In today’s briefing:
- Shortlist Of 2024 High Conviction Ideas: Income, Value, and Margin of Safety
- [Blue Lotus Sector Update]: 2024 High Conviction Idea: Two Scenarios Towards Year End
- 2024 High Conviction: TSMC (2330 TT) Is Perfectly Poised for Revenue and FCF Growth Acceleration
- China Airlines (2610 TT, NEUTRAL, TP:TWD 23.00): Superb 2023 Masks Upcoming Challenges
- 2024 High Conviction | Eicher Motors (EIM IN) | Himalayan Ambitions
- [Week 12] Namaste India 🙏 | Paytm (PAYTM IN) | Opportunity Size Outweigh Growth Concerns
- Orthofix International (OFIX US): Limited Downside Likely; Looking Ahead to 2024 with New Management
- China’s Ophthalmic Hospital Market – The Major Players, the Business Logic and the Outlook
- MariMed, Inc. – Begins Manufacturing and Processing in Illinois
- Information Services Corporation – Gaining momentum with new contract win
Shortlist Of 2024 High Conviction Ideas: Income, Value, and Margin of Safety
- 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: Perfect Medical Health (1830 HK) , Water Oasis (1161 HK) , Taste Gourmet (8371 HK) , Uchi Technologies (UCHI MK) , and The Keepers Holdings (KEEPR PM) .
- We have included Sitoy Group Holdings (1023 HK) in our library. Given the low ROIC nature of the business, it’s more of a value trade with dividends.
[Blue Lotus Sector Update]: 2024 High Conviction Idea: Two Scenarios Towards Year End
- In our view, China growth equity faces high geopolitical uncertainty in C3Q24 ahead of the US election, but can experience a relief rally in C1Q24.
- We prepared high beta and low risk recommendations for 2024
- For low-risk, we recommend JD/JDL/JDH, Tencent and Luckin. For high beta, we recommend BEKE, LI Auto and Kuaishou.
2024 High Conviction: TSMC (2330 TT) Is Perfectly Poised for Revenue and FCF Growth Acceleration
- TSMC looks set for a significant recovery in top-line growth in 2024F, driven by continued faster-than-expected demand for its 3nm volume production leading to significantly improved overall ASP.
- This should be supported by a concurrent improvement in the inventory cycle at major clients, helping recover TSMC’s utilisation back to historic norms.
- Lower capital intensity, improving internal inventory levels, and accelerating top-line growth should all combine to drive record levels of Free Cash Flow generation during 2024F.
China Airlines (2610 TT, NEUTRAL, TP:TWD 23.00): Superb 2023 Masks Upcoming Challenges
- China Airlines (2610 TT) will deliver record profit in 2023 on strong passenger and rising cargo rates
- Beyond 2023, hard to forecast due to high exposure (~30%) to volatile cargo, and it lacks brand recognition and customer loyalty evidenced by its weaker yields to local rival
- Target price of TWD23 based on 1.71x FY2024 P/BV ratio – one SD above mean. Limited 6% UPSIDE, with 3,9% dividend yield. Prefer Eva Airways (2618 TT)
2024 High Conviction | Eicher Motors (EIM IN) | Himalayan Ambitions
- Several catalysts on the horizon support the case for a re-rating of Eicher Motors (EIM IN).
- The recent launch of the 450cc platform is positioned as a significant launch pad, propelling EIM’s aspirations to establish global leadership in the middleweight segment.
- We anticipate EIM to deliver higher-than-anticipated revenue growth with the possibility of a multiple re-rating for the company.
[Week 12] Namaste India 🙏 | Paytm (PAYTM IN) | Opportunity Size Outweigh Growth Concerns
- Market sentiment remains optimistic, we anticipate the rally to continue with 20,200 on the NIFTY Index (NIFTY INDEX) as a trend check level.
- There are concerns about Paytm (PAYTM IN) growth in personal loans in the near term, but the merchant side provides a large enough opportunity.
- Other names discussed include Eicher Motors (EIM IN), Poonawalla Fincorp (POONAWAL IN), and Five Star Business Finance (FIVESTAR IN)
Orthofix International (OFIX US): Limited Downside Likely; Looking Ahead to 2024 with New Management
- In November, Orthofix International Nv (OFIX US) named Massimo Calafiore as incoming President and CEO. Mr. Calafiore has extensive knowledge in orthopedics and spine, and M&A integration expertise.
- Orthofix has performed well and operated smoothly following management transition. In 3Q23, revenue increased 61% YoY on a reported basis and 1% YoY on a pro forma basis to $184M.
- The company expects to deliver much higher adjusted profits next year and to exit 2024 cash-flow positive from an estimated $100 million outflow for 2023.
China’s Ophthalmic Hospital Market – The Major Players, the Business Logic and the Outlook
- Against the backdrop of China’s reopen after the pandemic is under control, the performance comparison of the four major ophthalmic hospitals in the A-share market has attracted investors’ attention.
- Aier Eye Hospital is already going downhill. Bright Eye Hospital leads Huaxia Eye Hospital in national layout/growth rate. He Eye Hospital has a big gap compared to the rest three.
- The “weaknesses” of Huaxia and He Eye Hospital in business layout isn’t obvious currently.But in good times, the impact of businesses with strong consumption attributes on performance would be amplified.
MariMed, Inc. – Begins Manufacturing and Processing in Illinois
- MariMed has begun manufacturing and processing cannabis products in its new kitchen in Mount Vernon, Illinois.
- As often happens in cannabis, there were construction and regulatory delays, but the company expects to have its award-winning edibles in Illinois stores in time for the holidays.
- Illinois is the sixth-most populated state with 12.7 million residents.
Information Services Corporation – Gaining momentum with new contract win
Information Services Corporation’s (ISC’s) strong track record of acquiring and innovating registries, and related information services, was highlighted by yesterday’s five-year contract win with the Bank of Canada. This awards ISC with the role of operator and technology solutions provider for the Bank Act Security Registry, a clear testament to the company’s expertise. The operation is expected to commence in the summer of 2024, utilising ISC’s RegSys platform. We estimate that revenue for this contract, akin to the company’s other contracts, will amount to c C$5–15m over the five-year period. We maintain our forecasts and valuation of C$37 per share, implying a 74% upside.