In today’s briefing:
- Nidec (6594 JP): Reconsider Strategy & Management
- Long Idea: EPAM Systems
- JD Health (6618.HK) – Logic Change Due to the New Policy?
- Subscriptions Provide Growth Model for J Front’s Daimaru-Matsuzakaya
- Z Holdings (4689) | An Online Goldmine
- Lepu Biopharma (2157 HK): Lead Candidate Marching Toward Commercialization; Pipeline Is Progressing
- China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt
- Bosideng (3998 HK): Key Takeaways from Post-FY22 Result Call, Generally Optimistic
Nidec (6594 JP): Reconsider Strategy & Management
- Nidec’s share price jumped 6.5% on Friday, June 24, suggesting support near ¥8,000.
- Reconsider the company’s future as CEO Nagamori leads the turnaround of OKK and makes machine tools and industrial robots into a new product division.
- Nagamori, who will turn 78 in August, is still the Key Man at Nidec.
Long Idea: EPAM Systems
- EPAM is an IT Services firm that does high end software development for Fortune 2000 customers.
- One of the great under the radar compounders of all time. Feb 2012 IPO-Feb 2022: ~27% revenue, earnings, FCF CAGR, 45% equity CAGR.
- Core engineering talent historically in Ukraine, Belarus, and Russia, this is the overhang. We think great management team can navigate relocation and return to growth.
JD Health (6618.HK) – Logic Change Due to the New Policy?
- The exposure draft about online drug sales activities on third-party digital healthcare platforms would add uncertainties on JD Health’s business. We analyzed the potential impact and the logic behind.
- Keeping both self-run and third-party business is the optimal option because JD Health cannot afford losing either one. The exact impact will have to wait until policy details are released.
- As main revenue contributor, there are concerns on JD Pharmacy in terms of profitability and policy risks. Before second growth point emerges, expectation on long-term valuation expansion would be discounted.
Subscriptions Provide Growth Model for J Front’s Daimaru-Matsuzakaya
- Subscription usage continues to rise in Japan and a new survey suggests just under 50% of teens and 20s plan to use a subscription service this year.
- Daimaru-Matsuzakaya’s luxury and designer brand rental business has been so successful that the company had to turn away new members for a while.
- The department store’s owner, J Front Retailing (3086 JP), sees subscriptions as a third pillar to its business in the future.
Z Holdings (4689) | An Online Goldmine
- Z HD’s media business accounts for 80% of consolidated earnings.
- We believe that the combination of Yahoo Japan and LINE is driving new synergies and growth opportunities.
- We believe that the media business alone could justify an EV of ¥4.5t, way above ZHD’s current EV of ¥3.5t
Lepu Biopharma (2157 HK): Lead Candidate Marching Toward Commercialization; Pipeline Is Progressing
- Lepu Biopharma (2157 HK) has filed NDA for its lead drug candidate pucotenlimab (HX008) for two indications in China, having a combined estimated market opportunity of RMB8 billion by 2030.
- Overcrowded PD-1 mAb drugs market in China, with 10 marketed drugs, may limit the growth potential of pucotenlimab. However, pucotenlimab has better efficacy than existing drugs.
- Lepu’s other core assets are also progressing and the company has sufficient cash to fund its R&D and commercialization initiatives.
China Gas Holdings (384 HK): Not Giving It the Benefit of Doubt
- We continued to be cautious on China Gas Holdings (384 HK) given the challenges faced. It guided for a flat dollar margin in FY23 but we think this is optimistic.
- Connection fees are likely to stay under pressure after a 42.1% decline in FY22. It only projects 2.6-2.9m new residential connections for FY23, compared with 2.9m in FY22.
- Although China Gas is now the cheapest Hong Kong-listed China gas utilities company, it takes time to regain market confidence. At similar valuation, Kunlun Energy (135 HK) looks more interesting.
Bosideng (3998 HK): Key Takeaways from Post-FY22 Result Call, Generally Optimistic
- The healthy FY22 result of Bosideng International Holdings (3998 HK) showed its ability to solidify leadership position and ride through higher costs with margin expansion.
- Management expects double-digit profit growth for FY23 as it pursues targeted “2+13” expansion strategy and increase push for online sales. New spokespersons and flagship store will add to promotional impacts.
- Net cash of Rmb7.8bn and strong FCF generation ability can ensure high dividend payout (FY22: 80.2%) to sustain. Premium valuation over local apparel peers is well justified.
Related tickers: Nidec Corp (6594.T), Epam Systems (EPAM.N), JD Health (6618.HK), J Front Retailing (3086.T), Z Holdings (4689.T), China Gas Holdings (0384.HK), Bosideng International Holdings (3998.HK)
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