Daily Brief Equity Bottom-Up: Sumitomo Chemical (4005): Potential Posterchild of Japan’s Resurgence and more

• Sumitomo Chemicals aims to transform from a cyclical company with low market share in declining markets into a focused entity with high market share in secular growth markets.
• We estimate that the stock’s fair value is about 140% above the current price.
• Results meeting on April 30 should confirm that company is on track in returning to positive cash flow and selling off core assets. 

• TSMC: Premium Soars to +15.2%, Good Level to Consider Shorting the Spread
• UMC: Spread Bounces from Lows to Relatively Extreme High of +1.9%; Good Level to Short
• ASE: Spread Soars to Near All-Time High of +15.5%; Consider Shorting the Spread

• Mediatek Enjoying a Massive Rebound for its Mobile Phone Segment; Most Optimistic About High-End Smartphone Demand
• New AI Data Center Growth Driver on the Horizon; Recent Investment in U.S. AI Server Chip Startup
• Recent Share Price Dip is an Accumulation Opportunity; We Rate Mediatek as a Structural Long

• Taiwan Tech Rebounds Sharply Alongside Major Nvidia/U.S. Tech Rebound Last Week. Wave of Major Earnings Releases This Week — See Our Key Events Section.
• Apple’s Latest Supplier List Released Last Week — Nanya Tech, Lotes, and Novatek Dropped. New List Shows Apple Struggling to Diversify from China.
• Apple iOS 18 Will Heavily Feature Edge AI Running Locally on the iPhone for User’ Privacy and Security — We Believe This Could Be a Major Driver of Phone Upgrades

• China announced game approval for the April batch. The number of games approved remained at a higher level than 2023.
• The pace of China game approval appears to have accelerated to the same level as pre-tightening, though the number of approvals appears to be slower than March.
• While Tencent scored zero, Netease got approval for one game.

• The performance of most TCM formula granule enterprises showed slow growth or even decline due to VBP in 2023. Although VBP will continue, it also brings opportunities for related companies. 
• Customized production, expensive upstream raw materials/production equipment, complex supply chain systems, etc. are all major reasons for the high prices of CAR-T therapy, but we see hope for changes.
• Gan & Lee Pharmaceuticals (603087 CH)’s core insulin business will continue to have decent growth based on positive VBP renewal results. It’s expected that in 2024, performance would further rebound.

• Hesai Group, one of the global leaders in the LiDAR and perception solutions market, completed its IPO in February 2023 and listed ADSs on the Nasdaq Global Select Market.
• The stock peaked at $30+ during the first trading day and fell ~67% over the following 8 months as selling pressure intensified and investor sentiment worsened.
• The stock has taken another leg down following U.S. DoD’s decision to include Hesai Group in 1260H list of Chinese military-linked companies. Hesai believes this inclusion is unjust and meritless.

• China Education Group (839 HK) has turned more attractive after a valuation retreat and the return of reported and adjusted net profit to a positive trend in its 1H24 result.
• Increase in the proportion of undergraduate studies, a better subject specialisation mix, higher accommodation revenue, and a rise in international education will drive unit student revenue.
• More capacity upgrades will allow for a steady increase in student enrollment. Management expects adjusted EBITDA margin to stay stable in the next few years.

• Losses at Air China Ltd (H) (753 HK) narrowed by 42.8% YoY to Rmb1.67bn in 1Q24. If not for the exchange losses, it will be reduced to below Rmb1bn.
• Higher jet fuel prices have dragged result despite record 1Q revenue. However, an 8.3pp YoY margin expansion and a 4% decline in unit costs indicated profitability is climbing. 
• Valuations are too depressed as the share price is still lacklustre but quarterly losses and gross margin have already trimmed from the troughs of Rmb10.5bn and -98%, respectively.

• Decline in TPR’s stock price after acquisition announcement
• Author believes acquisition will benefit Tapestry Inc financially and strategically
• Author sees dip in stock price as buying opportunity and remains bullish on TPR’s long-term prospects

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.