Daily Brief Equity Bottom-Up: S-REITs: Investing In An Inflationary Environment and more

• For the better part of two decades, Singaporean real estate investment trusts (REITs) have provided an efficient and popular exposure to quality large-scale commercial properties. 
• Yet as global central banks hike interest rates to address inflationary pressures, can REITs retain their attractiveness?
• SREITs have corrected as Singaporean interest rates have increased. The question is whether higher interest rates are baked in, and which SREITs will hold up; and which ones will not?

• PDD stock price has been increasingly driven by TEMU as of late, thanks to TEMU’s fast growth and aggressive geographical expansion.
• TEMU rollout introduces more variables to upcoming 4Q results , especially with regard to incremental investments that pose downside risks to earnings, which will sharply decelerate in 4Q and beyond.
• We are turning more constructive on TEMU, but acknowledge the challenges in trading off between topline growth and bottom line deceleration in a potentially prolonged tightening cycle. Stay neutral.

• Addition of Writing Legends to existing maths and literacy apps will create more opportunities to upsell and cross-sell. 
• Brightpath, the recently acquired assessments technology provider, adds a new horizontal with the potential to reduce school customer churn
• Competition is high from groups such as DreamBox, IXL, ABC Mouse, Khan Academy and BYJU’S . 3P Learning remains a significant player with a strong customer base and improving product portfolio.

• RPSG Ventures Limited (RPSGVENT IN) [“RPSGV”] continues to scale up its FMCG business. Q3FY23 FMCG revenues saw a YoY growth of 23%. QoQ, there was some de-growth due to seasonality.
• Excluding one-off other income, Firstsource Solutions (FSOL IN) reported weak Q3FY23 earnings led by sluggish growth and weak margins.
• RPSGV remains a deep-value holding company that is trading at a discount of >85%. As its FMCG and Sports businesses scale up, the stock has potential to re-rate significantly.

• SanBio Co Ltd (4592 JP) recorded operating loss of ¥7.9B for FY23, better than guidance of ¥8.1B. For FY24, the company guided for operating loss of ¥4.6B, in-line with consensus.
• SanBio’s cash position improved with cash and cash equivalents of ¥6.7B at the end of FY23, up from ¥4.6B at the end of the previous fiscal year.
• The company aims to obtain approval of its lead candidate SB623 as a treatment for chronic motor deficit from traumatic brain injury during the current fiscal year.

• The leader in rental equipment industry offers attractive returns, in spite of short-term risk of recession.
• United Rentals’ well thought out growth strategy has created an important competitive advantage.
• High free cash flow allows the management to increase shareholder distributions, while also reinvesting back into the business, according to the company.

• African Rainbow Minerals Limited’s near 30% year-to-date drawdown has presented a value gap.
• The company’s security’s undervalued status, coupled with a dividend yield of above 15%, present us with optimism.
• We assign a strong buy rating to African Rainbow minerals Limited with an indefinite horizon.

The Competition and Markets Authority (CMA) has finished its Phase 1 investigation and has concluded that it has concerns that the UnitedHealth takeover of EMIS could reduce competition in certain areas. It has given both parties five working days to offer legally binding proposals in lieu of a Phase 2 investigation. EMIS expects to be able to provide a further update on or around 31 March, which is the statutory deadline for the CMA to determine whether these undertakings are acceptable in principle.

On 13 March, Pan African Resources (PAF) announced the completion of the final component in its funding package for its Mintails dump retreatment project outside Johannesburg. The funding is in the form of an innovative transaction with Rand Merchant Bank (RMB) in the style of a synthetic forward sale agreement, whereby Pan African will sell 4,846oz of gold per month to RMB for 24 months, commencing in March at a fixed price of ZAR1,025,000/kg (US$1,750/oz at the prevailing forex rate), in return for an upfront premium of ZAR400m (US$22.0m). Including the upfront premium, the effective price at which the group will sell these ounces (representing c 30% of annual group production) will be ZAR1,135,604/kg (US$1,938/oz at prevailing rates) over the full 24-month period.

• Realty Income Corporation’s sustainable growth rate has stalled, resulting in an intrinsic value below its traded market price.
• Realty Income’s market-based features, including dividend growth and low volatility, are favorable.
• However, we think the REITs valuation is a significant risk.