In today’s briefing:
- Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved
- Fujitsu (6702) Buyback Just Getting Started
- JAFCO (8595) Sells NRI Shares But VWAP Falling Short – Comes Down To Murakami-San
- Negative EVs: JOYY & Sohu’s Steep Discount To Net Cash
- Binjiang: Set up for a Good Move From Here
- DeNA (2432) Buyback – Accretive on a Low Leverage Business Which Will Grow In Time
- Pinduoduo (PDD): High-Performing Financials, But Low-Profile Management, 23% Downside
- Shiseido: Outperforms With Relaxation Of China’s COVID Restrictions, Long Term We Are a Bit Cautious
- CTG Duty Free (1880 HK): Near-Term Positive but It Is Not Cheap at All
- Yuhan Corp (000100 KS): Progress of Anti-Cancer Drug Leclaza Is the Main Growth Engine
Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved
- Sunpower has had a rough +/-18 months as input cost rises coincided with Force Majeure issues at some of its clients due to never-ending rolling Chinese lockdowns.
- Mr. Market has pushed Sunpower back below 0.27 SGD/share (-43% YTD) despite revenue- and EBITDA growth continuing at its GI division. Profits have been compressed due to rising input costs.
- As China re-opens in FY23 Sunpower should benefit from normalization and recovery in demand from its industrial base customers. However, CB conversion details are needed for re-rating to start.
Fujitsu (6702) Buyback Just Getting Started
- On 28 April 2022, with full-year earnings, Fujitsu Ltd (6702 JP) announced a buyback programme to buy back up to 12mm shares (6.11% of shares out) for up to ¥150bn
- That was when the shares were ¥18,540. The shares popped 10% in 2 days. Then fell 25% into end-September. Yesterday, they announced they’d bought back 1.9mm shares in November.
- Those were the first shares bought back under the Programme. And that leaves 4 months and a lot of stock to buy.
JAFCO (8595) Sells NRI Shares But VWAP Falling Short – Comes Down To Murakami-San
- Late last month, JAFCO (8595) Yields to Murakami Greenmail – Big Asset Sale, Big Buyback and set the large buyback from Murakami-san to occur through a Tender Offer.
- The TOB price would be set at a 1% discount to the average 30 Nov – 7 Dec VWAP if VWAP was between ¥2,525 and ¥2,828/share. That’s not happening.
- So now we read the fine print, look at waive-ability of conditions, and look at contingencies.
Negative EVs: JOYY & Sohu’s Steep Discount To Net Cash
- Screening US-listed China plays with negative EV and positive tailing EBITDA generates eight names.
- Of these companies, only two are expected to be EBITDA positive in FY22.
- They are JOYY (YY US) and Sohu.com (SOHU US). This insight looks at both names.
Binjiang: Set up for a Good Move From Here
- A recent rally in property management companies due to measures taken by the government has set Binjiang Service Group (3316 HK) for a big move upwards.
- The stock is cheap and trades at 10.5x/8.1x FY22/23e PE with 37% of the market cap in cash and a 5.8%/7.4% FY22e/23e dividend yield.
- Catalysts for the company are further loosening on the property by the government and a profit alert of 38-40% earnings growth for FY22.
DeNA (2432) Buyback – Accretive on a Low Leverage Business Which Will Grow In Time
- DeNA (2432 JP) announced in June a buyback programme to buy up to ¥15bn of stock over the next nine months. They are two-thirds the way through.
- At current pace, they should finish by end-Jan or early Feb, then cancel 8mm shares, leading to a small TOPIX selldown likely in March or April.
- The company remains cash and securities rich (net cash, after-tax value of securities, and equity affiliates are 100% of market cap). And growth lines will slowly claw their way positive.
Pinduoduo (PDD): High-Performing Financials, But Low-Profile Management, 23% Downside
- The revenue growth accelerated and the operating margin improved in 3Q22.
- However, management said the performance may not continue and profit is not their target.
- We believe the stock has a downside of 23% for year end 2023.
Shiseido: Outperforms With Relaxation Of China’s COVID Restrictions, Long Term We Are a Bit Cautious
- The indication that China is prepared to scrap its strict Zero-COVID policy has gotten Shiseido Company (4911 JP) going again after an earnings beat in Q3 saw shares climb almost 20%.
- Given that the shares have been range bound throughout the COVID crisis, we think Shiseido could reach near the upper limit of the COVID-range in the near-term to around ¥8,000.
- Nevertheless, we would approach this trade with caution and only with a short time horizon as we see a lot of downside risks in the medium to long term.
CTG Duty Free (1880 HK): Near-Term Positive but It Is Not Cheap at All
- In the near-term, China’s relaxation of COVID-combating measures will boost consumption and demand for cross-province travel. China Tourism Group Duty Free Corp Ltd (1880 HK) is a beneficiary.
- Hotel bookings in Sanya have surged over the last two days, reflecting positive demand reaction. However, China’s full border opening likely in 2023 is a challenge to CDFC.
- Low base in FY22 will drive 45% earnings growth for FY23. However, valuations are not cheap at 33.8x PER for FY23, a significant premium to consumption sector and international peers.
Yuhan Corp (000100 KS): Progress of Anti-Cancer Drug Leclaza Is the Main Growth Engine
- Yuhan Corp (000100 KS) has launched in-house developed drug Lazertinib in the domestic under the brand name Leclaza in July 2021 as a second-line treatment for NSCLC in Korea.
- Going forward, Yuhan aims to place Leclaza as the first-line treatment for NSCLC patients. Leclaza is in late-stage global trial for global approval as a combined or monotherapy for NSCLC.
- In September, Yuhan has acquired a 60% stake in microbiome developer AtoGen for KRW 10B. This acquisition will enable Yuhan to strengthen its probiotics business and development of microbiome treatments.
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