Bottom-up action: China Education Group, Lasertec Corp, Meituan, Advantest Corp, Pan Pacific International Holdings, Clinuvel Pharmaceuticals, Intel Corp, Banco Do Brasil Sa, Banco Bilbao Vizcaya Argentari and more

In today’s briefing:

  • China Education Group (839 HK): impressive 1H22 result, positive call results
  • Lasertec – Failing stratospheric ratings, but that’s not even the biggest problem
  • Meituan closes community group purchases in Beijing – A belated realization that profits are not easy
  • Advantest (6857 JP): Unsustainable orders, high cyclical risk
  • Donki: new formats, more growth
  • Clinuvel Pharmaceuticals (CUV AU): a story of profitable growth, with a long-term sustainable future
  • Intel 1Q22: unexplained optimism
  • Brazil banking data through February in 12 charts – Consumer NPLs worsened further, pushed by higher rates
  • BBVA – Mexico is driving a new distribution of capital

By Osbert Tang, CFA

  • China Education Group (839 HK) demonstrated resilience amid market concerns over political uncertainties by posting 40.5% growth in HY22 reported net profit and 20.1% growth in adjusted net profit.
  • The higher education segment saw earnings growth of 44% and its strengths will continue in 2H22. The weaker segments of vocational and global secondary education will see a strong recovery, based on the latest application statistics.
  • CEG has secured a tuition and quota increase in the next school year, which will boost FY23 prospects. It opts for a Rmb 500 million buyout, instead of paying an interim dividend .

By Mio Kato

  • Lasertec’s 3Q disappointed as revenue of 16.6 billion yen was significantly lower than consensus estimate of 26.6 billion yen, but given the quarterly volatility in shipments and acceptances, this is understandable.
  • More concerning is the emerging picture of declining gross margin that the company previously warned of.
  • Given the inflated valuations, these small declines, coupled with the lack of a rise in expectations, could lead to a continued correction.

By Shifara Samsudeen, ACMA, CGMA

  • Caixin reported on Wednesday that Meituan (3690 HK) shut down the community group service (Meituan Select) in Beijing after learning that the company plans to shut down operations in loss-making cities.
  • Community Group Buying (CGB) became popular in China in 2020 and Meituan entered the market in Q3 2020 and continues to spend heavily in the industry.
  • The market has become fiercely competitive in the form of a price war, which has drawn regulatory scrutiny and led to big players like Alibaba and JD.com pulling out of the market.

By Scott Foster

  • The recent surge in IC test equipment orders is unsustainable. Only service orders maintain a positive trend.
  • After peaking this fiscal year, sales and profits are expected to post double-digit declines. When earnings could bottom is unclear, but cyclical leverage is high.
  • Earnings could rebound in 2-3 years, but visibility is poor. Remember that Advantest has fallen into the red three times in the past 20 years.

By Michael Causton

  • PPI began rolling out new specialty food stores designed to fit into a variety of malls.
  • On the surface, these stores look like Don Quixote mini-stores, emphasizing low prices and dazzling product density, but focused on sweets, liquor, cosmetics, or a combination.
  • The expansion will help reach new customers, reduce new store opening expenses and expand the scale of private labels.

By Tina Banerjee

  • Clinuvel Pharmaceuticals (CUV AU) has the only marketed drug, Scenesse, approved in the United States and Europe for the treatment of a rare skin disorder that causes extreme sensitivity to light.
  • Scenesse revenue jumped 65% year-over-year in the first half of FY22, driven by growing patient demand. With the reopening of expert centres, treatment has largely become normalized in Europe.
  • Clinuvel has a rich pipeline to develop pharmaceutical products to treat a range of indications and non-prescription healthcare solutions for individuals in the general population.

By Aaron Gabin

  • Quarter online, although margins continue to decline due to loss of market share and the ramp-up of new nodes.
  • Intel is too optimistic about PC rebound in 2H; The 15% growth of 2021 is not sustainable.
  • Intel maintained its full-year revenue guidance and increased EPS despite lower 2Q guidance. This involves acceleration in the back half. We find this too optimistic

By Victor Galliano

  • Brazil’s consumer credit quality trends through February deteriorated further from the previous month, despite a slight improvement in corporate credit quality
  • System loan growth was 16.6% for the twelve months ending February, which was slightly faster than January’s annual rate (16.4%), entirely due to stronger loan growth to consumption.
  • The BCB is in the latter stages of its benchmark rate hike cycle, which is impacting credit quality, particularly in consumer categories; nevertheless, Brazilian banks should benefit from higher credit spreads

By Victor Galliano

  • Mexico continues to be BBVA Group’s largest contributor, with the Garanti minority offering expected to increase BBVA’s share of higher yielding and riskier emerging markets
  • Garanti’s revised minority offer is still 10%+ cheaper in euros than when announced in 4Q21, with a modest impact of 34bps on the CET1 ratio
  • We view BBVA as an attractive value play in select emerging markets and Spain, with its well-established digital offerings driving sustained premium returns and premium capital distribution

Related symbols: China Education Group (0839.HK), Lasertec Corp (6920.T), Meituan (3690.HK), Advantest Corp (6857.T), Pan Pacific International Holdings (7532.T), Clinuvel Pharmaceuticals (CUV. AX), Intel Corp (INTC.O), Banco Do Brasil Sa (BBAS3.SA), Banco Bilbao Vizcaya Argentari (BBVA.MC)

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