Equity Bottom-Up: Water Oasis, Tesla Motors, Tencent, My E.G. Services, Fast Retailing, Siloam International Hospitals, Green Cross, Tokyo Electron, Builders Firstsource and more

• Water Oasis (1161 HK) reported a tepid H1 with profits coming in at 26 mn HKD, down 56.2% YoY.  This was below our expectations as the company received no subsidies.
• No interim dividend was paid as the profit in H1 was minuscule, and business had commenced on the 21st of April, impacting a month of H2.  
• Save for another lockdown in HK, we see a substantial improvement in profitability for Water Oasis (1161 HK) in H2, along with subsidies that are being paid retrospectively.

In our next Webinar, we are excited to host Analyst Chris Redl (SC Capital) who will outline his stock picks in the global automotive sector. What do major automotive names look like amidst the EV revolution? Tune in to hear more.

The webinar will be hosted on Wednesday, 29 June 2022, 17:00 SGT/HKT.

SC Capital has over 20 years’ experience covering the global automotive industry both on the Sell-side (UBS & Morgan Stanley) and Buy-side (Och-Ziff), along with a wealth of industry contacts. The current focus is on electric vehicle stocks & their supply chains, aiming is to identify the winners and losers from a long/short perspective. This includes close coverage of legacy automakers as well. From time to time, SC Capital covers opportunistic events with stocks in the manufacturing sector, food & beverage, healthcare, and tech.

• Tencent has been actively divesting its investments (mainly in China) given the ongoing regulatory challenges faced by tech platforms in China. Moreover, macroeconomic conditions also have led to these sell-downs.
• The company has explicitly mentioned that it would restructure its investment portfolio to manage risk, this includes divestments and distribution to shareholders.
• The latest sell-down was Tencent (700 HK)  stake in online education platform Koolearn, whose share price more-than tripled this month following its venture into livestreaming.

• My E.G. Services (MYEG MK) ‘s share price is pummelled down from the reopening sentiment, although investors missed the point on this given the range of services MyEG offers. 
• Plenty of the upsides from the new JV in the Philippines and Indonesia are yet to contribute to the full extent due to COVID-19.
• Trades at 19x PER, a deep discount to its historical highs despite stable profitability and a healthy ROE at 23%.  

• Fast Retailing (9983 JP)’s share price continues to hold at the post 2QFY22 level despite clear signs of weakness in many of its growth markets.
• Even though markets have partially priced in the losing competitiveness in the Chinese market, it still believes Fast Retailing can offset that with growth from North America and Europe businesses.
• As North America and Europe expose their true colours in the next quarterly results due mid-next month, we expect a much-needed correction to Fast Retailing’s share price.

• A webinar hosted by Smartkarma with Siloam International Hospitals revealed strong momentum behind its base-case revenues, with patient numbers, and some positive pricing strategies driving revenues.
• The company also continues to develop its centres of excellence and leading positions in a number of specialisations, which helps to widen catchment areas and increase the complexity of treatments. 
• Siloam continues to expand its hospital portfolio but may look to acquire more brownfield assets in the future plus it is experimenting with a managed services model. Valuations are attractive.

• Green Cross (006280 KS) is expected to receive FDA approval for its immune globulin injection, once the agency conducts onsite inspection of its production facility.
• After suffering in 2021, both blood products and vaccine business are back to double-digit growth path in Q1 2022. The company continues to win export orders for both of these.
• Hunter syndrome and hemophilia treatments are the company’s new growth engines. Green Cross has received approval for its hunter syndrome treatment in China and Japan.  

• Nanya Technology has warned of a downturn that could last to the end of the year. This follows reports of procurement delays in response to excess inventory at Samsung.
• Inflation, the Fed’s attempt to kill it with higher interest rates, and the growing risk of recession now threaten not only Tokyo Electron but the entire semiconductor supply chain.
• Record capital spending plans should be fully discounted. Potential delays and cutbacks now put a burden of uncertainty on the sector.

• Acquisitions and product price increases amid home-buying demand drove a dramatic increase in sales.  Product shortages and operating leverage enabled the company to push EBITDA margins 1000bps. 
• The macro environment for homebuilding is inflecting.  GDP posted a down since 2014.  Consumer sentiment is collapsing from the surge in inflation, political acrimony, crime and the war in Ukraine.  
• The stock is expensive on normalized margins.  After a dramatic run, the stock trades at high multiples of normalized earnings, but deceptively moderate multiples on inflated earnings.