Daily Brief Equity Bottom-Up: Sea Ltd: Facing an Uphill Battle for Sustainable Profits and more

• Sea (SE US) may achieve around $3.0 billion in 1Q23 revenue, in line with consensus, but is likely to miss the consensus OP estimate of $309 million by approximately 10%.
• Shopee’s profitability is at risk without sustained revenue growth. If the cost-cutting strategy persists, losses are expected by 3Q23 or possibly sooner with a strategy shift.
• Amid Free Fire’s decline and Shopee’s potential losses, the fintech business stands as the sole bright spot.

For our next Corporate Webinar, we are glad to welcome China Shenshan’s Executive Director, David Zhao.

In the upcoming webinar, David will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. The Corporate Webinar will include a live Q&A session

The webinar will be hosted on Tuesday, 23 May 2023, 17:00 SGT/HKT.

About China Shenshan Orchard

China Shenshan Orchard Holdings Co. Ltd. is a horticultural marketing company in the business of planting, cultivating and sale of kiwifruits in the People’s Republic of China (“PRC”). The Group holds forest use rights for 8 strategically located orchards, spanning a total land area of 9,805 mu (approximately 6.5 million sqm), which is believed to be one of the largest domestic kiwifruit orchards concentrated in the Chibi City, Hubei, the PRC.

• Appier achieved 32% revenue growth and 50.1% gross margin in Q1 FY23, exceeding company expectations
• We expect the pace of growth to accelerate, driven by stronger momentum in Digital Content in Q2 and Q3
• We remain bullish following the recent pullback in the share price. Stock is attractive at 5x EV/Rev

• In this insight, we discuss the recent Korean stock portfolio allocation changes by the NPS.
• The data suggests that NPS has been increasing its holdings into more defensive sectors such as insurance, convenience stores, and industrials. 
• On the other hand, it has been decreasing capital allocation in consumer discretionary related stocks.

• We discuss about the likely exclusion of SD Biosensor from KOSPI 200 in 2024, a big earnings miss in 1Q 2023, and higher probability of further share price decline. 
• SD Biosensor reported terrible earnings in 1Q 2023. It had sales of 182.4 billion won (down 86.9% YoY and 48% lower than consensus) in 1Q 2023. 
• Our core bearish case of SD Biosensor is that in most countries around the world, there is no longer any need to test millions of people for COVID-19.

• Recruit Holdings (6098 JP) reported FQ4 and full-year FY03/2023 results. FQ4 revenue increased 9.0% YoY to ¥827.7bn (vs consensus ¥846.7bn) while OP decreased 57.1% YoY to ¥19.4bn (vs consensus ¥40.0bn).
• Excluding restructuring charges and one-time charge on impairment losses on right-of-use assets, OP increased 12.4% YoY to ¥50.9bn resulting in an OPM of 6.1% vs 6.0% in 4QFY03/2023.
• Recruit’s FY03/2024E guidance is in line with our expectation where the company expects earnings to weaken as labour markets have begun to slowdown.

• Q1 CY23 watch and jewelry sales for HK were up 88% YoY. HK sales for Oriental Watch (30% of revenues but less volatile) will benefit from the recovery in HK.
• We estimate China sales will continue to remain resilient as cross-border travel is yet to pick up in a big way. 
• Trading at 7.5x FY23e and a 14.2% dividend yield, with more than 50% of the market capitalization in cash, the company can pay solid future dividends despite weaker earnings.

• The previously stockpiled drugs/medical devices require a long cycle of digestion. As the industry beta brought by COVID-19 dividend would fade away, JD Health’s performance growth could slow down accordingly.
• Although JD Health divides its buiness into product revenue and service revenue, drug/product sales are still the underlying logic and business model, which is difficult to maintain high growth expectations.
• Current valuation is in reasonable range. Since JD Health will be added to HSI INDEX, it could help boost share price. However, if business transformation fails, high valuation is unsustainable. 

• Q1’23 revenues of US$630.8 million, up 6.1% YoY and flat sequentially.
• Gross margin was 32.1%, up 5.2 points YoY but down 6.1 points sequentially.
• HH is playing a blinder through the downturn and likely beyond…

• Celltrion Inc (068270 KS) recorded double-digit revenue and operating profit growth in Q1. Biosimilars reported first-ever KRW400B+ quarterly revenue. Operating margin reached to 30.5% in 1Q23 from 24.3% in 1Q22.
• Remsima SC sales (27% of revenue) resumed at full scale and rebounded to KRW100B quarterly revenue after a gap of ~2.5 years, driven by increasing market share in EU.
• This year, Celltrion is expected to launch three products in the U.S.: Vegzelma (biosimilar bevacizumab), Yuflyma (biosimilar adalimumab), and a novel subcutaneous formulation of infliximab.