[October 29, 2019]
* Breakfast Relaunch Modeling *
Download the spreadsheet here to play around. The reason why I add this page which increases the friction and might affect “conversion” is that I’d like to know where the audience comes from.
On September 9th, 2019, Wendy’s announced plans to launch breakfast across the U.S. System in 2020. The daypart expansion includes recruitment of approximately 20,000 new U.S. employees.
The stock reacted poorly due to concerns including initial investment, incremental labor-related costs in a tight market, additional marketing spends for Wendy’s at company level during the ramp up period and poor track records the Company had in previous breakfast attempts.
The initial model tries to understand the economics of this initiative and to quantify the value added to the business if any.
On-going twitter thread below:
[October 19, 2019]
Download the work-in-progress model in excel here to play around 🙂
It’s been a while since I put together initial analysis and deck skeleton on Pinterest. However, I have some difficulties to convert my thesis (particularly business development and competition) into numeric assumptions and found it’s not easy to validate those assumptions. So I just built an initial model and decided to wait and see.
More detective works required to build up conviction and to determine margin of safety.
Cosmo Lady (2298.HK)
[August 29, 2019]
Interim Results Announcement @ Mandarin Oriental
I was attracted by the ugly stock price chart and had a feeling that the company might be struggling like other traditional retail players.
As expected, the company is struggling and delivered terrible financial results in the first half of 2019 with operating profit declined by around 80% year over year.
- Top line declined mid single digit without any noticeable performance among product lines or sales channels. The e-commerce channel grew only by 6.9%.
- I expect there won’t be turnaround of sales trend in the short term.
The company spent most of the time discussing reasons for weak operating performance and turnaround initiatives it had taken.
- Appointed a new CEO of the Group in mid August
- Hired a new sales head
- About to recruit a brand management head and a retail operation head
- Engaged Boston Consulting Group on a long-term basis
- YN: the reason for engaging external consultant is that the management team is not capable to formulate strategy and/or implementation to turnaround for the last two years
- The scope of engagement is quite broad
- Engaged Shanghai olBP SCM to reform product merchandising management
- At least the company understands that IT/SCM infrastructure is the backbone of data-based decision making and operation. This also shows that the company under invested in this area leading to disadvantage.
It seems the company is left behind the race but trying to catch up. So the question is how much time it takes for the company to show the turnaround result if implementation goes well? Maybe it will decline further before things get better. Considering the timeline, I think the “initial results” should reflect in the second half of 2020 no matter it gets better or worse. If the progress is beyond the expectation, probably the company will aggressively attend roadshow between earnings season.
It’s turning around but not a story yet. Existing investors face execution risk and onlookers face the risk of being trapped because the stock might be cheap optically on certain metrics at some point in the future.
Evergrande Group (3333.HK)
[August 28, 2019 ]
Interim Result Announcement @ Four Seasons
The first time I looked at this stock was several years ago when I was doing internship in Hong Kong. Someone in the team registered the site visit but figured out the company was “not interesting” so the trip was left to the intern. I spent a day in Shenzhen, made a friend, and concluded the company was not investible. Leverage was the main concern on the long side and shorting on equity and debt were both expensive. It seemed the fund passed the stock when it traded around HKD 5-6/share. You know the price development in next one year.
The reason why I attended the meeting this time was that I feel I have some domain knowledge in real estate since I spent some time in real estate private equity.
The attendance was shocking to me (fellow investors are definitely used to it). It’s a real people mountain people sea. The company has already become so large and complicated that most questions came from the floor surrounded around macro / policy / industry (or the company answered that way).
The stock has been weak since this April. Macro / policy, leverage and new initiative might be the primary drivers.
Topics of Interest to me
The company spent a good amount of time discussing their EV business. I think it’s well known to the market but for someone who is not following the company like me I was a little bit surprised it’s doing EV. I soon realized that real estate developer leading the EV development / penetration actually makes sense to me. I think it’s more likely for a large real estate developer to deploy the infrastructure which leads to natural monopoly eventually. The company also teams up with another two large real estate developer and electricity grid provider to expand the network and gain exclusivity on the power supply side. Without intervention from future regulation, I can envision clear winner-takes-all scenario. Government will definitely regulate but before that how long it can enjoy the excess economic return and how the upfront costs look like.
The company is currently funding the EV initiative from its real estate business. To build up the EV ecosystem, real estate development will be part of plan so the company is thinking about negotiation with government to acquire land at a “cheaper price” to construct residential properties. The company views the profit generated from real estate (primarily selling residential properties and probably operating / leasing commercial / retail properties) as a compensation of helping government build EV industry. The company expect the EV business won’t be profit making in the next five years. With the downward trend of real estate market and increasing loss when scaling up EV business, the shrinking of group level profit might be faster than the market expected and the group might be even loss making. With high leverage and increasing likelihood of group level loss, the stock price might be depressed for short to medium term.
The company even said a strategy of buy a house, get an EV for free. While it sounds funny, it’s actually a bundle that tries to acquire a customer.
- Start following this company as the market dominant potential for EV is very attractive while it takes some time. We have more time to understand the industry, macro, the company and its business.
- The stock might decline further due to the possibility to start losing money on group level and leverage concern. This might create an opportunity to build position.
Sino BioPharmaceutical (1177.HK)
[August 29, 2019]
Interim Result Announcement @ JW Marriott
I attended the meeting because of recommendation from a friend. The attendance was high reflecting interest of market for whatever reason (no preparation before the announcement as I was in auto-pilot exploration mode).
I was super impressed by their briefing. The executive started with an one-hour presentation covering pipeline, coverage, policy/regulation, medical insurance, its current development and the implication on medicine, market, competition and more. I even thought I could start covering some biotech companies after this comprehensive introduction (obviously this is not the case). I was later told that this was the first time that the company present in this format. That is probably because the company did a price cut of ~90% on a drag to gain insurance status for the drag shocking the market. The stock price had already recovered most of the loss by the day of interim result announcement. The presentation clearly reassured the market and the market welcomed transparency. I felt comfortable with the management team but due diligence on the management team / founding family is still needed.
Whether to Dig Deeper and Study More
- To decide whether to put more resources into this stock might be a timing / horizon question. The stock has recovered from its low in this January and is around 17% away from its historical high. Be long term.
- Entry barrier is relatively high to study biotech stocks. What is the chance to have an edge on fundamental and is there a way to construct an alternative analytic edge on the stock.
- Future exposure might be an incentive. If you know you’re going to spend several days meeting with biotech companies and attending an expensive conference, the motivation to learn more about the industry is clear. Still waiting for the trip to firm up.