In today’s briefing:
- Alibaba Cloud: Price War Rages as Nationalization Looms in China
- Mitra Keluarga Karyasehat (MIKA IJ) – Stepping on the Gas
- Tam Jai International: High-Quality Assets, Low-Quality Capital Allocation
- Perfect Medical: The Perfect Opportunity to Add
- Nesco: BEC Business Is Now Beyond Pre-COVID Level | Foods Business Is Expanding Into New Horizons
- Water Oasis: H1 FY23 Results, Moving in the Right Direction
- D. Western Therapeutics Institute (DWTI) (4576 JP) – 1Q Follow-Up
- Gemini Postponed Sine Die
- Kolte Patil: Strong Q4FY23 In Line With The Optimistic Expectations
- CARSgen Therapeutics (2171.HK) – Pain Points Have Not Been Effectively Resolved
Alibaba Cloud: Price War Rages as Nationalization Looms in China
- The potential spin-off listing of Alibaba Group (9988 HK) Cloud faces significant challenges from various factors, making the timing particularly challenging for the spin-off.
- The Cloud Business is experiencing intensifying price competition, while simultaneously facing substantial regulatory risks, particularly with the Chinese Government’s plans to nationalize the cloud computing market.
- Due to the ongoing price war and the potential risk of nationalization, we believe that Alibaba (ADR) (BABA US) Cloud’s fair value is substantially below $10bn.
Mitra Keluarga Karyasehat (MIKA IJ) – Stepping on the Gas
- Mitra Keluarga (MIKA IJ) recently booked 1Q2023, where headlines did not reflect the true recovery of the core business given COVID was still a factor boosting last year’s revenues.
- Non-COVID inpatient and outpatient volumes were up by +19% YoY reflecting the strength of the recovery as the environment normalizes but occupancy rates still have a significant upside.
- Mitra Keluarga has started to put foot-to-pedal in terms of expanding new hospitals and increasing capacity at existing hospitals combined with increased efficiencies. Valuations are attractive versus history.
Tam Jai International: High-Quality Assets, Low-Quality Capital Allocation
- We tend to shy away from the restaurant industry but decided to make an exception for Tam Jai;
- The brand has become a household name in Hong Kong and delivers attractive business economics for owners from its home market;
- However, we see multiple red/yellow flags when it comes to the management’s capital allocation, particularly relating to overseas expansion.
Perfect Medical: The Perfect Opportunity to Add
- Perfect Medical Health’s (1830 HK) share price correction seems overdone. News that COVID cases are expected to rise to over 65 million a week by June in China: the culprit.
- The stock presents an excellent opportunity to invest with a 8.9%/11.8% FY23e/24e dividend yield and 20% of the market capitalization in cash. Such excessive pessimism in this name is unwarranted.
- Catalysts for the stock would be the FY23 March-end results to be declared on June 28th, 2023.
Nesco: BEC Business Is Now Beyond Pre-COVID Level | Foods Business Is Expanding Into New Horizons
- As projected, Nesco’s BEC business has completely normalized and clocked INR 45cr+ revenues in Q4FY23. With this, Nesco clocked FY23 PAT of INR 290cr+, well above our INR 250cr+ estimate.
- Alongside the BEC business, Nesco’s foods business has also seen significant recovery led by footfalls from the BEC. Independent of BEC also, Nesco Foods is growing significantly on its own.
- Nesco is on track to earn PAT of INR 320cr+ for FY24, suggesting that at the current market cap of INR 4250cr, it is valued attractively at 13x P/E.
Water Oasis: H1 FY23 Results, Moving in the Right Direction
- Water Oasis (1161 HK) H1 FY23 results were encouraging and a step in the positive direction as revenue/PAT improved by 27%/116% YoY ( although below our estimates by 10%/30%).
- The company paid a semi-annual dividend of 7 cents (9% annualized yield) for an 82% payout ratio. Net cash of 243 mn HKD represents 25% of market capitalization.
- The company has made several investments in new locations and spent heavily on advertising ( costs up 76% YoY); A positive inflection of trends will bear fruit in H2 2023.
D. Western Therapeutics Institute (DWTI) (4576 JP) – 1Q Follow-Up
- According to “Ophthalmology Drugs Global Market Report 2021: COVID 19 Impact and Recovery to 2030” issued by the Business Research Company in Feb-2021, the global ophthalmology drugs market is expected to grow from $22.03 billion in 2020 to $32.64 billion in 2025 (+8.2% CAGR).
- M&A in this segment has become active in recent years, with global eye care leader Alcon (SIX/NYSE:ALC) acquiring DWTI’s closest rival in the US, Aerie Pharmaceuticals, Inc. in Nov-2022, adding Rhopressa® (similar to DWTI’s GLANATEC®) among others, and Aerie’s development pipeline.
- Over time with progress in execution of the development pipeline, and as part of growth strategy to diversify revenue streams, DWTI’s basic business model of drug discovery and early out-licensing has evolved to include 1) from 2015, in-licensing of later stage development products, 2) from 2018, collaborative drug creation applying DWTI’s technical expertise to assist in joint R&D of products of other firms, and 3) from 2018, extending development of original in-house products beyond early out-licensing as far as proof of concept (PoC) through Phase IIb.
Gemini Postponed Sine Die
- S&P has raised Naturgy Energy Group SA (NTGY SM)‘s credit outlook from negative to stable considering that the company may not finally carry out the Gemini spin-off project.
- Naturgy’s shares do not trade on fundamentals, rather on expectations that IFM tries to increase its stake (free float is just 15%). There’s some potential overhang risk though.
- IFM has not acquired any significant stake since April, but I would not short the shares as IFM could resume share purchases on an opportunistic basis.
Kolte Patil: Strong Q4FY23 In Line With The Optimistic Expectations
- Kolte Patil delivered on the optimistic expectations for Q4FY23 which led to a stellar close for FY23 with all-time-high pre-sales and robust deliveries.
- Its flagship project, Life Republic, was at an inflection point as outlined in our original thesis. It contributed immensely in FY23 and is now all set for accelerated growth.
- Despite high base of FY23, Kolte Patil is all set to post a strong FY24 with 25% pre-sales growth, led by new launches and strong sustenance sales.
CARSgen Therapeutics (2171.HK) – Pain Points Have Not Been Effectively Resolved
- The biggest expectation on CARsgen is to break through solid tumor technology (from zero to one).However, it depends on the choices of doctors/patients to see how much clinical benefits would be.
- The investment value of CARsgen has been transferred from R&D progress of pipeline to its future commercialization outlook/market potential, which however, are the major concerns that investors have for CARsgen.
- Due to “practical obstacles” in the application of CAR-T therapy, CARsgen’s commercialization prospects are still vague. Share price could remain weak, but its valuation should be higher than JW Therapeutics.
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