Quality-Value Investing

Marc Melendez, CFA

Emerging Market Small and Mid Cap Equities

Reperio Capital

Reperio Capital Research was founded in 2013 with the goal of better serving the investment community with in-depth, high quality, value oriented research.

Reperio means to discover in latin. Using value investing principles, we aim to discover a minimum of 12 investment opportunities per year within the Emerging Markets Small and Mid Cap universe.

We take a business owners perspective with a long term investment horizon. We conduct bottom up, fundamental research. We focus on downside risks and require a significant margin of safety in any investment to prevent the permanent loss of capital. All factors differentiating our research from the short term, trading focus of traditional research providers.

Equity Bottom-Up

Pico Far East Holdings / Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/pico-far-east-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19069:1" rel="noopener">Pico Far East Holdings (752 HK)</a> helps businesses with interactive marketing at Events and Exhibitions. It is well respected in the industry receiving several annual awards for its work within the MICE industry. Due to the pandemic, the MICE industry ground to a halt. In the first half of 2020, the number of tradeshows serviced by the company declined by 63%.  Despite the state of its industry, the company remained profitable in the first half of 2020. The continued uncertainty surrounding the industry and its recovery caused Pico’s share price to fall from HKD2.39 at the beginning of 2020 to HKD1.11 at the close of October 21, 2020.</p><p> This uncertainty creates the current opportunity. Pico is a leader in the MICE industry, which will eventually recover. As the industry recovers, Pico’s operating income should, and as it recovers Pico’s share price should also recover. The base case assumes the operating income does not fully recover (75%), and after recovering there is no additional growth in operating income. Despite these conservative assumptions, there is 116% upside to the FY2024 base-case fair value per share of HKD2.40. There is 30% upside to the bear case, which assumes operating income continues at HKD100 million into perpetuity, roughly 36% of the five-year average operating income before the pandemic.</p>

Pico Far East Holdings (752 HK) helps businesses with interactive marketing at Events and Exhibitions. It is well respected in the industry receiving several annual awards for its work within the MICE industry. Due to the pandemic, the MICE industry ground to a halt. In the first half of 2020, the number of tradeshows serviced by the company declined by 63%.  Despite the state of its industry, the company remained profitable in the first half of 2020. The continued uncertainty surrounding the industry and its recovery caused Pico’s share price to fall from HKD2.39 at the beginning of 2020 to HKD1.11 at the close of October 21, 2020. This uncertainty creates the current opportunity. Pico is a leader in the MICE industry, which will eventually recover. As the industry recovers, Pico’s operating income should, and as it recovers Pico’s share price should also recover. The base case assumes the operating income does not fully recover (75%), and after recovering there is no additional growth in operating income. Despite these conservative assumptions, there is 116% upside to the FY2024 base-case fair value per share of HKD2.40. There is 30% upside to the bear case, which assumes operating income continues at HKD100 million into perpetuity, roughly 36% of the five-year average operating income before the pandemic.

Pico Far East (752:HK): Undervalued Due to Pandemic. Return to Normal Will Lead to over 100% Upside.