Daily Brief Equity Bottom-Up: Virgin Australia – Outperforming Most LCCs Globally; Positioned for New Era of Cash Flow Generation and more

• FY23 performance positions VA at the top table relative to global LCC financial performance
• Global analysis of #2 positions behind a strong market leaders suggests an efficient VA should be well positioned to sustainably outperform the global airline industry’s average financial performance
• Forecasting mean reversion for operating performance but aircraft financing savings should sustain superior profitability and cash flow generation than pre-COVID.

• HDFC Bank (HDFCB IN) released its first results since its amalgamation. This can make comparatives difficult where historicals are not adjusted, except for some QoQ items.
• We use Dupont Analysis to better understand how the newly amalgamated bank looks now compared with the past, which generally shows a more profitable bank at the core. 
• Credit costs, tax expenses are also positives, with the former improving 27bps YoY and the latter improving 23bps YoY. Investment income is a major positive driver in Sep 23 quarter.

• Our Taiwan AI stock short basket of Quanta, Wistron, Gold Circuit, and Asia Vital has underperformed Nvidia by 12.5% since our previous piece.
• Most of Taiwan’s AI stock plays have underperformed Nvidia over the same period, but by less than our basket names. Analyst recommendations remain overwhelmingly Buy for our Short basket names.
• Conclusion: Maintain Quanta, Wistron, Gold Circuit, Asia Vital as a Short Basket vs. Long Nvidia. Nvidia revenue will grow at a higher percentage rate than most Taiwan AI concept stocks.

• Xtep International (1368 HK) announced yesterday strong retail sales of high-teens growth in 3Q23.
• Though the growth was at the expense of slightly higher overall discounts of 25-30% off during the quarter.
• I prefer Anta over Xtep given higher visibility in Anta’s bottom line, as Xtep’s growth continues to be of lesser quality than Anta’s. 

• Anta Sports Products (2020 HK) achieved a decent 3Q23 with sales performance of major brands outperformed. With a low comparison base, 4Q23 sales will be even more impressive. 
• Indications are that sales for the Golden Week are satisfactory and “double-11” sales are optimistic. The acquisition of MAIA ACTIVE will further add to its product portfolio.
• Amer’s IPO is another catalyst and reports are that this has been filed in the US. Anta Sports’ stake may be valued at US$4bn, almost 12% of its market cap.

Paradigm has announced positive day-365 data from its Phase II trial (PARA_OA_008) assessing injectable pentosan polysulfate (iPPS) as a potentially disease-modifying treatment for knee osteoarthritis (kOA). The latest data show durable responses based on measures of pain and function, while confirming the company will be pursuing an iPPS (2mg/kg) twice-weekly regimen for six weeks across all of its clinical programmes for kOA. Based on this update, Paradigm now plans to proceed with a Provisional Approval application to the Therapeutic Goods Administration (TGA, the Australian regulatory authority). The day-365 data are encouraging for iPPS as a potential treatment for kOA, in our view, adding to the company’s data package to support discussions with regulatory authorities and potential partners. We note that Paradigm is awaiting full analysis of MRI data from this trial, and plans to share it in the near term.

• Since IPO, stock price of Kelun-Biotech has performed quite well. Then, the Company’s valuation fluctuated. Investors seem not excited about Sichuan Kelun-Biotech Biopharm (6990 HK)’s 23H1 performance.
• We won’t expect too much on A166 in such a difficult competitive landscape.Commercialization of SKB264 is also challenging.It’s difficult to make up the story after A166/SKB264 begin to generate revenue.
• After out-licensing all valuable/core assets to Merck, together with the departure of core R&D personnel, Kelun-Biotech has been “hollowed out”.So, Kelun-Biotech’s value lies in short-term trade rather than long-term hold.

• U.S. expands China chip restrictions — Implementing lower performance thresholds and further restricting sales via third party countries.
• Intel and AMD chips likely also impacted, as well as equipment from ASML, Lam, Applied Materials, Tokyo Electron and others. We will learn more today from Lam and ASML results.
• Taiwan AI Plays also to be impacted — Shares of Wistron, Quanta, Gold Circuit, Asia Vital Gigabyte, Super Micro, Alchip appear precarious.

At the AACR-NCI-EORTC conference in Boston, OSE presented the initial positive data supporting the potential efficacy of its anti-PD1 monoclonal antibody, OSE-279, in patients with advanced solid tumours, with no therapeutic option available. The interim data from the Phase I/II dose escalation study indicated that OSE-279 monotherapy exhibited manageable safety and showed preliminary signs of efficacy. Both the pharmacokinetic and pharmacodynamic profiles aligned with the company’s expectations. As a reminder, OSE-279 serves as the key anti-PD1 component in the company’s bifunctional checkpoint inhibitor (BiCKI) platform, designed to address primary (lack of response to treatment) and secondary resistance (resistance after an initial response) mechanisms. The data shared are promising with potential for OSE-279 as a monotherapy, but given the small cohort (13), we await further data from the Phase II component of the current study. Incremental positive results could provide validation for OSE-279 and the BiCKI platform approach.