In today’s briefing:
- Saizeriya (7581 JP): Best Pick For Asia/China Restaurant Space
- Dongfang Electric (1072 HK): We See an Opportunity
- China Healthcare–A Pair Trade Between China TCM (570.HK) And Pientzehuang Pharmaceutical (600436.CH)
- State Gas Limited – Growth Starts with the First PJ and That’s Imminent
Saizeriya (7581 JP): Best Pick For Asia/China Restaurant Space
- I continue to believe that Saizeriya is the best pick for gaining exposure to Asia/China restaurant space.
- Saizeriya has a very clear business strategy and focus: price. The founder Yasuhiko Shogaki made it clear that price always comes first, and everything else second.
- Looking ahead, the runway for growth in China is huge. The company is currently only in 3 cities for a total of 373 stores as of end-FY23 year ending August.
Dongfang Electric (1072 HK): We See an Opportunity
- The collapse in share price of Dongfang Electric (1072 HK) is too excessive. The concerns on margin and orders are overplayed and its latest financial result is solid.
- Recurring profit surged 24.8% in 3Q23 and gross margin expanded both YoY and QoQ. For 9M23, new orders rose 19.2% to reach 98% of full-year FY22 level.
- We estimate backlog at Rmb197bn, or 3x consensus FY23F revenue, and this provides excellent protection to forward earnings. Its 5.8x and 4.4x PERs are just too undervalued.
China Healthcare–A Pair Trade Between China TCM (570.HK) And Pientzehuang Pharmaceutical (600436.CH)
- The recovery of concentrated TCM granules business makes us optimistic about China TCM’s 2023 full-year performance growth. The resurgence of pandemic and privatization rumor always attract the attention of investors.
- Pientzehuang’s 23Q3 performance was disappointing. Consumption downgrade makes the strategy of raising prices no longer effective. There is downward pressure on valuation as performance will not turn around soon.
- The investment logic of rigid demand is more convincing than consumption upgrading. So, China TCM is more likely to outperform Pientzehuang. Our view is long China TCM, and short Pientzehuang.
State Gas Limited – Growth Starts with the First PJ and That’s Imminent
- State Gas Limited (ASX:GAS) is a junior energy producer and explorer with assets concentrated in the Bowen Basin, Queensland.
- Having secured some $7mn in equity financing, the company is well progressed in the construction phase of the Rolleston West CNG Project (RW-CNG), with production set to commence in December.
- First gas is always a critical event driver in demonstrating the commercial potential of the assets and providing a platform from which growth strategies can emanate.
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