In today’s briefing:
- Perfect Medical 1830 HK: The Perfect HK Recovery Play
- Seven & I: Positives All Around But Upside Is Limited
- Softbank (9984 JP) – Klarna’s Coming “down Round”
- Seven & I (3382) | So What if Walmart Missed
- Softbank – Misra Out
- Bank Rakyat Indonesia – Increasingly Digitalised Micro Champion
- Softbank Group – Business as Usual
- Supermax Corp (SUCB MK): Quickly Mending the Damage; Soft Demand Outlook Remains the Main Overhang
- ASRT: Rolling Up with Buy Initiation
- Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com
Perfect Medical 1830 HK: The Perfect HK Recovery Play
- Perfect Medical Health (1830 HK) is a recovery play for HK/China beauty trading at 11.8x PE FY23, with a dividend yield of 8.5% (assuming a 100% payout).
- With net cash (including investments) of 565 mn HKD ( > 10% of market cap ), the company is primed for M&A in an environment where restrictions have weakened competitors.
- The chairman’s recent buying of shares ( representing a 0.41% stake ) and the company share repurchase ( representing 0.08%) indicate the company’s confidence in its prospects.
Seven & I: Positives All Around But Upside Is Limited
- With OP up by 32.1% YoY, 1QFY23 was the first genuine sign of the realisation of synergies from the Speedway acquisition.
- There could be more good news on the horizon as various news outlets have reported that the sale of Sogo Seibu is moving closer.
- Yet we are neutral on Seven & I Holdings (3382 JP) in the short-term. We think investors needs to see the true colours of synergies for shares to break ¥6,100.
Softbank (9984 JP) – Klarna’s Coming “down Round”
- Press reports indicate that Klarna is seeking a new funding round, after a 1Q22 of big losses and a recent 10% headcount reduction at Klarna
- Softbank made its investment in Klarna at its peak valuation in July 2021; the implied new Klarna valuation range is between 30% and 85% down from the peak
- We explore the coming “down round”, and we assess Klarna’s potential valuation metrics relative to payment company peers including US listed BNPL company Affirm and the hit to Softbank’s investment
Seven & I (3382) | So What if Walmart Missed
- Investors should ignore the news around restructuring….it’s nice but basically irrelevant
- The long-term valuation proposition is driven by the core convenience store businesses in the US and Japan
- Unlike Walmart, we think 7&I should have a good quarter in the US and beat analyst expectations for Q1
Softbank – Misra Out
- It was reported today that Vision Fund CEO Rajeev Misra would step away from his role to establish his own investment fund.
- This continues the pattern of turnover of high profile figures within the Softbank Group raising questions about overall management stability.
- With Masayoshi Son also now officially taking amore direct role in managing Vision Fund 2 it also underscores the continuing concentration of decision-making ability.
Bank Rakyat Indonesia – Increasingly Digitalised Micro Champion
- Despite what looked like a solid set of 1Q2022 results, Bank Rakyat Indonesia has seen a sharp correction in its share price, which looks unjustified given a positive outlook.
- The bank has 84% of its loan exposure to micro and ultra-micro customers, which generates higher returns than corporate lending plus it is improving returns through increasing digitalisation.
- Management guidance for this year remains positive, and the bank is well-positioned to take advantage of the economic recovery with abundant liquidity and a low cost of funds.
Softbank Group – Business as Usual
- Vision Fund head Rajeev Misra will step down from Vision Fund 2 to take a new gig managing money for Midde Eastern partners. His VF1 role is unchanged for now
- Structurally, this does not change very much as Son-san has always been the decision maker on investments and we never considered Misra as a candidate for succession
- After surviving $47bn in public equity losses over the last year, it surprisingly looks like Misra’s departure is voluntary
Supermax Corp (SUCB MK): Quickly Mending the Damage; Soft Demand Outlook Remains the Main Overhang
- Supermax Corp (SUCB MK) is facing import ban from the U.S. and Canada. Recently, Norway wealth fund has put the investment in the company under observation for two years.
- Since 2019, Supermax is being alleged for the poor living and working conditions experienced by its employees. Recently the company has aligned itself to the ILO standard.
- However, COVID-driven demand of glove is cooling off. Even upon this, excess capacity is bringing down the average selling price, thereby making the earnings outlook uncertain for glove manufacturers.
ASRT: Rolling Up with Buy Initiation
- ASRT is classic roll-up story where it is leveraging cash flow from one drug to create a portfolio of multiple drugs
- ASRT has managed to stay under investor radars through acquisitions of drugs with small revenue streams. The revenue is starting to add up
- ASRT can use its digital marketing approach to grow earnings and free cash flow from each of the drugs it acquires
Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com
- This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry.
- The reasons for the margin increases are sometimes unsustainable or fraudulent. The critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation.
- These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.
Related tickers: Perfect Medical Health (1830.HK), Seven & I Holdings (3382.T), Softbank Group (9984.T), Seven & I Holdings (3382.T), Softbank Group (9984.T), Bank Rakyat Indonesia (BBRI.JK), Softbank Group (ADR) (SFTBY.PK), Supermax Corp (SUPM.KL), Marinemax Inc (HZO.N)
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