In today’s briefing:
- SEA Ltd: The Prodigal Son (2Q deep-dive)
- [Futu Holdings (FUTU US, BUY, TP US$55) Earnings Review]: Short Term Peaking but Momentum Remains
- Playmates Toys: 1H23 Results Show Strong TMNT Potential
- CIMC Enric (3899 HK): Demonstrating Sustained Resilience
- Sinotrans (598 HK): Challenges Have Not Abated Yet
- [Meituan (3690 HK, BUY, TP HK$165) Earnings Review]: Counterstrike Remains Effective… Maintain BUY
- The Keihin Co (TYO 9312) – A Consistently Profitable and Growing Small Cap Logistics Company
- Ricegrowers Limited (SunRice) – AGM Commentary Supports RaaS Estimates
- [NetEase (NTES US, BUY, TP US$105) TP Change]: Raise TP for and Upcoming Pipeline
- Wuxi Biologics (2269.HK) 23H1 – The Positives, the Negatives and the Outlook
SEA Ltd: The Prodigal Son (2Q deep-dive)
- Forrest Li: “Look How They Massacred My Boy” When CEO Forrest Li announced SEA Ltd’s Q2 results in mid-August, he was probably expecting a pat on the back.
- After all, the team at SEA Ltd had slogged through fire and brimstone over the past year trying to bring the company back to profitability.
- After all, the team at SEA Ltd had slogged through fire and brimstone over the past year trying to bring the company back to profitability.
[Futu Holdings (FUTU US, BUY, TP US$55) Earnings Review]: Short Term Peaking but Momentum Remains
- FUTU reported 2Q23 revenue 5.9%/13.5% vs. our estimate/consensus, non-GAAP NI beat our estimate/consensus by 9.9%/19.4%, mainly contributed by higher revenue from interest income due to continuous interest rate hike.
- Overseas expansion turns to be the primary focus. However, we think exploit new market is a bumpy and slow path, which cannot solve the near-term headwind on weak trading sentiment.
- We maintain the stock as BUY rating and maintain TP at US$55/ADS, which implies 12.6x PE in 2023, the stock currently trading at 11.3x PE in 2023, leaving 12% upside.
Playmates Toys: 1H23 Results Show Strong TMNT Potential
- Playmates Toys (869 HK) reported strong 1H23 results on the back of initial demand for TMNT toys. Revenues were up 30% and operating profits increased 3x.
- Management remains optimistic for 2H23 on the back of continued excitement for TMNT movie and follow-up series on Paramount+.
- Playmates Toys trades at 5x FY23 P/E and >1x P/E on an ex-cash basis. The company also declared another 2c interim dividend.
CIMC Enric (3899 HK): Demonstrating Sustained Resilience
- We like the 17.7% core earnings growth for CIMC Enric Holdings (3899 HK) as this has demonstrated its operating strengths under a challenging environment in 1H23.
- With orders on hand of Rmb20.6bn (+18.8% YoY), we see forward earnings well-covered. Also, management has turned even more positive on earnings and margin outlook in 2H23.
- The hydrogen energy business maintains solid momentum with order backlog surging 116.9%. The spin-off of CIMC Safeway Technologies on the ChiNext Board is a near-term catalyst.
Sinotrans (598 HK): Challenges Have Not Abated Yet
- The 1H23 result of Sinotrans (598 HK) is unexciting as recurring profit contracted 9.8%. The decline has also accelerated to 13.5% in 2Q23, from just 4.6% in 1Q23.
- Weak export (-14.5% YoY in Jul) and poor airfreight price (-45% YoY in Jul) did not bode well for profitability. The flattening of DHL-Sinotrans’ contribution also limits earnings upside.
- Valuations are inexpensive at 5.3x PER and 9% yield for FY23, but growth outlook is not encouraging. We think it is a good time to take money off the table.
[Meituan (3690 HK, BUY, TP HK$165) Earnings Review]: Counterstrike Remains Effective… Maintain BUY
- Meituan reported CY2Q23 rev./non-IFRS net income in-line/70% vs. cons., and in-line/28% vs. our estimate. Increased spending on in-store competition was offset by abundant rider supply that lowered food delivery cost.
- We raise our 3Q net margin est. by 3ppts as (1) the in-store counterattack against Douyin has been a success, (2) CGB spending to counter Duoduo Maicai has remained restrained.
- Initial results of the in-store counterattack showed positive results, while FD margin continues to benefit from ample riders. We maintain Meituan’s BUY rating and HK$ 165 TP.
The Keihin Co (TYO 9312) – A Consistently Profitable and Growing Small Cap Logistics Company
The Keihin Co is a ¥10.94B ($74.7m) market cap logistics company in Japan that owns and operates warehouses and distribution facilities mostly in and around Tokyo.
They’ve been profitable for 19 of the last 20 years and have compounded tangible book value at 6.5% over the last decade while growing profits.
Stock has gone nowhere over the last decade despite compounding tangible book value and net income at a respectable clip.
Ricegrowers Limited (SunRice) – AGM Commentary Supports RaaS Estimates
- Ricegrowers Limited, trading as SunRice (ASX:SGLLV), held its AGM last week and provided some updated commentary around trading for FY24.
- Most notably, the ‘strong momentum from H2 FY23 has continued into Q1 FY24’, remembering H2 FY23 EBITDA increased 37% on the pcp.
- Factors supporting this growth include the cycling of annualised price rises, additional pricing reviews, international market expansion, improvement in freight and logistics costs, and the ongoing recovery in the CopRice business.
[NetEase (NTES US, BUY, TP US$105) TP Change]: Raise TP for and Upcoming Pipeline
- NetEase’s 2Q rev. miss cons. by (3.08%) and non-GAAP net income beat cons by 50.6%.
- We anticipate that former legacies will continue to be under pressure. However, the 3Q23 is expected to show strong performance with new titles like “Justice Mobile” and “Racing Master.”
- We have raised our annual revenue expectations for “Justice Mobile” and maintain an optimistic view of NetEase’s upcoming pipeline. We increased to TP US$ 105, implying 17x PE in 2023
Wuxi Biologics (2269.HK) 23H1 – The Positives, the Negatives and the Outlook
- The market is clearly satisfied with WuXi Bio’s interim results. Growth of both non-COVID revenue and new projects were beyond expectations. This makes us look forward to 2023 full-year result.
- There’s a significant strength gap between WuXi Bio and Lonza/Samsung Biologics in undertaking commercial-stage orders, which puts WuXi Bio at a disadvantage in competition,making it more vulnerable to financing environment.
- It’s not impossible to restore the high growth before COVID,but WuXi Bio needs to meet two conditions.Instead of betting on a V-shaped reversal, it’s wiser to take profits in time.
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