Daily Brief Equity Bottom-Up: Sumber Alfaria Trijaya (AMRT IJ) – The Digital Pantry of the Middle Classes and more

• Sumber Alfaria Trijaya (Alfamart) continues to book solid growth in its core mini-market business but is now pushing harder with both larger format Alfamidi and Lawson convenience stores formats.
• 89%-Owned Midi Utama Indonesia (Alfamidi) recently announced a rights issue to finance the expansion of Alfamidi and Lawson underpinning its more aggressive expansion plans. 
• Sumber Alfaria Trijaya booked solid 1Q2023 numbers for its core business and continues to grow its digital connections and collaborations as an integral offline leg of the digital economy. 

• We cautioned investors about the excessive optimism around the company’s growth potential a few months ago.
• Its growth momentum has since rapidly diminished, at a pace that also surprises us and points to a dimmer outlook.
• Despite rounds of downward earnings revision, we still see further downside risks to earnings. We expect 20-30% decline in share price by end of this year.

• Bank analysts sometimes like a story with high NPLs; recoveries can be powerful to profit
• For the past 7 quarters, NPLs are in decline at PNB, but most recent quarter is strongest
• There remains a large pool of NPLs at 8.7% of loans, for possible ongoing recoveries

• Sosei Group (4565 JP) shares sold off heavily after a major setback in partner’s clinical trial. On June 26, Pfizer Inc (PFE US) decided to discontinue the development of lotiglipron (PF-07081532).
• PF-07081532 is one of three clinical candidates nominated by Pfizer during its multi-target drug discovery collaboration with Sosei to research and develop potential new medicines.
• As lotiglipron was the most advanced clinical candidate using Sosei’s drug discovery platform, the heavy sell-off seen in Sosei shares should not be considered as overreaction.

• The gaming equipment and systems leader offers line of new Dragon themed slot machines for upcoming Year of the Dragon as spear point of expanded Asian goals.
• Acquisition of Israel’s NeoGames at US$1b follows failed bid last year to acquire Playtech. Move will strengthen digital footprint for sports betting and iLottery.
• We have been bullish for five years on ALL as its shares have outperformed the market.

• TSMC’s ADR premium dropped to 8.8% but still historically high. The company has said it will send more Taiwan staff to get its U.S. production up and running.
• ASE’s ADR premium is high even for this usually-high premium range. ASE ADRs may be slightly behind the curve of the local shares’ recent decline, hence the spread opened up.
• Chunghwa Telecom is at a relatively high ADR premium for this tightly trading range.

Henderson International Income Trust (HINT) offers a diversified investment solution for those seeking capital growth and income opportunities outside the UK, where dividend income is relatively concentrated. Recent relative performance has improved, as underweights to the US and to IT and other growth stocks, which have previously hurt performance, are now boosting relative returns and should leave HINT well placed to cope with the persistently uncertain global environment. Overweights to European financials, energy and luxury goods producers have also been working well. HINT has a long-term objective to grow its dividend. Consistent with this, dividends have grown steadily since inception, and HINT’s dividend yield of 4.3% is competitive, ranking equal highest among its AIC peers.