In today’s briefing:
- 2022 High Conviction Recruit: More Room for Shares to Fall
- Oriental Land: Fantasy Springs, No Longer Enticing Investors, It’s Likely The Start Of The Breakdown
- Softbank Group – Requiem for WeWork’s Premium Valuation
- China Internet Weekly (19Dec2022): Trip.com, Kuaishou, IQiyi, Activision Blizzard
- Dream Incubator (4310 JP) – An Interesting Exit and Attractive Valuation for Future Growth
- Bukalapak (BUKA IJ) – Opportunity from Adversity
- Cambricon Technologies: Trade Blacklist by the US Govt Likely to Have Long-Term Negative Impact
- Sizable Beat: Sumo Logic Reported Better Than Expected 3QFY23 Results
- Building in The Big Leagues
2022 High Conviction Recruit: More Room for Shares to Fall
- It is time we review our 2022 high conviction call. Our conviction short Recruit has fallen 41.5% since we made our call on the stock on 01st December 2022.
- Though Staffing and Matching & Solutions businesses have bounced back post-Covid, HR Tech biz’s earnings have started to fall with weakening of labour markets.
- With global recruitment markets facing challenges with weakening of global economies, we think Recruit Holdings (6098 JP) ‘s shares have further room to fall in 2023E.
Oriental Land: Fantasy Springs, No Longer Enticing Investors, It’s Likely The Start Of The Breakdown
- As earnings recovered following the COVID drop, Oriental Land (4661 JP)’s FY+2 EV/OP returned to around 40-60x range, which in our opinion is too expensive, especially in current market conditions.
- The positivity surrounding the opening of Fantasy Springs got investors to pay huge multiples but Fantasy Springs is no longer looking enticing to investors.
- With a miss and a downgrade to FY23 guidance on the horizon, we are expecting OLC’s share-price to break the long-term trend to the downside in the next few months.
Softbank Group – Requiem for WeWork’s Premium Valuation
- The market cap of Vision Fund portfolio company The We Company (WeWork) (WE US) has fallen decisively below that of rival IWG PLC (IWG LN) for the first time
- Still despite WeWork’s constant drag on portfolio returns including c. $500mn this quarter, Vision Fund remains on track to end the quarter in the black (+$2bn QTD)
- The holding company discount appears to have stabilized at 35% but this seems a bit steep with markets volatile again and a move to 40% would not surprise
China Internet Weekly (19Dec2022): Trip.com, Kuaishou, IQiyi, Activision Blizzard
- Trip.com’s revenue increased by 29% YoY and adjusted EBITDA increased 164% YoY in 3Q22.
- Kuaishou announced that the views of short play increased by 40% in 2022.
- Activision Blizzard announced that they are looking for a new agency in China.
Dream Incubator (4310 JP) – An Interesting Exit and Attractive Valuation for Future Growth
- In early November, Dai Ichi Life Insurance (8750 JP) announced it would buy ipet Holdings (7339 JP), of which listed VC/PE/incubator Dream Incubator (4310 JP) owned 55%. DI agreed.
- Dream Incubator’s exit is worth ¥21.54bn in cash and ¥18.2bn in extraordinary gains on the consolidated financial statements for March 2023.
- That is nice. They have promised to deliver ¥10bn of proceeds to shareholders and reinvest the other ¥5bn to grow their consulting business. It’s a nice little asset.
Bukalapak (BUKA IJ) – Opportunity from Adversity
- The ironically named warung-tech segment in Indonesia has seen a recent spate of layoffs by a number of key players, as the path to profitability becomes the key focus.
- One company that stands out as a potential beneficiary is Bukalapak, which is already the dominant player in this space through its Mitra business, especially outside Tier 1 cities.
- Bukalapak saw some dramatic improvements in both take rates and contribution margins in 3Q2022, with more to come in 4Q2022 and beyond, from both its Mitra and Specialty store segments.
Cambricon Technologies: Trade Blacklist by the US Govt Likely to Have Long-Term Negative Impact
- It was recently announced that US government put 36 Chinese companies including Cambricon Technologies on its trade blacklist that can restrict the semiconductor maker’s access to US technologies and products.
- The US government has determined that Cambricon Technologies and these other Chinese companies pose risk to the US national security.
- We believe that Cambricon Technologies being included in the trade blacklist by the US government is likely to have a long-term negative impact on the company.
Sizable Beat: Sumo Logic Reported Better Than Expected 3QFY23 Results
- We maintain a bullish view on Sumo Logic Inc (SUMO US) after the company reported stronger than expected 3QFY23 revenues and management updated its financial guidance for FY23.
- We were impressed with subscription revenue growth, strong gross margins, and lower-than-expected operating loss. Sumo Logic Inc (SUMO US) increased FY23 revenue guidance to $298M-$299M.
- Our estimates suggest the company will cross the $300M ARR mark in 2022 and the stock currently trades at a discount to the 20%+ growth peer group.
Building in The Big Leagues
- A perfect storm of inflation, aggressive monetary tightening, and recessionary fears in 2022 has rocked the Housing market.
- This is especially true for home builders like Landsea Homes, which went public through a SPAC last year.
- While not a household name, Landsea has firmly established itself as an affordable builder for first-time home buyers.
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