Brief Equities Bottom-Up: Donki’s Big Push into the US Market Led by Current CEO and more

In this briefing:

  1. Donki’s Big Push into the US Market Led by Current CEO
  2. Ctrip.com (CTRP): Well Controlled Marketing Expenses Actually Benefit from Weak Advertising Market
  3. Melco: Big Management Moves, Global Reach and Macau Ramp Produce Solid Entry Point
  4. Blockchain Delusion. Overstock Volatile As Ever Despite Byrne’s Resignation

1. Donki’s Big Push into the US Market Led by Current CEO

Donki2

Pan Pacific International (7532 JP) (PPI)’s CEO Koji Ohara will step down from running domestic operations this month to take up the reins at the company’s North American HQ in California.

The move signals a major push into the USA, with Ohara suggesting that PPI could well buy its way into the market. Many foreign retailers have tried and failed to break into the US market over the past few decades but Donki already has a small foothold and may well have the backing and unique positioning to make a success of this toughest of markets. As in Japan recently, it is likely to seek acquisitions there to build a base quickly.

Ohara leaves the Japan unit having hit the ¥1 trillion target for 2020 more than 12 months early. The domestic business is now the fourth biggest retailer in the country following the Uny acquisition. Despite cautious forecasts, the prospect for high returns from converting Uny stores remains very strong and, given the number of GMS chains in trouble, the possibility of PPI buying other local chains or individual stores remains likely.

With organic growth at home, in Asia and now potentially the US, as well as the prospect of more M&A at home and maybe even in the US, CEO Ohara’s recent suggestion that PPI will emerge as a leading global retailer in the next few years may turn out to be right. 

2. Ctrip.com (CTRP): Well Controlled Marketing Expenses Actually Benefit from Weak Advertising Market

Pic%203

  • Ctrip (CTRP)’s operating margin continued to improve in 2Q19, mainly due to the YoY decrease in sales and marketing expenses.
  • CTRP announced it improved marketing efficiency, but we believe the real reason is CTRP benefits from the weak advertising market.
  • We believe there is an upside of 7%.

3. Melco: Big Management Moves, Global Reach and Macau Ramp Produce Solid Entry Point

Cyprus 1

  • Lawrence Ho strengthens c-suite management ranks to liberate focus on global projects.
  • 2Q19 produced a record EBITDA OF US$442m up 24%, y/y despite macro headwinds.
  • Hong Kong protests, China woes, Australia licensing delay hide bullish fundamentals.

4. Blockchain Delusion. Overstock Volatile As Ever Despite Byrne’s Resignation

Screen%20shot%202019 09 10%20at%202.44.30%20pm

Following his bizarre revelations about his involvement in ongoing FBI investigations on August 12’th last, Overstock CEO Patrick Byrne resigned his position on August 22’nd, severing all ties with the company, through still remaining its largest shareholder.

Byrne’s antics triggered a collapse in Overstock’s share price, causing it to lose some 40% of its value over a three week period. Now, with a new (interim) CEO, and a new board member, the company is going on the defensive.

In separate briefings last week, interim CEO Jonathan Johnson and blockchain subsidiary tZero CEO Saum Noursalehi addressed the events of the past month and outlined their plans for the future of the company. Their words seem to be having the desired impact. Over the course of the past three trading days, Overstock is now up some 33%. The saga, and the volatility, goes on. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.