Daily Brief Equity Bottom-Up: QBE Insurance – COR 109% in N America Commercial and more

• QBE Insurance is seeing a deteriorating combined operating ratio, in part due to CAT events and it unclear to us how underwriting, exposures will immediately improve
• Net profit is nearly static, USD750m in FY21, USD770m in FY22. USD400m profit in 1H23 may note repeat in 2H23, due in part to USD700m more debt in interim.
• North America net earned premiums are seeing far more distribution toward Commercial, where the COR is especially poor at 109% in 1H23

• The sector sees dramatic improvement in profitability and cashflow thanks to cutback on marketing expenses and headcount reduction.
• Topline growth is recovering but still clouded by sluggish macro conditions. It is understandable that investors treat these China proxies – one way or another – with caution.
• The sector’s valuation will remain pressured before the property market stabilizes and key macro indicators show concrete signs of improvement, in our view.

• Vinfast (VFS US) reported 2Q2023 results yesterday. Revenues saw significant increase driven by strong YoY growth in EV sales volume which reached 9,535 units during the quarter.
• More than 50% of EV volume during 1H2023 were to a related company while US volume was less than 200 units raising serious concerns over demand for Vinfast’s EVs.
• It seems unlikely for Vinfast to meet its 50K EV target for 2023 and our revised forecast suggests there is further downside despite shares dropping more than 50% vs IPO.

Immix has announced that the FDA has granted orphan drug designation (ODD) to CAR-T asset NXC-201 for amyloid light chain amyloidosis (ALA). This occurred approximately a month after the announced ODD for multiple myeloma (MM), the other indication that Immix is pursuing with NXC-201. The benefits of ODD include seven years of US market exclusivity post approval, tax credits for qualified clinical trials and exemption from the Prescription Drug User Fee (c $3m for a new drug). ODD is issued to drugs/biologics intended for the safe and effective treatment, diagnosis or prevention of rare diseases/conditions that affect fewer than 200k people in the US. Achieving ODD in both MM and ALA marks an important development for the progress of NXC-201, which has shown encouraging signs on both the clinical and regulatory fronts. We believe that the next readout (expected in September 2023) from the ongoing NEXICART-1 trial could be a significant catalyst for the company.

• In Q1FY24, Paramount Bed Holdings Co Lt (7817 JP) reported 7% YoY revenue growth to ¥24B, due to solid performance in the medical care and the nursing care businesses.
• Due to higher SG&A expenses, operating profit grew just 2% YoY to ¥3.3B. Net profit rose 7% YoY to ¥2.9B, mainly due to 13% YoY increase in foreign exchange gains.
• Paramount has reiterated FY24 guidance, which calls for 6% YoY revenue growth, 4% YoY operating profit growth, and 6% YoY growth in net profit.

• Our base case valuation of SK Inc is NAV of 17.5 trillion won (NAV per share of 239,095 won), representing a 60% upside from current levels.
• SK Inc has underperformed most other SK Group related companies YTD but this underperformance may be excessive and SK Inc could outperform as more value investors seek deeply discounted companies.
• SK Inc’s dividend yield is 3.3%, which is higher than the dividend yields of most other major SK Group companies excluding SK Telecom which has a dividend yield of 6.5%.

The Brunner Investment Trust’s (BUT’s) two co-managers, Christian Schneider (deputy CIO global growth) and Julian Bishop (global equity specialist) are supported by deputy managers Marcus Morris-Eyton (European equity specialist) and Simon Gergel (CIO UK equities). BUT can be considered as a global equity fund for all seasons given its steady trend of outperformance in recent years despite volatile share prices and changes in stock market leadership. The trust stacks up well in both absolute and relative terms with double-digit annual NAV total returns over the last decade and above-average returns within the AIC Global sector over the last one, three and five years. BUT’s dual mandate of income and capital growth means it should appeal to a broad range of investors.