Global Research and Evidence Lab 14 August 2024 First Read Medley Profit level comes up short due to growth in costs Q: How did the results compare vs expectations? A: Q2 (April-June) FY12/24 OP (prior to goodwill amortisation adjustments) came in at ¥2.02bn (-1.0% yoy), which is below the IFIS consensus (¥2.68bn) and our forecast (¥2.8bn). The undershoot relative to what we expected was due to one-off factors in the HR platform business and higher company-wide costs. The OP margin in the HR platform busine ...

Investment Rating - The report assigns a 12-month rating of "Neutral" for Sundrug with a price target of ¥4,250 [3][17]. Core Insights - Sundrug's Q1 FY3/25 operating profit (OP) was ¥10.9 billion, reflecting a 10% year-over-year increase, which aligns with the company's plan and exceeds both the forecast of ¥10.5 billion and the IBES consensus of ¥10.6 billion [2]. - The drugstore segment's sales fell short of expectations, while the discount store segment outperformed due to cost efficiencies [2]. - The company anticipates starting product supply to Kirindo Holdings in the second half of FY3/25, which may impact future earnings [2]. Financial Metrics Summary - Revenues are projected to grow from ¥751.8 billion in FY3/24 to ¥802.7 billion in FY3/25, with further increases expected in subsequent years [4]. - EBIT is expected to rise from ¥41.0 billion in FY3/24 to ¥43.9 billion in FY3/25, indicating a stable profitability outlook [4]. - Net earnings are forecasted to increase from ¥29.1 billion in FY3/24 to ¥29.4 billion in FY3/25, with EPS projected to be ¥251.4 for FY3/25 [4]. - The forecasted price appreciation is 9.5%, with a dividend yield of 3.3%, leading to an expected total stock return of 12.9% [5]. Company Overview - Sundrug operates as a major drugstore chain in Japan, offering a range of products including prescription drugs, cosmetics, and food items, and also runs a discount store business under the name DIREX [6].

Investment Rating - The report assigns a 12-month rating of Neutral to Asahi Intecc with a price target of ¥2,220.0 [6][20]. Core Insights - Asahi Intecc's Q4 FY6/24 operating profit was ¥2.5 billion, reflecting a year-on-year increase of 53.8%, although it fell short of the IFIS consensus of ¥2.9 billion [2][7]. - Strong sales in China were a significant factor, with estimates indicating a 3.4 times increase in sales in Q4 compared to the previous year [2][3]. - The FY6/25 operating profit guidance is set at ¥25.2 billion, representing a 13.9% year-on-year growth, which is above the firm's previous forecast and higher than market expectations [4][5]. Summary by Sections Financial Performance - Q4 FY6/24 operating profit was ¥2.5 billion, below consensus but above internal expectations, driven by strong sales in China [2][7]. - FY6/25 operating profit guidance is ¥25.2 billion, higher than previous forecasts and market assumptions [4][5]. Market Outlook - The company anticipates continued strong sales in China for FY6/25, supported by a recovery in case numbers and normal inventory levels [3][5]. - The operating profit margin is expected to improve to 21.6%, an increase of 1 percentage point year-on-year [5]. Company Profile - Asahi Intecc is a mid-sized medical device manufacturer specializing in stainless wire technology, with a strong market presence in Japan and manufacturing operations primarily in Thailand and Vietnam [10].

Investment Rating - The report assigns a "Buy" rating for the Australian Telecom Sector, indicating a positive outlook for the industry based on current performance metrics and future expectations [12]. Core Insights - The Australian Telecom Sector, particularly Optus, has shown a recovery in mobile subscriber numbers, adding 38,000 subscribers in 1Q25, which is a significant improvement compared to the previous quarter [2]. - Mobile service revenues for Optus increased by 4.6% in the quarter, primarily driven by a 3% growth in blended Average Revenue Per User (ARPU), with postpaid ARPU rising to $43 per month [3][4]. - Optus reported an EBIT growth of 4.2% year-over-year, with EBIT margins improving to 5.1% in the quarter, reflecting the benefits of mobile ARPU growth [4]. Subscriber Trends - The total mobile subscribers for Optus reached 10,506,000, marking a 0.7% year-over-year increase, with postpaid subscribers growing by 10,000 and prepaid subscribers by 23,000 in the quarter [1]. - The report notes a softening in subscriber net additions for TLS in the second half of 2024 compared to the first half, suggesting that the tailwinds from international migration may be diminishing [2]. Financial Performance - The blended ARPU for Optus increased by 3% year-over-year to $32, with postpaid ARPU showing a stronger growth of 5% year-over-year [1][3]. - Despite the positive trends in revenue and margins, the report highlights that Optus's Return on Invested Capital (ROIC) remains low, indicating a focus on recovery in this area over the medium term [4].

Investment Rating - The report assigns a 12-month rating of "Buy" for Magellan Financial Group (MFG) with a price target of A$10.50, indicating a potential upside from the current price of A$9.70 [1][13]. Core Insights - The adjusted profit for MFG increased by 5% to A$177.9 million, surpassing both UBS estimates and consensus expectations, driven by strong performance in funds management [1]. - The company is set to acquire a 29.5% equity stake in Vinva for A$138.5 million, which is expected to enhance its global distribution capabilities and product offerings [1]. - The forecasted stock return is 14.6%, combining an 8.2% price appreciation and a 6.3% dividend yield, which is favorable compared to the market return assumption of 9.2% [2]. Financial Performance - Key financial metrics for FY24 include: - Adjusted NPAT of A$177.9 million, beating UBS estimates of A$173 million and consensus of A$172 million [1]. - Funds Management (FM) PBT of A$177.5 million, slightly above UBS estimates [1]. - Final dividend per share (DPS) of 35.7 cents, which is 50% franked, compared to UBS estimates of 35.8 cents [1]. - The average funds under management (FUM) stood at A$36.8 billion, with a total FUM of A$36.6 billion pre-announced [1]. Market Position and Strategy - Magellan Financial Group operates as a fund manager focusing on institutional, wholesale, and retail funds in global equities and listed infrastructure strategies, showcasing strong performance since its IPO in 2012 [3]. - The company has a diversified investment portfolio, including stakes in associates like Barrenjoey and Finclear, which contribute to its overall performance [3]. - The outlook for FY25 includes operational expenses in the range of A$105-110 million, which is higher than consensus expectations of A$103 million [1]. Valuation and Returns - The valuation is based on a discounted cash flow (DCF) and sum-of-the-parts (SoTP) framework, indicating a strong balance sheet with a strategic capital buffer of A$325 million [1]. - The report highlights a forecasted excess return of 5.4%, suggesting that MFG is positioned to outperform the market [2].

ab 15 August 2024 Global Research and Evidence Lab Seven Group Holdings Industrial Services momentum to support HSD EBIT growth in FY25. Buy FY24 EBIT growth delivered above guidance Seven Group delivered a solid FY24 result, with EBIT growth of +20% ahead of guidance for "mid to high teen" percent growth. The Industrial Services segment delivered +28% EBIT growth, with strong operating performances across WesTrac, Coates, and Boral. WesTrac delivered double digit revenue growth in both machine sales and se ...

ab 15 August 2024 Global Research and Evidence Lab BWP Trust Back to growth in FY25 Guidance showing growth for the first time in 5yrs BWP's FY24 NPAT (adj. for SL of rent) was $120.5m vs. UBSe $117.5m, supported by strong lfl rental growth of 4.2%. Guidance for FY25 DPU growth of 2% reflects the first growth in 5 years from 18.29c DPU, with no more than ~$1.8m of capital profits required to support DPU implying underlying growth. LFL rental growth should remain strong into FY25 with 12% of leases subj. to ...

Investment Rating - The report maintains a Neutral rating for AGL Energy with a 12-month price target of A$11.00, slightly up from the previous A$10.85 [6]. Core Insights - AGL reported a solid FY24 result with NPAT of A$812 million, which is 2-3% ahead of consensus estimates. The FY25 earnings guidance is also 2% above consensus [2]. - The electricity portfolio margins remain strong at A$55/MWh, supported by operational flexibility investments at Loy Yang and Bayswater power stations [2]. - Gas portfolio margins averaged A$7.50/GJ, benefiting from a favorable mix shift towards higher-margin retail customers [2]. - AGL's forecast indicates a -1% CAGR in NPAT over FY24-27, with downside risks balanced by potential upside from wholesale electricity and gas prices [2]. Summary by Sections Financial Performance - AGL's FY24 NPAT was A$812 million, with a strong generation availability contributing to better earnings in both electricity and gas divisions [8]. - The company completed flexibility upgrades at key power stations, enhancing its ability to capture wholesale price volatility [8]. - Revenue for FY24 is projected at A$13,583 million, with EBITDA at A$2,216 million, reflecting a 3% increase from prior estimates [27]. Margins and Forecasts - Electricity margins are expected to moderate in FY25 and FY26 before a multi-year growth phase, driven by investments in batteries and wind assets [11]. - Short-term wholesale electricity futures prices are projected to average A$99/MWh in 2025 and A$97/MWh in 2026, indicating elevated market volatility [12]. - Gas margins are expected to remain strong in the medium term but may face compression as legacy contracts roll off starting in FY28 [20][17]. Development Pipeline - AGL's development pipeline includes a binding agreement to acquire Firm Power and Terrain Solar for A$250 million, providing significant capacity development options in batteries and solar projects [21]. - The report highlights four battery projects with development approvals that could add 870MW of capacity at an estimated capex of A$1.3 billion [22]. - AGL's balance sheet is positioned to maintain significant headroom under various capex and pricing stress scenarios, with FFO/net debt expected to remain within 50-75% over FY25-29 [3][24].

ab 14 August 2024 Global Research and Evidence Lab Orora FY24 better than feared. Destocking still ongoing. FY24 EBIT beat on better Saverglass and OPS results Orora delivered FY24 EBIT of $404mn, +6% ahead of consensus forecasts, reflecting better than expected performance from both the OPS and Saverglass business units. The OPS business delivered +50bps of EBIT margin expansion despite revenues declining - 11% (USD terms), with benefits from Orora's operational transformation plan helping to offset both p ...

ab 14 August 2024 Global Research and Evidence Lab Lifestyle Communities In the eye of the storm – upgrade to Buy FY24 pre-announcement with current trading reflecting the trough LIC's FY24 UPAT of $52.9m was in line with UBSe at $52.6m given pre-announcement, with 311 settlements achieved. The focus today was on recent trading post the 7.30 Report investigation of LIC's sales strategy and Deferred Management Fee (DMF), with UBSe ~19 net cancellations post 30 June (likely ~30 gross cancellations with minima ...