In today’s briefing:
- Sea Ltd (SE US) – Turning Tides Present a Different Wave
- Taste Gourmet: Good Q1 2023 In the Bag, Momentum Getting Stronger
- Istyle High Conviction Update: Up 90% on Partnership With Amazon
- Tencent 2Q: Earnings Weaken Further
- Kakao Pay: A Likely Ban on Simple Remittance Without Bank Accounts
- NetEase (9999 HK): 2Q22, Grew Healthily in Spite of Headwind, 52% Upside
- United Arrows: Rebuilding Brick by Virtual Brick
- Deliveroo: Share Buyback & Exit from Netherlands Not Enough to Offset Lack of COVID Restrictions
- Liquidity Risk Short Candidates: Bed Bath, Blink Charging, Natera, Asana
Sea Ltd (SE US) – Turning Tides Present a Different Wave
- Sea Ltd results were impressive on a number of levels, with profitability in its core e-commerce business improving considerably in core markets of South-East Asia and Taiwan a key positive.
- The decline in digital entertainment revenue was expected, with the stabilisation of quarterly active users a sign of some plateauing after recent declines but rankings continue to remain solid.
- Sea Ltd suspended revenue guidance but continued to stress confidence in the growth outlook, whilst keenly focusing on improving efficiencies and profitability. This underpins our positive long-term view.
Taste Gourmet: Good Q1 2023 In the Bag, Momentum Getting Stronger
- Taste Gourmet Group (8371 HK) reported substantial Q1 2023 numbers, with profits coming in at 16 mn HKD up 42 YoY(%) (-65 YoY(%) netting out the subsidies).
- Despite losing 21 days in April, this is a solid result as cash levels burgeoned to 95 mn HKD from 65 mn HKD (Mar FY22).
- The stock is cheap, trading at 5.1x FY23 PE and a 11.7% dividend yield ( at a 60% payout ratio), making this extremely attractive to own.
Istyle High Conviction Update: Up 90% on Partnership With Amazon
- Istyle Inc (3660 JP)’s share price rose more than 90% over the last few days on the news that Amazon is becoming a strategic partner of the business.
- With Beauty Services’ margin expansion more than compensating for On Platform’s weaknesses, we are expecting this turnaround in price performance to last longer than a news cycle.
- We think istyle’s share price could break out to a new high as the company’s medium-term OP estimates are revised upwards.
Tencent 2Q: Earnings Weaken Further
- Tencent (700 HK) reported 2Q2022 results today. Revenue increased 3.1% YoY to RMB134.0bn (vs consensus RMB134.6bn) while reported OP for the quarter decreased 42.7% YoY to RMB30.bn (vs consensus RMB36.3bn).
- Excluding interest income and gains, adjusted OP decreased 21.2% YoY to RMB23.7bn driven by drop in GPM across all three business segments.
- Tencent also mentioned that news article regarding a possible stake sale of Meituan is inaccurate.
Kakao Pay: A Likely Ban on Simple Remittance Without Bank Accounts
- Kakao Pay’s shares were down 6.6% today to 68,400 won, driven by the Korean regulators announcing a crackdown on the simple money remittance using fintech companies’ apps without bank accounts.
- There is a very high probability that the FSC will likely ban simple remittance and transfer of money using apps such as Kakao Pay in the coming months.
- This will likely have a major negative impact on Kakao Pay and will further drive the stock downwards.
NetEase (9999 HK): 2Q22, Grew Healthily in Spite of Headwind, 52% Upside
- Revenue grew by 13% YoY in 2Q22 in spite of headwind.
- The company actively expanded outside China to bypass the domestic license shortage.
- We believe the stock has an upside of 52% for the end of 2023.
United Arrows: Rebuilding Brick by Virtual Brick
- Like other premium fashion brands and retailers, United Arrows (7606 JP) has faced unprecedented challenges since lockdown began in March 2020.
- Sales are still 25% below 2019 levels but the select shop retailer is optimistic about the future, despite the fact that profitability has been in decline since long before Covid.
- Weaknesses remain however, including an ageing customer base and to some extent, an ageing brand.
Deliveroo: Share Buyback & Exit from Netherlands Not Enough to Offset Lack of COVID Restrictions
- Deliveroo’s recent share buyback and exit from Netherlands are not enough to offset people in the UK and Ireland trying to go back to their previous way of lives.
- On 10 August, Deliveroo (ROO LN) announced a share buyback program worth £75 million ($90.6 million) share buyback program, which represents 4.6% of its current market cap.
- Cost of living increases and millions of European consumers eating out at restaurants rather than ordering food are causing further negative impact on Deliveroo’s business.
Liquidity Risk Short Candidates: Bed Bath, Blink Charging, Natera, Asana
- Liquidity shorts can be great short candidates. The key characteristic is that the company may not be viable, economically, given their cash flows and cash requirements.
- Liquidity shorts have built-in catalysts, have moderate to higher betas, and can have strong down moves if a crisis develops. They can go bankrupt, pushing the stock price near zero.
- Today we are flagging Bed Bath, Blink Charging, Natera, Asana.
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