Daily Brief Equity Bottom-Up: Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging and more

• Recruit Holdings (6098 JP)  reported 2QFY03/2024 results today. Revenues decreased YoY due to decline in HR Tech revenues, while operating profit for the quarter increased YoY. OP missed consensus marginally.
• As we expected, the new pricing model has negatively impacted HR Tech revenues, and the segment’s earnings are forecast to decline further going into the second half.
• There is further downside to earnings and the company’s share price has moved up during the last few days, and we are set to nicely gain on the Short side.

For our next Corporate Webinar, we are glad to welcome OUE Commercial REIT’s CEO and Executive Director, Han Khim Siew, and CFO, Lionel Chua.

In the upcoming webinar, Khim Siew and Lionel will share a short company presentation after which, they will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. Angus will also provide an industry overview, featuring landscape commentary and returns analysis. The Corporate Webinar will include a live Q&A session.

The Corporate Webinar will be hosted on Tuesday, 28 November 2023, 19:00 SGT.

About OUE Commercial REIT

OUE Commercial Real Estate Investment Trust (“OUE C-REIT”) is one of the largest diversified Singapore REITs with total assets of S$6.0 billion as at 30 June 2023. With six assets in Singapore and one in Shanghai, the property portfolio comprises 1,643 upper upscale hotel rooms, as well as approximately 2.2 million square feet of prime office and retail space.

In Singapore, OUE C-REIT’s office assets – OUE Bayfront, One Raffles Place and OUE Downtown Office, are situated within the CBD where medium-term supply is limited. OUE C-REIT also owns two hotels, Hilton Singapore Orchard and Crowne Plaza Changi Airport, which are well-positioned to capture the continued rebound in tourism and MICE demand. Complementing Hilton Singapore Orchard is Mandarin Gallery, a choice location for international brands in the heart of Orchard Road.

On 30 October 2023, OUE C-REIT obtained a “BBB-” credit rating with a stable outlook from S&P Global Ratings.

• If Skylark Co Ltd (3197 JP)‘s pricing and footfall growth trend persists, it’s likely the company and consensus will revise annual revenue targets upward.
• The OP is also expected to exceed Q3 estimates with an OP of ¥7.9bn, prompting a necessary upgrade of annual guidance by ¥5.0-6.0bn.
• Yet, we’ll approach Skylark’s earnings trade cautiously, considering its current valuation.

• The read-across for Inner Mongolia Yili Industrial Group (A) (600887 CH)‘s 3Q23 results and briefing to China Mengniu Dairy Co (2319 HK) was overall positive.
• For 3Q23, Yili’s sales grew 3% yoy and net profit increased 59% yoy, mainly due to lower raw milk prices, better product mix, cost savings and low base.
• China Mengniu Dairy Co (2319 HK) continues to be a good value play, with reasonable valuation (15x 2024E PE), stable growth (above 10% net profit growth), and proactive shareholder returns.

• Cisarua Mountain Dairy (CMRY IJ) stands out from the overall FMCG space in Indonesia, with 21% revenue growth versus a flat to negative performance for the overall market.
• The company’s growth in 3Q2023 was predominantly driven by premium consumer foods at +46% YoY but dairy was also positive, with the company increasing promotional spending but maintaining margins.
• The outlook for 4Q2023 looks promising driven by increased distribution outlets, especially general trade plus the launch of new products for both consumer food and dairy. 

• Presenting a clear growth roadmap – following disclosure of the new medium-term business plan (‘MTBP2027’ covering FY3/2025 to FY3/2027) and long-term growth strategy (‘Vision1000’ depicting timing around 2030), we have revised our earnings estimates for FY3/2025 and FY3/2026.
• These reflect 1) acquisitive growth impact towards FY3/2027 as capital is allocated to the fast-growing Strategy/DX Consulting business, and 2) stronger margin growth driven by productivity enhancements and improving sales mix.
• We believe diversifying into new market sectors will open new growth opportunities and develop a more resilient business. 

• Shortage/Oversupply, price hike/cut, automotive/industrial demand and inventory corrections are still cyclical. Gross margin should double from 22-24% now once utilization returning to 100% and no more free wafer by 2025.
• LCD driver foundry is facing a structural competition as China panel customers are building a local supply chain.
• Attractive below NT$70 as: 1. inventory correction should be done by 2Q24; 2. global 8″ foundry sales y/y improvement began 3Q23; 3. closing to cyclical low P/BV of 2.5x.

• Q323 revenues of $1.85 billion, flat sequentially but down 11% YoY. Net income was $249 million, up 5% sequentially but down 26% YoY.
• At a midpoint of $1.85 billion, forward guidance is once again flat sequentially. Overall it was a solid report with guidance slightly better than UMC delivered last week.
• Despite the solid quarter, the company’s outlook for 2024 was bleak with a 50% CapEx cut, LTAs under mounting pressure & ominous-sounding LTA “True Up” on the horizon. 

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
• Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
• Post a sharp correction, stocks trade at appetizing valuations, and with results seasons around the corner, we will provide updates for all names. 

• ATEN reported third quarter results after having already warned there were order push outs towards the end of the period.
• ATEN has been trying to diversify the revenue stream to reduce the volatility order flow disruptions could have on the business
• ATEN managed to maintain gross margin above 80 percent, a feat that does not get much recognition from investors. ATEN should continue to achieve gross margin above 80 percent