Daily Brief Equity Bottom-Up: Seven & I Says Not Enough to Alimentation Couche-Tard and more

• Last Friday, Seven & I Holdings (3382 JP) issued a response to Alimentation Couche-Tard (ATD CN)’s non-binding acquisition proposal.
• At $14.86 per share, Seven & I’s special committee stated that the offer significantly undervalues the company.
• The response also highlighted that the proposal fails to address the numerous and substantial regulatory challenges the transaction would encounter from U.S. competition authorities.

• ETF flows showed subdued activity during the week although the Southbound Connect platform had a minor outflow.
• Great Wall Motor (2333 HK) and China Feihe (6186 HK) both had positive news sentiment helping their share prices rally on better earnings announcements.
• New World Development (17 HK) announced a major asset impairment write-down sending its stock to historic lows.  China Tourism Group Duty Free (1880 HK) disappointed on 2Q24 sales and profits.

• Nongfu Spring (9633 HK)‘s valuation has come down to a much more reasonable 20x forward PE with expected net profit CAGR of 15% for the next 3 years.
• The derating is largely due to the negative media portrayal of the company’s Nongfu brand since February 2024, resulting in a -18% decline in its water business in 1H24. 
• Unsweetend tea business on the other hand has continued to shine, growing 59% yoy in sales in 1H24, while operating profit of the segment surged 63% yoy. 

• Visibility is poor. Following excellent 1Q results, management raised FY Mar-25 sales guidance by 14%, operating profit guidance by 53% and net profit guidance by 57%. 
• Strong demand for AI processors and memory should support more than 35% growth in IC tester revenues and a doubling of operating profit in the two years to Mar-26.
• The shares have dropped to the bottom of their recent trading range, but are still selling at more than 30x our EPS estimate for next fiscal year.

• Industry wheel loader sales rose 15.2% in Aug, continuing the healthy momentum. A low base in 2H24 will be another favourable factor, and Lonking Holdings (3339 HK) is well placed.   
• Forklift outlook will stay strong and serve as a growth engine. There is also a significant pick-up in demand for industry excavator sales in Jul and Aug.
• Net cash amounted to 81% of the share price. Including investments, it will increase to 118%. Conservative FY24 consensus earnings forecast means potential upside surprise.

• SLMs aiming to expand presence in GenAI business opportunities, while Joinsoon Electronics plans for 50:50 production split in Thailand by 2025.
• European carmakers face challenges from potential Chinese retaliation against tariffs; South Korean equipment makers benefit from Chinese companies targeting OLED technology.
• Global gaming subscription market expected to reach US$19 billion by 2024, with ITRI, SIIQ, MOEA collaborating to develop resilient semiconductor industry ecosystem. Taiwan’s offshore wind farm installation signals industry shifts.

• Nanosonics Ltd (NAN AU) reported significant turnaround, with recording H2FY24 revenue of A$90M, up 14% over the first half, driven by 20% increase in capital revenue in H2 over H1.
• For FY25, Nanosonics guided for accelerated revenue growth of 8–12%, driven by growing capital revenue with greater unit volumes and increasing recurring revenue aligned with growth in installed base.
• The company expects FY25 gross profit margin of 77–79% versus 77.9% in FY24, on higher production volumes in FY25 after reducing inventory in FY24.

• NVIDIA recently reported stellar financial achievements for its second quarter of fiscal 2025 with total revenue reaching $30 billion, marking a significant 122% increase year-over-year.
• This surge was primarily driven by unprecedented growth in the Data Center segment, which reported revenues of $26.3 billion, reflecting a 154% increase from the previous year.
• The strong demand for NVIDIA’s latest Hopper GPUs, coupled with the advancing deployment of Blackwell platforms, has significantly contributed to this uptrend.

Martin Currie Global Portfolio Trust’s (MNP’s) performance was negatively affected in 2022 by the shift in interest rate expectations as US rates quickly moved up from 0.25% to 5.50%, in response to rising prices. Now, with inflation coming down, the consensus view is that US interest rates will soon be lowered, which should be beneficial for the valuation of long-duration growth stocks. Also, Zehrid Osmani, MNP’s manager since October 2018, has a proven track record of successful stock picking during periods when the stock market is driven by company fundamentals rather than when investor focus is on macroeconomic developments. Hence, Osmani has a high degree of confidence that there are better times ahead for MNP’s performance.

• After Dollar General’s (DG) disastrous earnings couple of weeks ago, I was quite concerned about their prospects in the near-term.

• However, a week later after digesting through Dollar Tree (DLTR) as well as DG management’s explanation in the Goldman Sachs Retailing Conference, I have updated some of my thoughts about DG…in the positive direction.

• Nonetheless, I have decided to abide by my decision not to inject more capital to DG, but to increase my notional exposure to DG via long-dated call options.