In today’s briefing:
- Taiwan Tech Weekly: Global Optimism for Semi Stocks, Taiwan’s New Subsidies, TSMC CEO Buying Stock
- Fast Retailing (9983) | Q1 Miss
- Perfect Medical: Reopening in China to Provide a Boost, Rally to Sustain
- Alibaba Signs Cooperation Agreement With Hangzhou Government
- China Education Group (839 HK): Solidifying Investment Thesis After Placement
- 2023 High Conviction Shift: Margins Begin to Recover as Unprofitable Projects Coming to an End
- What Is Tesla’s Outlook After It Drops Out Of Top 10 Largest U.S. Public Companies?
- Lepu Medical Technology (300003.CH) – New Development Mode Changes the Valuation Logic
- Holcim: Transformation Is Underway
- National Vision Holdings, Inc. (EYE) Recommendation: Sell Short
Taiwan Tech Weekly: Global Optimism for Semi Stocks, Taiwan’s New Subsidies, TSMC CEO Buying Stock
- Taiwan’s government has passed new major tax subsidies to support semiconductor firms’ R&D and capex spending.
- TSMC results will be out this afternoon; Interestingly, TSMC’s CEO has been buying shares during October, November, and December.
- Hon Hai has begun iPhone 15 trial production, and Zhengzhou is back to 100%.
Fast Retailing (9983) | Q1 Miss
- We remain bearish on Fast Retailing given its valuation premium versus global peers
- Q1 sales were resilient despite global cost of living issues. Profits missed on rising costs and China’s Covid hangover
- Cost pressures on the wage bill could be a multi-year issue as Uniqlo seeks to align with global pay standards
Perfect Medical: Reopening in China to Provide a Boost, Rally to Sustain
- China ( >20% of revenue ) changing its stance on COVID provides Perfect Medical Health (1830 HK) with an opportunity to crystallize its expansion plans there.
- The border reopening between HK/China will provide a boost to its HK operations (>70% of revenue). The second half of H1 2023 results reflect an improving revenue trend for HK.
- The stock trades at 16x/11x FY23e/24e with ~15% of the market cap in cash and a dividend yield of 6.5%/9.5% FY23e/24e (based on ~100% payout ratio).
Alibaba Signs Cooperation Agreement With Hangzhou Government
- Chinese e-commerce giant Alibaba Group Holding Ltd. signed a strategic cooperation agreement with the government of Hangzhou, the eastern China city where the company is headquartered
- Alibaba and its finance affiliate Ant Group Co. Ltd. have been at the center of the Chinese government’s multi-year crackdown on the internet sector since October 2020.
- In 2021, Alibaba was fined a record 18.2 billion yuan ($2.6 billion) for monopolistic behavior.
China Education Group (839 HK): Solidifying Investment Thesis After Placement
- Positive response of China Education Group (839 HK)‘s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally.
- The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&A potential.
- More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.
2023 High Conviction Shift: Margins Begin to Recover as Unprofitable Projects Coming to an End
- Shift Inc (3697 JP) reported 1QFY08/2023 results today. Revenue increased 35.6% YoY to JPY19.3bn (vs consensus JPY19.8bn) while OP decreased 7.4% YoY to JPY1.8bn (vs consensus JPY2.2bn).
- Both GPM and OPM have dropped compared to 1QFY08/2022 but shows significant improvement over last two quarters suggesting unprofitable development projects are coming to an end.
- Though 1Q earnings fell a touch below consensus, we would not be too concerned as the company’s new services and being the market leader should drive long-term growth.
What Is Tesla’s Outlook After It Drops Out Of Top 10 Largest U.S. Public Companies?
- Tesla’s disastrous performance has resulted in the company no longer being among the Top 10 largest U.S. public companies.
- Market commentators remain laser-focused on business fundamentals, while outside factors are still in the driver’s seat.
- Back in April of last year (less than a year ago) the optimism on Wall Street was running high.
Lepu Medical Technology (300003.CH) – New Development Mode Changes the Valuation Logic
- After China reopens and demand for COVID-19 testing drops sharply, Lepu has lost the big driving force of performance growth. The 2022 full year performance may not be optimistic.
- Lepu Medical Technology A (300003 CH) has begun to focus more on capital operation. As a holding platform, the valuable assets are spun off, which changes the valuation logic.
- Even if Lepu could finally digest the negative impact of centralized procurement, such development mode would still put pressure/uncertainties on its future performance, leading to lower-than-expected financial results.
Holcim: Transformation Is Underway
- Holcim is reinventing itself. Recent acquisitions such as Elevate (formerly Firestone Building Products), Malarkey, and PRB Group are supporting the Company’s move towards becoming a global ‘green’ leader in building.
- New 2025 Strategy ‘Accelerating Green Growth’ in full force. Transformation in the making.
- Strong balance sheet, strong cash flow generation. Holcim’s profile has evolved for the best, including improved ESG standings, and therefore, we expect a re-rating of the Company. Over 25% upside
National Vision Holdings, Inc. (EYE) Recommendation: Sell Short
- Sales have fallen for four quarters. Comp store sales growth fell -8% last quarter due to customer weakness, the declining macro environment and constraints on exam capacity (optometrists).
- Optometrists are supply constrained, which pressure margins from rising compensation. Investor-owned optometry service providers are at a disadvantage competing with professional practices that don’t share fees with investors.
- National Vision is neither large and vertically integrated like Essilor Luxottica, nor niche focused like Warby Parker is on ecommerce. Their low-price strategy is easily replicable by competitors.
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