In today’s briefing:
- 1373 HK: Value Play 8x PE, Dividend Yield ~10%, 20% of Mkt Cap in Cash
- Del Monte Pacific (DELM SP): Deep in Debt, Slipping Margins, Rising Rates – Perfect Storm?
- Mitsubishi Motors (7211) | Modelling the Mid Term Plan
- Taiwan Tech Weekly: Nvidia’s Latest Strategy Unveil Tonight; AUO Says PC Panel Demand Normalizing
- Pinduoduo: Cost Cutting Wearing Out, Margins Heading Towards Our Steady State Target of 6-7%
- Korea Kolmar: When Will People in Korea Stop Wearing Masks?
- GoTo: Ambitious Profit Target to Further Stall Growth
- Shortlist of High Conviction Ideas – Income, Value, Margin of Safety
- Neuren Pharmaceuticals (NEU AU): It’s Not Too Late to Join the Bandwagon; More Stream Is Still Left
- Fu Shou Yuan (1448.HK) – 2022 Results Missed Expectations, but the Outlook Remains Positive
1373 HK: Value Play 8x PE, Dividend Yield ~10%, 20% of Mkt Cap in Cash
- International Housewares Retail (1373 HK) is an interesting value/growth (5-10% CAGR) play with a high-dividend yield of >10%, trading at 8.1x FY23 PE.
- The claim to fame for this company is the investment of legendary HK mid/small cap investor David Webb (who has a 6.9% stake in this company).
- At a market cap of 2 bn HKD, the company has about 400 mn HKD net cash (20% of market cap), making it 6.9x ex-cash PE.
Del Monte Pacific (DELM SP): Deep in Debt, Slipping Margins, Rising Rates – Perfect Storm?
- Del Monte Pacific reported a steep decline in profits led by a fall in gross margins and a steep rise in interest costs for the quarter ending 31st Jan 2023.
- The company’s gearing has risen to 5.8x led by (1) the refinancing of preference shares and expensive debt (2) acquisition of the Kitchen basics brand (3) increased working capital loan.
- Del Monte’s precariously bloated debt levels and tighter operating conditions, given inflation-led cost pressures and moderating demand, in the current high-interest rate environment heightens the company’s financial risk.
Mitsubishi Motors (7211) | Modelling the Mid Term Plan
- The stock is down sharply over the past few weeks as investors price in higher interest rates and weaker spending on durables
- Mitsubishi recently unveiled its mid-term plan and further details on its electrification strategy
- If management can hit its targets, the stock would have significant upside. We have our doubts
Taiwan Tech Weekly: Nvidia’s Latest Strategy Unveil Tonight; AUO Says PC Panel Demand Normalizing
- Nvidia CEO to unveil new developments at the company’s GTC developer conference tonight Asia time. TSMC and ASML could have read-throughs from the event given their key roles.
- AUO’s chairman said that he expects PC panel demand to return to normal levels later this year; indicating another sign of potential improvement in the PC and display space.
- PC maker Asustek was a top loser in the past week; we highlight it as a potential Long/Short opportunity.
Pinduoduo: Cost Cutting Wearing Out, Margins Heading Towards Our Steady State Target of 6-7%
- With the impact of cost-cutting and monetisation wearing out, consensus looks overly aggressive to expect revenue and OP CAGRs of 24% and 35% respectively over the next two years.
- Based on Pinduoduo (PDD US)’s revenue and cost trends discussed below, we think the steady state OP margin could be substantially lower than consensus.
- Expecting consensus to downgrade expectations, we don’t think it is worthwhile paying up to 45.0x FY+2 OP (on our steady-state OP margin) for Pinduoduo at its current EV of $80.5bn.
Korea Kolmar: When Will People in Korea Stop Wearing Masks?
- The Korean government removed mask mandates for public transportation in Korea as of Monday, 20 March including in buses, taxis, and subways.
- There are four major reasons why it will take much longer time for most people in Korea to stop wearing masks.
- As millions of people stop wearing masks in the coming year, there will be clear, visible higher demand for cosmetics, which should benefit companies such as Korea Kolmar.
GoTo: Ambitious Profit Target to Further Stall Growth
- GoTo (GOTO IJ) reported 4Q2022 and full-year 2022 results yesterday. Gross revenue increased 18.0% YoY to IDR6.3trn while adjusted EBITDA losses declined to IDR3.1trn vs IDR6.5trn in 4Q2021.
- However, adjusted EBITDA as % of net revenues has increased considerably compared to 3Q2022 due to increase in variable costs.
- GoTo’s ambitious profitability target would prevent the company from fully exploiting growth opportunities which will lead to further decline in growth rates.
Shortlist of High Conviction Ideas – Income, Value, Margin of Safety
- Over the past 12 months, we have written insights on 14 stocks in the small/mid-cap space with high dividend yields, inexpensive valuations, and a great margin of safety.
- We re-examine these to shortlist 3-4 names of our highest conviction amidst the current macroeconomic climate.
- Our high conviction shortlist includes Water Oasis (1161 HK), Perfect Medical Health (1830 HK), The Keepers Holdings (KEEPR PM), and Taste Gourmet (8371 HK).
Neuren Pharmaceuticals (NEU AU): It’s Not Too Late to Join the Bandwagon; More Stream Is Still Left
- Neuren Pharmaceuticals (NEU AU)‘s lead product Daybue (trofinetide) has obtained FDA approval for the treatment of Rett syndrome in adult and pediatric patients two years of age and older.
- Daybue is expected to be available in the US in April, 2023. Neuren is eligible to receive royalties on net sales of trofinetide in North America, plus milestone payments.
- Geography expansion of trofinetide (mainly European approval and launch), label expansion possibility of trofinetide, and Neuren’s pipeline progress can act as potential upside catalysts for the stock.
Fu Shou Yuan (1448.HK) – 2022 Results Missed Expectations, but the Outlook Remains Positive
- Fu Shou Yuan (1448 HK)’s 2022 results were below our expectations. Affected by the 22Q4 pandemic, the performance recovery in 22H2 was lower than expected.
- The high demand due to soaring death rate since 22Q4 would be reflected in 23H1 results. Together with low base last year, strong performance rebound in 23H1 is worth expecting.
- The reason behind short-term trade and long-term hold is different. But considering the Company has no obvious flaws in its long logic, every pullback can be a good buying opportunity.
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