In today’s briefing:
- Pop Mart: Aggressive Overseas Expansion to Hurt Profitability
- Duolingo: Now, Available In China. Plenty of Positives and Strong Operating Metrics
- Pharmaron Beijing Co Ltd (3759.HK/300759.CH) – The Story May Have Changed
- Alibaba (9988 HK) Pre-Earnings: Lowest Growth, Will Recover in December Quarter, Buy
- Korean Defense Companies: Potential Contracts Worth 28 Trillion Won from Poland, UK, & Norway
- Short Names on Our “Workbench”: Scotts Miracle-Gro, Corsair Gaming, CF Indus, Gap Inc, Hub Group.
- IPAR: Growth Despite Forex Headwind
Pop Mart: Aggressive Overseas Expansion to Hurt Profitability
- Pop Mart’s share price has lost more than 50% YTD as resurgence of Covid in China has severely impacted the company’s operations including closure of physical stores and robo shops.
- The company also issued a profit warning last week for 1H2022 that was severely impacted by the spread of Covid-19 as well as business expansion related costs.
- We expect the company’s aggressive overseas expansion strategy to continue to impact the company’s profitability and there is further downside.
Duolingo: Now, Available In China. Plenty of Positives and Strong Operating Metrics
- Duolingo (DUOL US) will announce its 2Q22 quarterly results on August 4, 2022. The leading U.S. EdTech unicorn raised FY22 guidance and reported strong operating metrics in 1Q22.
- Duolingo app is back in Apple App Store and Android stores in China after the app was removed from some app stores 1 year ago due to Beijing’s EdTech crackdown.
- Durable Capital Partners acquired ~$158M worth of Duolingo (DUOL US) shares this year. General Atlantic and Durable Capital Partners led the most recent Series H private round in November 2020.
Pharmaron Beijing Co Ltd (3759.HK/300759.CH) – The Story May Have Changed
- Pharmaron’s share price plunged after the release of the estimate for 2022 interim results, even dragging down the entire CXO sector, which reflected the attitude of Mr Market.
- One important reason for low net profit growth is related to the development strategy – Even if Pharmaron achieves “integration”, its advantage/profit margin could largely shrink due to overcapacity/fierce competition.
- Pharmaron can only achieve V-shaped rebound by making breakthroughs in CGT CXO to boost valuations and expectations on outlook rather than pursue the strategy of “integration” as in the past.
Alibaba (9988 HK) Pre-Earnings: Lowest Growth, Will Recover in December Quarter, Buy
- We believe Alibaba’s revenue growth rate will reach historical low in 1Q23, but it will recover two quarters later.
- Alibaba’s stock price fell from HK$300 in October 2020 to HK$100 today.
- We believe Alibaba has at least an upside of 43%.
Korean Defense Companies: Potential Contracts Worth 28 Trillion Won from Poland, UK, & Norway
- There have been more news flow about several major Korean defense companies that could receive as much as 28 trillion won in new orders from three major European countries.
- The Poland government could purchase jets, tanks, and howitzers from major Korean defense companies such as Hyundai Rotem (K2 tanks), KAI (FA50 fighter jets), and Hanwha Defense (K9 howitzers).
- There is a good probability that the Korean defense contractors may be able to secure a large percentage of the 28 trillion won in new arms exports contracts.
Short Names on Our “Workbench”: Scotts Miracle-Gro, Corsair Gaming, CF Indus, Gap Inc, Hub Group.
- The following names are “on the workbench”, ie., names we are working on that look interesting from the short side. They are discussed, with charts, in the PDF attached below.
- We like to be as transparent as possible in our short idea generation process.
- Today, we are flagging: Scotts Miracle-Gro, Corsair Gaming, CF Indus, Gap Inc, Hub Group.
IPAR: Growth Despite Forex Headwind
- IPAR continues to demonstrate the strength of the consumer’s willingness to purchase fragrances the Company develops
- IPAR announced Q2 sales of $244.7M compared to our forecast of $198.0M. The strength in the quarter was notable in the USA while the European segment had a small lift
- IPAR taking over the Donna Karan and DKNY brands should lead to greater sales performance in the second half of the year
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