In today’s briefing:
- UnitedHealth/EMIS: Agreed Offer, Estimated Calendar, Spread
- Signs of Disinflation?; Commodities Deteriorating; Another Bear Market Bounce; Pharma/Biotech Buys
- Hogy Medical (3593 JP): Reviving Demand for Premium Surgical Kit Products to Drive Future Growth
- Arrail Group (6639.HK) – The Development Strategy Cannot Generate High Returns
UnitedHealth/EMIS: Agreed Offer, Estimated Calendar, Spread
- Giant UnitedHealth offers 1,925p, in cash (implied equity value of £1,243 million, implied EV of £1,185 million). This represents: 6.5x EV/Fwd Revenue, 20.4x EV/Fwd EBITDA and 31.7x Fwd PE (source: I/B/E/S).
- The offer is pitched above peer’s multiples, which coupled with a 49% premium, should be enough to convince any reluctant shareholder to tender.
- Gross spread is 2.9%, quite good for a highly likely deal in the European space (c. 16% estimated annual return assuming settlement takes place on 8 September).
Signs of Disinflation?; Commodities Deteriorating; Another Bear Market Bounce; Pharma/Biotech Buys
- A bear market bounce is underway after the S&P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM) found support at their respective downtrend channels, a possibility we discussed last week.
- Still, until the S&P 500, QQQ, and IWM can break above their various downtrends, we remain bearish, and believe investors should be using rallies to reduce overall exposure.
- This 1-week rally has the NDX(QQQ) testing resistance at its falling wedge pattern; a break above $297 would likely mean this bear market bounce has another 2-4 weeks of upside.
Hogy Medical (3593 JP): Reviving Demand for Premium Surgical Kit Products to Drive Future Growth
- Hogy Medical (3593 JP) is high-quality idea on Japan re-opening, with surgical kit, especially premium kit being the main growth driver of the company.
- With the declining effect of the COVID-19 and resuming elective surgeries in Japan, Hogy expects 5% y/y revenue growth in FY23, driven by an 11% growth in surgical kit products.
- Hogy is expanding marketing initiatives in Southeast Asian countries. The company is enhancing production capacity of premium kit products, with partial operation of the new plant to start in July.
Arrail Group (6639.HK) – The Development Strategy Cannot Generate High Returns
- Arrial’s positioning at high-end private dental chain indicates limited growth space. The large investment in dental professionals drags down overall margins but fails to generate good word-of-mouth and expected returns.
- Public hospitals with NRDL reimbursement and private dental chains with high cost performance would put more pressure on Arrail. Increasing marketing/promotion expenses cannot turn things around but further reduce margins.
- Overall, the high-end strategy cannot bring high-end returns. We are not optimistic about Arrail’s prospects and profitability. The Company may even keep losing money and hard to turn profitable.
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