In today’s briefing:
- Thoughts On The Recent Pullbacks in Meidong and EVA
- Mahindra & Mahindra (MM IN) | Cracks Widening
- TEMU: A Burden on PDD’s Profitability & Possibly a Legal Nightmare
- Taiwan Tech Weekly: Apple & Hon Hai Push for India Labor Changes, Singapore Heavily Courting TSMC
- Snowman Logistics- Forensic Analysis
- New World Development(17 HK):High Leverage in HKRE but Likely the First to Rebound if Rate Peaks Out
- Lasertec (6920 JP): Negative Potential of Sculpta Not in the Price
- DSV: Long-Term Structural Winner
- Sumitomo Pharma (4506 JP): Latuda To Drag Near-Term Performance; New Long-Term Growth Driver Added
- Aristocrat Leisure: Amid Global Uncertainties, the Company Combines Safety and Growth in Gaming Tech
Thoughts On The Recent Pullbacks in Meidong and EVA
- After rallying a fair bit at the beginning of 2023, we have seen sharp pullbacks in Eva Precision Industrial Holdings (838 HK) and China MeiDong Auto (1268 HK) share prices.
- We believe the price cuts highlighted by Victoria Li in her insight China Auto: ICE Price War Triggered by Dongfeng, JV Players Under Pressure are a significant cause.
- While we like both stocks and they are cheap, we feel both companies will face short to medium-term pain in their businesses and share prices as the saga unfolds.
Mahindra & Mahindra (MM IN) | Cracks Widening
- Mahindra & Mahindra (MM IN) is facing challenges in the highly competitive SUV segment in India.
- Model-Wise data indicates declining sales volumes for some of its models such as Scorpio, XUV300, and XUV700.
- The strategy of focusing on the higher end of the SUV market may lead to confusion and loss of market share.
TEMU: A Burden on PDD’s Profitability & Possibly a Legal Nightmare
- Questionable marketing practices and cheap counterfeits could make TEMU a legal nightmare for Pinduoduo (PDD US).
- Meanwhile, SHEIN doesn’t seem ready to give in easily to the competition. Thus, TEMU could be a significant burden on Pinduoduo’s profitability in the medium-long term.
- Considering the discounts, advertisements and promotional spending done by TEMU in the fourth quarter, we think it is unlikely that Pinduoduo will meet the 4Q22 consensus OP of RMB 11.7bn.
Taiwan Tech Weekly: Apple & Hon Hai Push for India Labor Changes, Singapore Heavily Courting TSMC
- Apple & Hon Hai are lobbying for easier labor laws in India, setting the ground for a major shift of production to the country.
- TSMC is being heavily courted by Singapore to set up a manufacturing facility in the city state.
- Hon Hai will report earnings this week. We are structurally long the company despite potential for weak 4Q numbers.
Snowman Logistics- Forensic Analysis
- Snowman Logistics (SNLL IN) is principally engaged in the business of providing integrated cold chain solution to users in India.
- The company is in capex phase as it looks to increase the pallet capacity.
- Forensic concerns include inability to deliver cash flows after the last capex cycle, alongside governance issues such as directorial pay, churn in board, etc.
New World Development(17 HK):High Leverage in HKRE but Likely the First to Rebound if Rate Peaks Out
- NWD has the highest gearing among all HK real estate names. It has significantly underperformed since the rate hike cycle begun. Now it has the biggest potential to rebound
- The stock is trading at attractive valuation, 0.27x P/B, like a distressed Chinese developer. The major market concerns are potential earnings downgrade and dividend cut
- I am quite convicted on the stock for rebound given 1) company has clear de-leveraging plan 2) no plans for equity-raise 3) lots of corporate actions ahead to unlock value
Lasertec (6920 JP): Negative Potential of Sculpta Not in the Price
- Applied Materials’ new Sculpta pattern-shaping tool could greatly reduce demand for EUV mask inspection on a medium- to long-term view. High-NA EUV is likely to do the same.
- Lasertec’s high valuations are predicated on a multi-year high growth trajectory. That trajectory is now being called into question.
- We have cut our FY Jun-25 profit forecast by 32%, but the projected P/E ratio is still 40x. More downside ahead.
DSV: Long-Term Structural Winner
- DSV is a global leading logistics provider with a strong track record of both organic and inorganic growth
- With its asset-light model, DSV delivers industry-leading margins. Best in class management
- Potential for more acquisitions. Market consolidator. Long-term structural winner. Buy and hold
Sumitomo Pharma (4506 JP): Latuda To Drag Near-Term Performance; New Long-Term Growth Driver Added
- Sumitomo Pharma (4506 JP) completed the acquisition of Myovant Sciences. Myovant’s marketed drugs Orgovyx and Myfembree are on strong growth trajectory and have the potential to become blockbuster drugs.
- Sumitomo’s flagship drug Latuda lost patent protection in Feb’23 and has already started seeing revenue erosion. For FY23, Sumitomo has guided for Latuda revenue of $1,565 million, down 14% YoY.
- Post Latuda, newly added drugs will not be able to fully offset the effect of Latuda revenue loss. the company is not expected to launch in-house new drug before FY25.
Aristocrat Leisure: Amid Global Uncertainties, the Company Combines Safety and Growth in Gaming Tech
- Australia’s gaming equipment/systems giant is among the best poised to reward shareholders over the next 18 months as sector recovery speeds.
- ALL’s stock performance over the past 5 years amid 3 of covid headwinds has rewarded investors with ~a 62% total shareholder return–including dividends.
- ALL is riding the front of the cashless gaming systems tech which can grow exponentially over the next 3 years in all key global jurisdictions, Asia, US and EU.
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