over the next 12 months, leaving limited potential for significant surge in rate. This opens room for earnings disappointment, in our view.
Back From the Grave
- Things have gone from bad to worse at Nikola over the past year.
- The Commercial Battery and Hydrogen Truck maker, once considered the SPAC poster child, has been shrouded in controversy after defrauding investors and delaying production on several occasions.
- After seeing its stock crushed, Nikola has strung together a succession of wins to stage a comeback in recent months. Can the company maintain its momentum and deliver on its original vision?
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