In this briefing:
- Pinduoduo (PDD US): Lock-Up Expiry – Keep Calm, Keep Going
- Aristocrat Leisure Ltd near 52 Week Low Has Runway Based on Positive Earnings Outlook Through 2021
- Hanon Systems (018880): Overvalued Stocks in The Low Margin Sector
- Hyosung Holdings: Current Status & Trade Approach
- Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town
1. Pinduoduo (PDD US): Lock-Up Expiry – Keep Calm, Keep Going
The recent collapse of Xiaomi Corp (1810 HK)’s shares after the end of its six-month lock-up period has focused minds on upcoming lockup expirations. Pinduoduo (PDD US) is the next major Chinese tech company with an upcoming lock-up expiration – its six-month lock-up period expires on 22 January.
We have been bulls on Pinduoduo with the shares up 32% since its IPO. While we are not privy to the shareholding plans of Pinduoduo’s shareholders, we believe that Pinduoduo will likely not mirror Xiaomi’s share price collapse after the end of its six-month lock-up period.
2. Aristocrat Leisure Ltd near 52 Week Low Has Runway Based on Positive Earnings Outlook Through 2021
- Australia’s big gaming tech maker spurs organic growth with its entry into the digital gaming space.
- A balance of a strong international footprint and big US presence in the casino sector show up in dramatic forward earnings estimates by analysts.
- Sharp decline in entire gaming sector since last summer has kept the ARISTOCRAT story below the radar.
3. Hanon Systems (018880): Overvalued Stocks in The Low Margin Sector
The recent negative sales in the Chinese auto industry and Nissan’s case of Carlos Ghosn removal could put additional pressure on the already thin margin of auto supplier industry. One of the Carlos Ghosn early contribution to Nissan was to cut cost and outsource the auto parts maker to a wide variety of suppliers including to Hanon Systems (018880 KS) . Nissan’s new management may want to undo some of Carlos Ghosn’ legacy including changing the selection criteria of parts supplier.
Hanon’s global peers also experienced a decrease in the inventory turnover and most of them have been priced at PER <10 but Hanon is still trading at 24x PER while its sales growth and profitability is still in low single digit? Facing the onset of the slowdown in the Chinese auto industry, won’t it be another headwind for Hanon Systems?
4. Hyosung Holdings: Current Status & Trade Approach
- Local institutions are busy scooping up Hyosung Corporation (004800 KS) shares lately. The owner risk is now gone. There are increasing signs of improving fundamentals on all of the four major subs. Some are already expecting ₩5,000 per share. This is a 9.2% annual div yield at the last closing price.
- Discount is also attractive. It is now at 46% to NAV. With this much div yield, discount should be much below the local peer average of 40%.
- I’d continue to long Holdco. Hedge would be tricky. Heavy is up 15% YTD. I admit that there is no clear cointegrated relationship between them. But Heavy’s recent rally is more of a speculative money pushing up on the hydrogen vehicle theme. I’d pick Heavy for a hedge.
5. Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town
Leading Indonesian mini-mart operator Sumber Alfaria Trijaya Tbk P (AMRT IJ) (Alfamart) has undergone quite a dramatic transformation over the past 12 months, with a dramatic slowdown in its new store buildout paving the way for a significant pick up in SSSG and a reduction in debt.
The company plans to start to step up its store openings selectively over the next year, with 500 new stores planned and fewer closures. Last year it only opened net 200 new stores having opened 1200 stores the previous year.
The market segment continues to see consolidation, with supermarkets and hypermarts suffering and mini-markets continuing to gain ground as the “pantry of the middle-class”.
The company continues to grow its fee-income business, which is highly profitable, with increasing collaboration with utilities, finance companies, and e-commerce players to name but a few.
After a difficult 2017, Sumber Alfaria Trijaya Tbk P (AMRT IJ) looks to be well and truly back on a growth trajectory, with a rationalisation of its stores, a slow down in its expansion, reduced gearing, and a focus on operational efficiencies. The Mini-market continues to win out in the retail space and is increasingly being used as a distribution network for e-commerce companies. The growth in fee-service from bill payment and other services will be positive for the bottom line. The stock is by no means cheap on a PE basis but provides quite unique exposure to what is still a high-growth area of the economy. According to Capital IQ consensus estimates, the company trades on 51x FY19E PER and 44x FY20E PER, with forecast EPS growth of +30% and +16% for FY19E and FY20E respectively.
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