In today’s briefing:
- CGN New Energy Holdings: Character Building
- Meituan: New Reporting Structure Conceals Loss-Making Businesses and Hard to Assess Core Businesses
- Kakaku.com Inc.: A Deep-Dive View
- 2023 High Conviction: J-Power Stands Out As Japan Goes Carbon Neutral
- BeiGene (6160.HK/BGNE.US) 22Q3 – The Price of Being an “Outlier”
- China Gas Holdings (384 HK): Still Not Meeting Expectations
- Bosideng (3998 HK): Decent Result Distorted by Impairment Losses
- Convenience is King
CGN New Energy Holdings: Character Building
- A “valuation system with Chinese characteristics” has the media, ostensibly, discussing whether this implies a premium for SOEs and companies aligned with national goals.
- In early 2020, SOE-backed clean energy play CGN New Energy Holdings (1811 HK) was subject to a potential privatisation from its parent; but it failed to materialise.
- During the 14th and 15th Five-Year Plans (2021-30) period, China’s installed capacity for wind and solar power is expected double.
Meituan: New Reporting Structure Conceals Loss-Making Businesses and Hard to Assess Core Businesses
- Meituan reported 3Q2022 results. Revenue increased 28.2% YoY to RMB62.6bn (vs consensus RMB62.3bn) while reported an OP of RMB988m (consensus OP loss of RMB935m) for the first time since 3Q2019.
- However, on adjusted basis, Meituan made an adjusted operating loss of RMB1.1bn (1.7% of revenue) of revenues compared to an adjusted operating loss of RMB7.7bn (15.1% of revenue) in 3Q2022.
- Tencent announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends and Naspers is expected to sell the Meituan Shares it receives from Tencent.
Kakaku.com Inc.: A Deep-Dive View
- Kakaku.com Inc. can be a rare species among listed companies in Japan;
- We had multiple email exchanges and meetings with the management team for a deep-dive view covering corporate cultural, management style, capital allocation, business model, and competitive strength.
- We would wait for a 20%-30% pullback in the share price before looking to add to our position but would certainly remain reluctant to sell any share that we own.
2023 High Conviction: J-Power Stands Out As Japan Goes Carbon Neutral
- Operating under the brand name J-Power, Electric Power Development C (9513 JP) is leading Japan’s efforts to make carbon dioxide-free electricity by 2050.
- The company’s investments in gasification and carbon dioxide separation technology and carbon dioxide-free hydrogen generation from coal are close to commercialisation.
- With the technology to serve other power producers to develop their own environmentally-friendly power projects, J-Power could turn into a global-leader in the power generation space in the next decade.
BeiGene (6160.HK/BGNE.US) 22Q3 – The Price of Being an “Outlier”
- Our forecast of the total peak sales of BRUKINSA, tislelizumab and the rest commercialized products is about RMB10 billion, which is not enough for BeiGene to turn losses into profits.
- BeiGene has the highest R&D/academic ability among domestic pharmaceutical enterprises,but BeiGene cannot be assessed according to the standards of Chinese pharmaceutical enterprises due to its fundamentally different cost structure/breakeven point.
- The current market value has already priced in the success of TIGIT project to some extent. In other words, the upward elasticity may be limited. But BeiGene deserves long-term follow.
China Gas Holdings (384 HK): Still Not Meeting Expectations
- While China Gas Holdings (384 HK) expects better gas dollar margin HoH, there are still high profit uncertainties and its full-year operational guidance does not look exciting.
- The expectation of flat to 10% YoY decline in new residential household connections is not encouraging. With 1H FY23 profit only amounted to 42% of consensus, we see downgrade risks.
- Despite achieving positive free cash flow, its high gearing of 69.9% (+4pp HoH) is still very stretched relative to peers. We prefer Kunlun Energy (135 HK).
Bosideng (3998 HK): Decent Result Distorted by Impairment Losses
- Amid the challenging market, Bosideng International Holdings (3998 HK)‘s 15% growth in 1H FY23 profit is decent. Excluding impairments, operating profit would have grown by 31.3%.
- It expects FY23 gross margin to expand and further store optimisation to enhance operating margin. The introduction of highly successful ultralight down jackets is an added driver.
- With 32% increase in online branded apparel sales, the channel will be Bosideng’s key growth impetus. For “double-11”, sales have outperformed peers significantly, showcasing its product strengths.
Convenience is King
- Companies that went public through SPACs in 2020 and 2021 have struggled this year due to inflation and, most recently, a weakening economy.
- SPACs have gotten a bad reputation for making unproven, unprofitable companies public, ultimately leading to a majority underperforming the broader market and a few even going out of business soon after their debut.
- However, SPACs have also taken established companies public, like convenience store chain operator Arko, which has relatively fared better.
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