[Music] thank you thank you [Music] have you visited the gym downstairs if so you've used techno gym the European leader in the growing fitness equipment industry an official supplier of the Olympic Games sounds like a pretty good investment opportunity right hold your horses I'm Gabrielle from polyteco De milando and we are issuing coverage with a hold recommendation and our year-end Target price of 7.8 euro per share a six percent downside on current price three pillars drive this recommendation first would you identify positive industry Trends however techno gym is not positioned as to fully benefit from them second the company has a leading position in Europe but this is offset by a challenging geographical expansion and third it's outstanding Financial Health is actually but one side of an overly cautious investment strategy we'll now introduce you to techno gym and explain why the company's value is already reflecting the stock price found in 1983 by Nederland who still owns more than 50 percent of the Voting Rights techno gym is an italian-based company that manufactures premium fitness equipment and provides an extensive range of end-to-end services technogens products are known worldwide for their design quality and made in Italy appeal indeed its most premium treadmill can cost as much as 22 thousand dollars the company repeatedly increased prices over the past years with Best in Class margins for the fitness equipment industry yet is still below Luxury company standards in Bishop B techno gym indirectly reaches premium gym members notwithstanding whether the gym is in a fitness club in a hotel or in a corporation while in b2c its offerings mainly directed to high net worth individuals who value techno Gym's high-end brand the company has Global Outreach however over half its sales are concentrated in Europe whereas relevant Global markets North America and Apec review smaller penetrations Alberto now moving to the first pillar of our investment thesis well-being is now a priority for individuals and governments good news for technology isn't it not really we analyze the fastest growing Fitness club chains worldwide according to the number of new branches of industrial two-thirds of them are focused on Alternate workouts such as CrossFit Pilates and yoga these gyms have no use for a fitness equipment and therefore a non-technology clients promising for technology meter these are mass Market gyms with an average fee of 45 US dollars per month a far cry from technology we can surveys that is positioned in the iron segment with an average fee of 150 per month moreover emergency pandemic people are mixing fitness routines combining on features and g-workouts this is the hybrid Fitters Market expected to grow with a 14 keger until 2027. May 2021 to expand its v2c client base and replicate the gym experience at home however we advise two problems with this strategy first we see a mismatch among Tecno gyms and users premium members will buy technology b2c products unlikely as technology b2c offer is designed for a networking results in contrast premium members have different spending habits and we look for cheaper equipment to replicate their gym experience at home second technology faces strong competition from other gmaps that are more wide use among gym members summing up visit technology not 12 position to fully write this emerging Fitness trends now Andrea can explain the second pillar of our thesis looking at Tech regime geographical expansion today it has a 15 market share in Europe but it's mean strategic focus is to penetrate North America where it achieved the 40-door census growth in 2022. however this is still a post-pandemic recovery as they growth from 2019 was 11 percent below the levels in previous years and we expect this acceleration to continue based upon three main factors first in the B2B Market U.S production operators buy directly print from many different specialized suppliers this is the preventer for techno gym whose services are interconnected and their full value allium veins which is second in the b2c technology offer is potentially less valued by U.S customers luxury spending is a percentage of GDP is much lower in North America than in Europe and debac third we expect the competitive environment and do you say to fact the squeeze like Jim's growth since the pandemic Industries moving on to the hospital our investment this is technology is a healthy player from a financial perspective with leaning to actually margins and the strong catch generation history but what about the future cash flows are barely used to promote organic growth records show reduction organic Investments favor of cash accommodation and they aren't used for inorganic growth either with a weak community history we do not expect upcoming transactions contrary to reconciliation end of the industry for now technology will be using access cache to deleverage the company a return cash to shareholders now Alberto will show you how we Factor other investment pieces into our evaluation let's start with revenues we forecast Revenue stop down focusing on Specter market growth and Technology geographical penetration on market growth for the B2B segments we looked at the fitness equipment Market one for the b2c with proxy the target Mark with the number of high net worth individuals as it better reflects the specific ion customer base about geographical penetration we started from technology and pre-pandemic performance but assuming as low down due to the increased competition in the U.S and Market saturation in Europe as a result we forecast a seven percent Revenue kicker 95 basis points below the current consensus moving on to margins technology has made a strong recovery from the pandemic with 2023 BD margin expected at 19 percent in the long term we expect it to be 100 business points lower than the peak levels of 2019. as moving competition on the international level will lead to pricing pressures and increased costs margins may also be temporarily affected by the acquisition of an additional production facility which we believe will represent the only major investment in the medium term besides capex for maintenance and manual improvements now following this growth assumptions we developed a three stages discounted cash flow model using a projected six percent free cash flow keger a 10 discount rate and a three percent terminal growth we advise a Target price of 7.8 euros and a whole recommendation for technology we stress this model with several robustness checks our sensitivity analysis Monte Carlo simulation and bulbasing Analysis all reinforcer recommendation in addition to assess the market Reliance of rdcf we carried out our relative evaluation we use it only as a support metric due to techno Gym's unique positioning and now Julio we're running through it two peer groups in our Market valuation Fitness companies and luxury companies given techno gyms leaning to luxury positioning and the high net worth individuals targeted by the company using the Evian Capital employed multiple we ran a multiple linear regression applying rochi and the BDA margin to Discount differences in the peer groups in this way we derived a stock price range of 7.2 to 7.9 euro per share this reinforces our view that as of today techno gym is trading more as a luxury peer rather than a fitness peer is this meant to last as a sales exposure to North America grows so does the percentage of investors from this area hence we expect techno gym to be progressively traded more as a fitness peer in the long term bringing the Target price closer to the lower valuation coming to USD assessment we developed a framework taking as our starting point the metrics and methodologies used by primary SG rating agencies we give techno gym a double B rating in both Industries given its lack of disclosure in official documents and the consequential qualitative rather than quantitative reporting Style looking at the first ESG pillar Technologies disclosure on its main environmental issues is restricted to its levels of consumption but never expands into any consumption reduction targets moving to the social pillar where technology scores fairly the company focuses on collaborating and supporting stakeholders in the community here also it misses out any Improvement Target and what about governance Lights and Shadows the Alexandria family controls 50.5 percent of the Voting Rights and holds a number of board positions opening a discussion on conflicts of interest also as the owner runs the company like a one-man show investors could see this as a risk techno gym is a successful European Fitness company but it misses important industry Trends it does face stiff competition is global expansion and its priority to return cash to its shareholders May indicate a lack of universal opportunities or an unwillingness to take them therefore we start our coverage by recommending a hold may catch the eye but all their Glitters Is in gold foreign just had a question about you had a one of the slides in your DCF outlined a bull scenario is that based on different growth profile or is that simply on valuation or can you talk through that both scenario sure let me clarify that one uh so regarding the ball scenario what we did uh was more of a qualitative analysis uh first just to see how the spread of techno gym what it can reach what it can accomplish so we understand there is a lot of potential to the company uh in our ball scenario actually we project uh additionally to an increase in the digital strategy and an increase in the geographical penetration uh the Highlight would be the brand consolidation as a luxury as a luxury brand as we mentioned currently we understand techno gym is more of a gray area so not uh specifically not literally a luxury brand however uh if in the best case scenario it does achieve to create if you allow me the term a blue ocean because currently we understand there's no such thing as luxury Fitness If it creates this blue ocean and establishes itself as a luxury peer we see a huge upside in our multicolor simulation uh also I'll be if you could go to the slide please you know Monte Carlo simulation uh we try to show graphically how this uh would transpire uh you can see that the uh although the upside is much higher for the ball scenario uh the distribution is much more thin so it's much more unlikely that they will manage to reach this point as opposed to the bare scenario which would be amongst other things they're losing their this premium appeal well regarding on the ownership of the company even though the major stakeholder has 34 percent of the of the stocks he has the 51 percent almost voting rights so has this been or could be a threat for minor shareholders in history can you elaborate on the governments of the of the company please yeah sure uh actually uh the shareholder the main shareholder Mr Alexandre uh has structured uh its board of directors in a way which is not so uh we for which we are really skeptical about as a matter of fact his influence on the board of directors is really strong as it nominates 10 out of 11 out of 11 directors and many of the directors are family business are family related or are been have been nominated according to his personal relationship with them also if we focus on the ownership structure of the company it's quite crucial to understand the fact that yes the ownership structure shifted from 60 of Mr Alexander in 2016 to a 33 nowadays but he never reduced his voting rights actually he enjoys double voting rights and moreover he has established in the last year as a clear succession plan for which he wants his daughter which is in the board of directors to uh success so in in case he leaves the company his daughter will be the new CEO of Technology yeah and building up on this he mentioned a divestor of the owner from the company as from 2017 he divested four times from the company as you can see on the on this plot which is the the stock price and the full investor uh and bring his uh his participation in the company from more than 50 percent of the total shares to less than 35 percent uh despite this as we know the more than 50 percent of the voting rights are still in his hands uh therefore believe that the market is also kind of losing trust in his figure and penalizing the his diversity for the company as in the last three times he divested the stock price uh negative was negatively affected and it's important to assess the fact that the problems connected with International are not only governance problems but our business problem because all in the company all this strategy is the other banera San Andreas so all the problems that we have with the Charlotte ninja graphic expansion and with no riding of Digital Trends are a matter of the strategy decided by Sandra is a strong influence of the documentary Urban data management and on the strategy hi um you have a six percent downside to your Target price why is the stock not a sell okay perfect uh let me clarify that for you uh so yes indeed the company is facing a few challenges with regards to the trends and uh of the industry however uh from uh uh financial analysis we can see that the company is extremely solid uh so it has uh uh a best-in-class margins uh 19 FDA margins uh it has a positive free cash flow generation it has a 200 million uh cash position so from the fundamentals it's very solid and also from a market analysis uh it's current multiple the specifically the pony is trading very close to the lower bound so it's very hard for us to position a cell in such a strong company and just a quick add-on on this uh it's worth mentioning that although Mr alessandri may have red flags from the governor's perspective through his personal networking over the years he has been able to foster a luxury positioning of the company and therefore techno gym has been able to achieve the best marginality in in his industry and is striving to achieve a luxury positioning so therefore although there may be some negative sides we still see also positive size so it's like a counterbalance just elaborating on her question uh recently we have on a new scenario that we haven't seen in many years which are positive interest rates so the opportunity cost of of not having bonds versus holding the stock is an issue I don't know if you consider this because it's not only the six percent downside of the stock but also the money that you are not earning by being in a risk-free rate investment perfect so uh developing on what you mentioned actually the company is uh losing a few amount of opportunities here uh currently uh if you analyze its capital structure we have a 10.4 walk in a 10.8 cost of equity so there's pretty much no debt in the cut that the company is using uh Mr alessandri really prefers to finance the company through Equity uh it has currently a 0.3 that track re ratio and actually we performed a series of uh walk optimization scenarios in which the company could indeed try to optimize the Enterprise value of course this is a highly empirical scenario so we prefer to use a range to which the median would be about 10 times as high leverage ratio for the company to increase its walk that to increase its Enterprise Value and however about the cash usage of the company because have spoken about the cash usage of the company we see two big growth opportunities in the market that the company is not riding and the first one is the digital trend of the industry they are benefit and strand so the company could invest in order to line is IEM product offer to the in digital offer and the second thing is to build to build a network of Flagship also in North America in order to be received the technology is a luxury brand also in North America because now Europe the founder nearest sundry has been able to make a partnership with luxury brand and to build a network of Flagship in order to technology to be received as the luxury brand in North America we don't have this so this is a growth opportunities that isn't exploited by the company so I like how you've separated out the two main markets that the company operates in the high-end hybrid Fitness versus the traditional gyms what would you say is the company's strategic advantage or competitive advantage in the hybrid industry oh actually we have some coincidence in the ability industry for the uh for the company because the company in 2021 that has a more or less the same functionalities of the one of peradonna or effito or the more digital players but the problem is on the governance because the top management considered the digital essentially to the strategy okay so it's not a it's not a matter of the quality of the app but about the focus of the management on that specific trend and just to to give you a proof of how the management believes the the hybrid Fitness trend is ancillary the digital trades and sellers with respect to the companies the fact that in 2016 the company acquired uh excerpt Spa which is a software company in order to enhance its digital strategy but divest it from it in 2021 so therefore technology has not been able to integrate properly the the software company and so it didn't enhance its digital strategy and just to wrap up on the question um actually we do not see any uh any advantages on the hybrid so so just to make that clear and this is a huge concern uh just to give you some numbers the keger expected for the fitness equipment Market is 3.5 and the hybrid Fitness Trends are growing at a 14 kicker so the the growth is clearly coming from the digital and technology is losing this opportunity so I really appreciate how you went through the analysis of what uh competitors are doing and what where they're investing that makes that differentiation have you seen this start to play through for techno gyms either you know current contracts or customers and I know you just had the the revenues up but are you actually seeing any other clients uh move or go yet uh sorry if you asked if there are some customers of Technology I'm going to some competitors right current who have made those other investors okay okay uh for now this is not happening so there are not big customers that are leaving technology but if uh the able Fitness will grow as expected or also higher than expected we see some more digital players such as paradon or if it to exploit uh their strength in b2c to expect a b to c2b and so uh still some uh some customers also on the B2B side of Technology and it's worth mentioning also the fact that the most critical metric to understand techno gyms are revenues and in the presentation we mentioned that the American players have indeed boosted their sales uh through uh through the digital offer and all the revenues that they have achieved over the past three four years have all been stolen by from techno gym so therefore it's like a loss of Market traffic from technology we cannot give you up for for example names about the customers because the company does not disclose any name of its its customer in terms of revenues percentages but still we believe that in the North American Market especially technology has been stolen of many customers and revenues building on this in the United States Market uh the digital trend is not uh is not the only problem as we've seen over the years techno jimis has tried to penetrate that market since 2008 we found an article on the New York Times in 2008 where the owner said that they already had 80 million euros of revenues from the United States regions today they have 100 so well I think we saw a good analysis on margins uh and recently in the last quarter the company reported a very good evolution in sales especially in the post-pandemic era and I want to know if now that we are getting back to normal the market is a little bit crowded you you show us that in Europe it is but do we can see a downward Trend in sales in the future because everybody has already bought their equipments uh actually if you look at the granularity of 2022 sales we already see a decline in b2c revenues so the the Boost that we had during the pandemic was more than a peak rather than a substantial and a structural change in the company and most of the revenues came from a higher penetration in the Middle East and in the APAC region therefore we believe that there are a lot of opportunities for what concerns geographical expansion uh however for instance in Europe where the company has more than 50 percent of the of its revenues uh the European market already shows signs of saturation as in 2019 the company had zero percent Revenue growth in in that region in relation to margins um what can you talk to their input costs and how much control they have over that um pricing power that they have well in talking about margins pricing power is a key element and the kind of cost structure they have of course is another uh talking about pricing power over the years they uh they showed signs of a good pricing power managing to increase the price of its of their products over the years higher than uh inflation also in the recent times whereas if we look at margins from a cost perspective most of the course are related to raw material purchase personal expenses and they also have really low uh Investments uh therefore margins as boosted by these three features and the company presents a strong pricing power against also uh its suppliers by company disclosure they told us that um we're at that uh over the years they managed to increase the quantity they purchased from suppliers keeping the total the total price paid at the same however in the slides here you can see that in the last seven years the the cost structure hasn't changed a lot and for the for the future we are not expecting it to to further improve from now uh one more question from me um given that it's quite clear they have a dominant market share in Europe a good degree of pricing power and actually also serve a very niche market segment and in fact if you look the gross buffing margins at high 60 percentage points um they kind of trade similar margins with luxury Brands such as lvmh why shouldn't stock trade as a luxury brand with additional upside from Geographic expansion thank you everybody [Music] good afternoon honorable judges and committees we are from universitas Indonesia today let us tell you the story of Indonesia 7-Eleven or our country's biggest convenience store amrt we initiate a buyer recommendation on rmrt stock based on DCF valuation at the Target price of 3000 rupees representing a 20 potential upside it is driven by our three main catalysts which are the opportunity to exploit the growing and dual poly industry its growth and expansion which propels higher revenue and the widening net margin throughout the years MRT has grown significantly as over 20 000 stores open across various regions in Indonesia overall Indonesia's retail consists of General trade like waru Moms and Pops and traditional market and also modern trade among numerous modern trade players in Indonesia MRT is the market leader along with its competitor in Norman mmrt has two main practicals which are food and non-food different differentiates its business and comes with a digital initiative which is of a gift moreover MRT has other notable revenue streams such as fee-based income and franchisees to a royalty after knowing more about the business of this firm some of you might still have doubt over the firm stock thus from now on we'll provide you further clarification so that you can buy this stock with confidence first MRT has the opportunity to exploit its growing and Global industry We Believe Indonesia to double its mini market size allowing amrd to have additional 20K stores in the future this will be driven by first low mini market penetration as Indonesia is far left behind compared to developed Market second mini market is able to reap other thread Channel market share specially generosity that currently contribute the most this is visible as mini market is proven to be the best Regional compared to others unlike supermarket and Hypermarket mini markets located in a more strategic location and offer lower price based on our Channel check of 103 channels in comparison with General trade minimal Superior in their product quality completeness and hygiene also we see General trade has a limited promotion capabilities as 85 percent of them doesn't want to innovate their business additionally the industry is on a global landscape with amrt and indomart contributo more than 90 of the market and we believe the globally to sustain as the two big players yield significantly higher expansion compared to smaller players also we project the ropoly to not kill each other in the future as more discipline expansion will take place both players have learned from the past that undisciplined expansion will only result in jeopardizing the rebellionship as well as lowering their profitability We Believe MRT has a significant mode due to its doable landscape in a still long Runway of the industry now capitalizing on University's potential two factors will provide MRT with a solid Top Lane constant seven to nine percent same sources are screwed equipped with sustain Auto expansion translating to robust 15 Revenue growth until 2027. amarty's nature a stable retailer proves that it is shielded from one macroponomic pressure the high inflation environment has a strong pricing power allowing cost pass-through directly to end consumers within the last 10 years MRT can price in 3.8 premium compared to the consumer purchasing index setting a stable seven to nine percent SSC forecast comparable to 3 CPI projections it is 2023 and Indonesia is entering the pre-election year with this election being the biggest we forecast a massive three-fold increase on the campaign fund expenditure that will be disbursed into lower income class as amrd main target segment Additionally the increase in consumer class with urbanization Trend yields strong structural growth that will remain Beyond election period this uh will provide room for growth as Indonesia still exhibits low GDP per capita and considerably for a small basket size for staple implying any increase in purchasing power will still push a higher basket amount for stable now from the expansion side mrts definitely learned a lot from his past it was highly leveraged pressured by its definite expansion but from 2018 onward amart has delivered by 48 making its capital structure the most efficient out of all modern trade players in Indonesia this condition enabled amart to capture mini market growth potential shown by its also f2k pack storage 5.5 times rationalizing 25 000 total stores by 2027. besides organic growth 23 of total store are being franchised to its partner being the One-Stop solution for efficient expansion as it can provide 24 capex efficiency and we see that MRT franchising will sustain in the upcoming years as they provide attractive yield of 10.3 5-year irr based on our interview with seven amrd franchises moving on our third thesis is MRT is currently at its beginning of net margin expansion we expect amrt to enjoy 210 bips net margin expansion until 2027 supported by three key factors the first one is stronger bar gaining and pricing power second is extra Java expansion and operation efficiency and lastly Taylor Wins for fee based income the first point is achievable through leverage of air Marty's white store Network as of 9 months 2022 MRT accounts for 47 of Indonesia's modern trade Outlets with this number an upcoming Star expansion MRT could establish itself as suppliers leading retail distribution Channel exercising higher bar gaining power in addition MRT could also maintain closer proximity to residentials strengthening its pricing power to and consumers for those reasons mrt's GPM should see constant expansion unlike other Indonesian retailers the second point is pursuit of action of expansion coupled with efficiency effort extra expansion offers highest GDP growth complemented with lowest average wage growth which in our view has been aim at this ultimate factor of OPM expansion due to X Java's increasing store blend internally we see amrt is pursuing operation efficiency by decreasing its employees per store we believe this trend should continue at slower pace externally this pre-election year has the lowest wage growth coupled with ministerial decree that cap annual wage growth at 10 hence expect no high double digit growth should repeat in upcoming years lastly we presume feebase income to reach 1.2 percent Revenue by 2027. this is mainly driven by am artists wide product offering of fee based transactions we also surveyed 300 respondents in which the majority had conducted fee-based transactions with amrt with our respondents mainly based in Jaffa we believe there is still an anti-market of X Java accounting all the catalysts we derive a dcf-based Target price of 3000 rupiah per share implying 20 upside from our valuation date with 5 key drivers at the basis of revaluation even a bare scenarios would only change our recommendation to hold we ensure all of our key thesis have data correlation to our financials hence impacting our DC evaluation through stable terminal growth leveraged free cash flow and Higher pre-discountered free cash flow our weighted average cost of capital is mainly derived from its cost of equity knowing that cost of debt is relatively insignificant due to mrt's minimum gearing condition our long-term growth is induced from Indonesia's inflation Outlook mrt's resilient business model and consistent annual Outlet opening furthermore we conducted sanity check through period evaluation we created Five criteria in selecting our peers mainly on their business models company size and operation environment our sanity check further confirms our evaluation even better presenting more premium also three positive momentums should unhedge our evaluation first being mrt's resilient business nature in midst of macroeconomic volatility making amrd as Indonesia's primary retail proxy and lastly netcast position in hawkish macro environment our stress test also yields emitted downside with respect to our valuation assumption sales and wage growth plus mrt's balance sheet position next we identify several downside trees first the increase of minimum wage and rental price we recommend to boost their efficiency by reducing the number of employees per store I am RT also can negotiate a long-term lease with the landlord our Target price is also sensitive to the risk of government regulation which on some of the local government prohibits water store opening however I am already could maximize their store opening in the region that does not impose this restriction moving on to ESG analysis I'm already step ahead of his computer we use the mscisg framework and asean government scorecard first imrt is the only customer product retailer to to implement solar power plant in EV charging station in their branches second our Channel check with 10 imrt employees also refilled there are no layoff and no remoration deduction during the covid-19 pandemics at their Outlets third the election of Mr angara Hans pravira as the president director has eliminated the perception of imrt as a family company weighing the impact on the valuation I'm Marty uh we found that idx ESG start companies receive higher valuation from the market task imrt is poised to benefit from its effort in enhancing ESG without adopt imrt has a significant Advantage due to its opportunity to exploit the growing and doable industry Superior truth and expansion that profile High revenue and widening net margin Al Capital foreignty with a Target price of 3000 rupees translating to 20 upside this is imrt Indonesia top-notchetal proxy in the making thank you [Applause] well in in one year the stock price has almost doubled uh and some ratios look quite expensive especially price to earnings priced book almost 10 times on the last one I don't know if all the good news you are projecting are already in the price uh or not especially if we see a higher interest rate environment could you tell us about that okay let me sorry let me elaborate on that sir so here we compiled our trading comps and multiples valuation as you can see we select peers from Indonesia from Asia Market which is the developing and developed Market as well you can see on the bottom line of the picture that MRT in terms of multiple of price to earnings price to earnings growth Evia EV sales and gross profit are all in discount compared to Regional peers This Is Why We Believe MRT still has a room for growth moving forward that the thesis is not still priced in on the local market because um you know MRT is the primary detail proxy that does not um that no company has any chance to beat it in a local the public company so they receive higher premium for that but if you compare it to the regional they're still lacking behind on the terms of multiples I hope that answers the question yes would you mind talking a bit about um just ESG any um environmental social governance um components that may have influenced your or not influential recommendation sorry can you rephrase the question talk a bit about ESG relative to the company and if it had any impact on your recommendation uh thank you for the question can we go to the ESG appendix number uh environmental and HD analysis the next next uh sorry so the previous one so we identify some uh key issue evidence based on msci ESG framework so can you go so basically the environmental one we use the key issue of carbon emission and product carbon footprint so we assess the imrt performance on this next and for the social one we use the Labor Management and product safety and quality uh next and we also assess the privacy and data security and Community regulation for the social one next and for the governance we use the asean government scorecard and we found that the management uh already have a good uh governance because imrt is a family company but currently I'm RT is uh the president director of imrt is the independent director so we believe that the governance tits is uh more Independence uh more Independence despite is a family company I hope it's going to answer the question yes and if my I might add if you could go back to the bank next list and go to the cash flow related to the financial penalization uh number three and go to 3B in terms of dividend payment uh we see that currently the current uh dividend payout ratio is at 51 and it is already aligned with the current regulations that the government that the amrtf set previously in which they sat at minimum 40 of dividend PF ratio so we see that by implementing the straight line of 51 based on the data and numbers that we got from the 2021 data of 51 of dependent payout ratio we see that amart is able to pay like all obligations in terms of dividend to all of their shareholders and also knowing that they have apparently a stronger bottom line going forward we see that the dividend yield and dividend per share will grow in upcoming years yeah hope that answers your question hi um in Indonesia I think cash transactions typically make up bulk of purchases um how immune would they be to competition from the likes of e-wallets and digital apps okay I'll be addressing the question so in terms of penetration of digital enemy wallets amrd is called collaborating with digital Banks which targeted Sharia and low income segment um from the society in Indonesia which means that they are penetrating higher Market higher market share hierarch base in terms of digitalization and a product offering basically this helps them to secure the digital transaction part of the um of the society in Indonesia I hope that answers the question thank you you have a lot of positivity there about the future expansion of margins what do you think are the key risks to your your your thesis there and how could it go wrong on the margin side in particular um thank you for the questions I'll go to the stress test to give a clear explanation on it so you can see on the bottom picture our top two most effect affecting factors is sales growth and wage growth in terms of wage growth as I explained before they are kept at 10 so you can see at this level they should be fluctuating behind that and in terms of sales growth uh first quarter of 2023 earnings just came out last night and it happens to outperform our valuation our financials admin and I hope it under underbols the statement that they are capable of outperforming our thesis even more so yeah we're being conservative on the ticker I hope and did answers the question so I noticed in your slides you've separated Jakarta and X Jakarta in your growth projections because you expand upon why you chose to look at those two regions independently of one another okay um for in terms of expansion I'll go here um why we decided to separate the Jakarta the X Java and the Java region because we see that um Jakarta is full of competition various like other mini market from foreign is like penetrating the market as well hence the margin is very thin given the business model of the mini market and as you can see X Java is really under penetrated so they boosted their Blends by three volt uh in 10 years and also the sales mix is also um like six volt in the past 10 years and um we're dividing that because we believe that actually offer will be but the primary growth driver moving forward and this uh chart is also interesting that the ebit margin in X Java six volt in the past 10 years while the ebit margin in Jakarta like um have in this 10 years which shows that Jakarta is really saturated Market hence why we divided it into Jakarta NX Jaffa hope that answers the question thank you mini market scene is pretty much a dual Bolly what's stopping the key competitor from replicating this success thank you I think uh we should go to the uploading mix number 23. yeah basically uh from the Dual poly site there has been uh fighting since the 2000 ticket and they are the oldest player in the mini market from the from Indonesia and we believe uh the status of the first mover of Advantage from these two players uh yields uh result in their uh significant mode that no other competitor basically foreign competitor can enter the market and we believe the market knowledge has been uh accumulated for the last 30 years and this kind of market knowledge that uh doesn't have by different invest a foreign company to enter the Indonesia is making them failure in Indonesia for example 7 11 2017 the exit the market and currently uh can we go to the appendix of a minimum deeper look any mini market I think it would be in the 17. as you can see in the bottom left hand side you can see several foreign for example Family Market Circle K and also lozen but for Circle K itself uh for the last five year there has been closing like uh 10 stores Indonesia and for the family Mark they're uh expanding a little like 10 10 Stars per year compared to Alpha Market effortlessly a thousand per year and Courtney Lawson is the most uh growing uh foreign player for for example they grow like 36 Stars per year and currently Lawson is under of our format and we believe Lawson can be can be doing can do something like this because they are under a farmer and can harness the market knowledge of MRT itself I think I hope that answers your question yeah if I met my ad um can we please go to appendix number 14 about brand positioning so amrd is currently have a strong brand positioning compared to its competitor um number 14. um compared to its competitor as we can see here uh MRT has Alpha midi which which focuses to provide Fresh Products which provide Healthcare products and Lawson which product which provides ready to eat and ready to drink products so they have a strong brand positioning which its competitor doesn't have any I hope it answers your question thank you foreign facing a significant future expansion from 40 000 stores to 80 000 stores uh and they are not using depth in in in this expansion which if the market is eager to to to have uh the Double of stores that they already has it seems like uh straightforward to finance this expansion with depth and lower not only the workbot unlock value of the of the evaluation of the company why do you think this is not happening thank you sir uh girl can we go to the main slide for the I think to other places in the next next next yeah I think I'll like answer first on the perspective of the expansion first uh we believe moving forward will not aggressively expand because uh they are now uh have learned from the past that aggressive expansion will lower their balance it and lower their profitability and uh because of that uh we forecast an expansion there is uh would be more discipline that would be uh yeah that would be not uh not using any debt uh like that and uh I believe uh based on our study case can we go to the appendix yeah based on our certificates of the China and also us they are also expanding slowly yeah uh based on this chart uh you know the line chart is expanding like uh they're not aggressively so aggressively expand in terms of their number of mini market and that's uh we also forecast uh discipline expansion based on these two main bear and I think my friend would like to add about the net debt expanded yes uh if my mind but add if we could go to appendix number yes the depth condition summary so actually currently aim artist is already debt free by 2021 so all that are already being repaid and still currently MRT is able to pursue a massive expansion of 1 500 stores to 100 1 800 stores per year it equals to three per three to four store openings per day and they still able to do that with them being that free currently and if you could go back to the appendix place and go to the uh franchising operations so this is one special site about amert because they can expand using one of their method called the franchising operations basically they could then receive the capital expenditure from the franchisees to then open the store based on the same format that they have already stated previously so by having this franchising operations they could attain 24 capex efficiency so with the current uh very stable and also spacious balance sheet they are very capable of doing the expansion going forward hope that answers your question it was great to hear about the interviews that you did with franchisees um how did that did that change your outlook or impact your valuation so we can can you rephrase the question you interviewed franchisees and met them did that change your your evaluation and how you your your perception of the company I think our interview changes the perspective that um how Indonesia is under appreciating um amart franchises uh franchise operation Excellence because um they are declining slightly because in terms of total stores but however we expect him to pick up given that a MRT is currently more Pro uh promoting more about the franchising operation that yields more attractive field compared to government bonds even if we increase risk it is a you know is this a slightly uh secluded because MRT has a retail operational excellence proven in 30 years of operation so yeah we expect the franchise to pick up number and am ready to have more capex efficiency going forward thank you was the company has name a new president of the board but it's still a family business 53 percent of the shorts is are owned by by the family uh and despite they have named a new president of the board I want to see your insights about the the risk for minor shareholders or of because of the governance of the of the company thank you for the question can you go to the appendix and booty and boc beauty so basically the body offer few the family member of pod is only one so uh and the president director is uh independent director we believe that the number of this a family member is a relative low and for the board of commissioner is only two out of four uh so uh we uh we believe that the conversation is still uh good thank you thank you thank you [Music] Qantas Australia's enduring Flagship carrier has emerged from turbulence a structurally better airline with further Runway to drive upsized shareholder returns we issue a buy recommendation with a 12-month price target of 7.76 and 18.3 premium on the one month volume weighted average price Qantas group is Australia's travel provider of choice with its namesake Full Service carrier and its low-cost carrier subsidiary Jetstar being the only Australian Airlines with long-haul international flights Qantas is the third oldest operational airline in the world and is renowned for its safety and quality having never crashed an airliner it dominates on the world's fifth busiest route between Sydney and Melbourne which formed the Golden Triangle of travel with Brisbane having emerged from turbulence Aviation is soaring travel demand continues to recover to pre-covered levels as people prioritize travel over other areas of spending Qantas is well positioned to capture much of this Demand with a dual segment targeting of full service and low-cost Travelers allowing them to exert a stronghold on both ends of the market in the quasi-monopolistic structure Qantas holds a dominance 62 share double the next competitors despite emerging from covet A structurally Better Business Qantas still flies below peers we believe the market fails to recognize the attractiveness of this business as qantas's discount to Global peers is 1.9 standard deviations below the pre-covered average therefore we issue a buy recommendation with a Target price of 7.76 representing an 18.3 upside based on one qantasy's domestic Market advantage two conscious profitability from cost discipline and a creative capex and three they reduce cash flow risk from revenue diversification qantas's unique domestic Market Advantage has flown under the radar qantas's domestic Market possesses unique structural advantages which make it the most attractive Aviation Market in the world on the left Australia's dispersed population and lack of high-speed rail network make it difficult to avoid the skies resulting in a uniquely inelastic demand for air travel on the right Qantas Market position is uniquely concentrated allowing it to operate a quasi Monopoly there is no airline industry in the world like this the potent combination of dominant market share and an inelastic End Market imply pricing power this will allow Qantas to sustain yields without demand destruction delivering industry-leading margin performance despite these strong structural advantages Qantas discount to Global peers has widened this illustrates a clear current mispricing of the business um one despite these sort of um sorry despite on the right virgin um qantas's key competitor is currently running an international IPO Roadshow this will drive investor awareness of the structural advantages of Australian Aviation aforementioned providing strong exposure to the market leader Qantas as such it is now the time to buy before strong International interest catalyzes a re-rading of the business Qantas has emerged from co-power from A Renewed cost space and margin of creative capex Qantas is now a fundamentally more agile and cost-efficient Airline in a disciplined Market Qantas has flexibility to adjust capacity and Preserve profitability its main competitive version is unlikely to irrationally expand capacity as intentions to IPO requires a track record of profit Qantas has also materially reduced its fixed costs we forecast that the structural cost reduction recovery plan combines with the inflation offsetting transmission Playbook to deliver 828 million dollars of cost-saving post inflation despite this the marker has underappreciated qantas's profitability consensus operating margin estimates remain below management targets and revert to historical averages despite how post-covert Qantas is now a fundamentally better business with a renewed cost profile domestic Fleet renewal project Winton will further generate margin uplift Qantas is better placed in peers to undertake Fleet renewal with the lowest net debt to ebitda ratio compared to peers with similar Fleet ages the new Airbus narrow bodies will boost unit metrics the greater capacity per plane allows Qantas to maximize the usage of Sydney airport slots and increased range drives aircraft utilization with high fuel efficiency further contributing to unicost reduction overall we estimate that the project will deliver a 12 unit cost benefit and four percent unit Revenue uplift thirdly Qantas is more than just an airline its Diversified resilient portfolio will reduce cash flow risk in all market conditions Freight is an underestimated element of qantas's business as Australia catches up to the peers in online shopping frequency Qantas is best positioned for strengthened e-commerce uptake as the domestic Freight market leader capturing 3.9 percent more market share by fy28 we see this supported by an exclusive Australia Post contract renewal and a unique Amazon aircraft Arrangement even greater Revenue uplift is derived to its high value Southeast Asian and U.S Freight Network which could increase share price by a further three percent thus we have strong conviction that qantas's reinvigorated Freight mix is now The New Normal these e-commerce Tailwinds will bolster qantas's world-class loyalty program to help stabilize ebit this best-in-class program is the only segment that remains consistently a bit positive so this together with Freights will allow Qantas to weather all storms qantas's beta sits at 1.36 well below the global Pure Play Airline average of 1.55 an indicator of qantasy's durable diversification Qantas is building its brand beyond the balance sheet the way strong ESG Focus Qantas is becoming a mover and Shaker with its growing green mindset it is the first and only domestic Airline 2-1 tired short-term executive remuneration to decarbonisation targets and two begins establishing a sustainable aviation fuel industry in Australia seeing its jet fuel efficiency increase 1.5 percent annually Superior to its peers Qantas 2 has emerged from operational turbulence well ahead of expectations in fact improving upon pre-covered flight cancellation levels thus Qantas is rejuvenating its reputation as Australia's trusted and reliable Airline supported by a diverse team and a strong governance pipeline thus we believe that Qantas ongoing focus on ESG will be rewarded in an environment that prioritizes sustainable investing soaring with a margin of safety we valued Qantas using a blended approach consisting of a granular Bottoms Up discounted cash flow model weighted at 70 percent and a relative valuation at 30 percent this arrives at a share price target of 7.76 ldcf was driven by segment-specific value drivers whilst our relative valuation applied a proprietary historical premium and discount analysis on three distinct Geographic peer sets in acknowledging risks we sensitize yields load factors tasks and loyalty points in a bear case which resulted in a 7.2 percent downside we even conducted a Monte Carlo simulation that showed that our buy recommendation holds in over 80 percent of situations evidently this supports a risk distribution that's asymmetrically skewed towards the upside and hence strengthens our buy recommendation we consider two further downside risks to Qantas firstly elevated refining margins threaten profitability as Qantas Hedges Brent rather than jet fuel due to illiquidity in forward markets however we believe Qantas has multiple operational and fuel efficiency levers available to mitigate this impact secondly a macroeconomic downturn could negatively impact Qantas in the Australian Market we believe they are uniquely positioned to navigate this through one their exposure to flying fly up corporate and government clients who are more inelastic secondly they are naturally hedged in capturing downsizing Travelers through their low-cost offering in Jetstar and thirdly net migration in Australia is expected to rebound above pre-covered levels as workers and students come back to the Australian economy which will act as a structural growth driver we have also applied our assumptions conservatively across our valuation to create a margin of safety in our buy recommendation ladies and gentlemen Warren Buffett said he'd never invest in an airline but today we argue that he would invest in a business that one operates a quasi Monopoly in a structurally advantaged market that too has emerged from covid with a renewed cost profile and greater earnings power and three has Diversified and de-risked more than any Pure Play Airline and that business is none other than Qantas thank you [Applause] the positive you put through the stock continues to trade at a discount the regional peers do you think the discount is actually due to them only operating in one market and given limited by the size of the market I'm happy to take that one so if we just move to slide H4 132 which illustrates which illustrates the premium versus the comparable sets um ultimately this business has traded at a premium to European peers and a discount to North American and Asia Pacific Piers we believe that this discount is really coming from one specific sort of differences in average multiples across exchanges for example the Australian Tech Market trades at a premium and then two um ultimately it also accounts for this Geographic um concentration but however we believe that the structural improvements that this business has been able to undertake their dominance in market share their renewed cost profile and they're de-risking has made this business as Fair multiple trade closer to where um narrow the the discount to North American and Asia Pacific peers so ultimately it is really about where it trades relatively and we believe that it's trading lower than it should yeah ask a follow-up question on that point because it seems like you know a key point of your investment thesis is it's undervalued underappreciated um do you have views on what would it take for the market to recognize it its market value um and you know what could bring it in line with some of the beers yeah absolutely so if we turn to uh please slide 25 um now ultimately we believe our Catalyst will be continued favorable financial reporting so a um a four-year a key Catalyst will be qantas's four-year results in August this year we also feel that um by BuyBacks continued BuyBacks Acquisitions I will also sort of drive this favorable narrative but if we also turn to slide K8 I'm just on the appendix we believe that a key centerpiece for this catalyst is qantas's IPO Roadshow so a key sort of Gap missing from the current market perspective is really a lack of understanding about the structural advantages of the Australian Market the international Roadshow will drive this investor education delivering ultimately a greater awareness of the attractiveness of this Market really just catalyzing a rear rate from strong International interest in really the IPO why are virgin raising capital and will their use of that Capital impact Qantas in future um yeah so um virgin it was so just moving back to our K8 or 153 so virgin ultimately went bankrupt in 2020 which first speaks to the dominance of Qantas within this space um in terms of raising Capital they are re-listing um to gain exposure to um that sort of listing environment we don't believe that this uh this sort of Capital raise will drive too much sort of change in the competitive Dynamics because ultimately virgin will keep a rational capacity setting which means that they won't expand capacity it won't expand capacity to try and take market share they did this through 2011 through to 2018 and they didn't turn a profit in any point in those years so ultimately Qantas is pretty safe in their dominance of this Market the competition Watchdog is expected to oppose the proposed acquisition of Alliance Aviation do you think this is going to be the case and and and maybe they are not trading at the levels you are expecting because there are this kind of news are in the market and can affect the cash deployment of the company yes so happy to take this question absolutely could please turn to side 38 um so we have seen that um the a Triple C or the competitive regulator for Australia um is not is likely to block the acquisition of the remaining area of Alliance Aviation but what we can see here is that they've already acquired a 20 or so interest and we believe that our our valuation is very much based on this and we have not forecast any further um kind of regaining of Allianz and mainly because we recognize that Alliance operates on very much kind of um different routes to Qantas and so as a result it does not kind of impact their main business model on which we are modeling and it very much is going to and Western Australia which is in terms of our kind of Mining and very much Regional routes um not as opposed to Qantas kind of main business model so it has no material impact well for example in Western Australia they are going to slash first in maybe 1 million seats I I read those news on on Bloomberg and and you were presenting that demand is very inelastic so how can you explain that the if the man is so inelastic they are gonna slash first in those many seats in the western Australia roads um so the alliance so we could go back to that side Cloud 38th please um so this Alliance Aviation and they operate on very different routes in terms of um Regional routes which Qantas does not dominate on and so those slashes are very much um distinct from the model which we are currently operating on um say for example Rex is one of those operators on those lines and as we can see here we have on the side that we mentioned that we've taken into account that kind of competitive Dynamic which Qantas will likely not interfere with and so that slash is not to do with anything about the inelastic demands which is within the kind of Golden Triangle region which we mentioned earlier but that's very much separate to where Qantas kind of operates distinct to their kind of corporate and fly and fly out clients as well just to add to my colleague's point if you could please turn with me to page 117. um the idea of slashing seats doesn't necessarily come down to Regional factors specifically it's also a level that Qantas can pull to reduce their fuel efficiency are their fuel costs through fuel efficiency levers so for example on the right hand side here if we can if I can draw your attention to point two Qantas are able to optimize their load factors which is essentially the amount of planes that they put in the air to ensure that the ones that they do put in the air maximize their usage so what that means is from a given level of fuel expenses we can maximize our yields from that so in a higher fuel a high elevated fuel cost environment it's very important that Qantas has the ability and capability as you mentioned to be able to slash seats and optimize their margins and profitability for that and as the market leader in a functional Monopoly as we've mentioned virgin their largest competitor is about to go on an IPO Roadshow and they did go bankrupt recently this is a clear demonstration of their Market power in which no other airline in the world can demonstrate without destructing demand ultimately could you speak about qantas's Reliance on International Freight and passenger travel and if you took into account any potential geopolitical risk especially in Southeast Asia yep absolutely thank you very much for the question um if you can place someone with me to page 85 firstly so the first thing we want to discuss is we conducted a granular Bottoms Up Revenue build to account for the specific risk factors that each segment are exposed to so on freight specifically if I can draw you to the second last row of this page we looked at the price and volume impacts that explicitly affect the Freight business to your question now opening diving into that Depot if you turn with me to page 92 what we can see here is is a couple of things firstly on the left we can see that our yields in the dotted line is forecasted to taper across our forecast period um having been elevated during covert on the right hand side we see that the Kegel that we assume across our forecast period so the compound's annual growth rate is Market the lower than what it was pre-covered now this does a few things one it establishes a margin of safety in our recommendation two it accounts for the fact that there are geopolitical risks that are playing out in the area at the moment and three and arguably most importantly the idea that the world is about to potentially go through a recession and so it's very important that we apply our forecast conservatively to build a margin of safety in our recommendation and ensure that we account for those risks that are potentially around the corner and by doing that it strengthens our buy recommendation I found it quite interesting you have ESG as part of your thesis for the stock but where do they rank versus region and Global peers all right could you please um repeat the question oh you have ESG as part of your thesis whether it's the company rank with regards to Regional and Global Airlines yes so if we could please um turn to slide 160 please um so in terms of the msci rating for Qantas we can see that it currently is rated average and we do recognize that if you kind of break this down it means that you can break it into kind of environmental social governance factors so if you could please turn to side 74 I believe it is um the kind of key area where God Qantas does lead is in its governance but it does um lag behind Abyss in its social aspect but we do believe that this has been due to kind of one key issue and that was previously last year on Time Performance for different for Qantas and which was quite blown over by the media as well so just going to the next slide please we can see that Qantas was in fact has in fact decided to improve on this they have their on-time performance improve in fact above and pre-covered levels at 81.5 and so we see that even though this ranking currently might sit more average or in terms of that and we see that there is much runway for Qantas to improve as well maybe um with respect to your valuation and notice you use the 70 30 split between DCF and relative value just can you talk about how you arrive there I know part of your point is relative to competitors so how would you come to the 70 30 split happy to take this one thanks very much Andre so we ultimately use it utilize this Blended valuation methodology with a tilt more towards intrinsic valuation this was to explicitly account for the Qantas specific drivers of value this dominant market share it's elevated operating leverage and it's fixed cost Reduction Program but also to account for broader Market volatility and uncertainty across multiples we did however tilt 30 towards a relative valuation approach really just to account for uncertainty in our forward assumptions but also to bake in a margin of safety by conservative conservatively assuming that this business is fair multiple hasn't improved relative to where it was sitting pre-covered I think we've spoken a lot about how this business has structurally improved really just conservatively baking in marginal safety now you mentioned about the as a series Factor the retirement of Alan Joyce um who I do think is a risk factor you're respecting an outsider from the company to come in or or is there an association plan within the company so the strategy can prevail yes for sure so um yes we do acknowledge that Owen Joyce um has been asked uh has been is leaving the company after 15 years but they've currently most recently named Vanessa Hudson and we see three key reasons why this will be very effective for Qantas so first of all Qantas has a history on a track record of successful in-house promotions um we see that um secondly the current CEO hour and Joyce was actually the CEO of Jetstar subsidiary for five years prior to being promoted and so now thirdly that Vanessa is the incoming CEO she's currently the CFO and we see that this has laid out the groundhog for her for for several years and she has very sufficient time and Runway to step into this position and most importantly um Vanessa as CEO and CFO sorry has actually LED multiple initiatives so if you could please turn to slide 24 we can see that Vanessa Hudson in her time as zfo has actually LED first of all the bolstering of qantas's cost um qantas's market share she was the one who secondly led the cost out program and the unit profitability that's improved and thirdly she's very much across the Loyalty business um so we see that this succession plan is very much one that is intact and one that will be very successful alike qantasy's history do you think that they will lose some pricing power with the move to Morris Freight and you know working with companies like like Amazon are they are they going to struggle with pricing power on that part of the business so happy to take this question if we could please turn to slide 63 um so what we're seeing in the freight kind of industry is that um the Amazon aircraft Arrangement is very much something that will bolster quantities business as opposed to takeaway to pricing power and because Amazon is a key driver of the kind of business that flows through Qantas and the freight um converted aircraft that they have and given that Qantas is the market leader in Australia they have 20 market share the next competitor is about 12 and we see that they are the main company that will drive Freight Australia and so any kind of business to Consumer b2c deliveries will be very much centered around Qantas so I don't know where we do the time I think everybody thinks you're nearly open time I'll go ahead and ask a question Airlines price of oil um maybe talk a little bit about uh risk that it might be to answer this um if we can jump to 146 so we have conducted a sensitivity analysis between the price of crude oil [Laughter] [Music] we recommend a buy for Chipotle with a price target of two thousand four hundred dollars providing a 15 upside Chipotle's Innovative combination of an assembly line service model and high quality ingredients creates unparalleled value with its effectively executed operating model Chipotle has all the ingredients for success Chipotle offers the best value proposition in the fast casual industry providing a 20 price Gap to peers customers love Chipotle's value proposition and the ability to sustain this at scale gives Chipotle a strong competitive advantage with the large lead over its peers we expect Chipotle to easily double domestic sort count up to 7 200 stores while also having a long runway for growth in untapped International markets the substantial throughput from this expansion will only strengthen unit economics and new technology will accelerate profitability supported by its improving ESG initiatives Chipotle's growth will be fast and organic as its accelerating free cash flow supports self-funded expansion while also Having excess cash to return to shareholders Chipotle pioneered the fast casual Concept in the 90s and Remains the market leader today it's efficient business model menu design and store layout provide operational advantages that keep costs low and create the strongest value proposition in the fast casual segment to quantify this value proposition we identified seven fast casual peers who offer entrees at similar price points to Chipotle's standard chicken burrito across the top five cities for each brand we found the average price of a standard entree and compared it to Chipotle and we found that without sacrificing quality the average Chipotle entree is up to 20 cheaper than average launches from competitors this wide price Gap gives Chipotle significant optionality against peers it can increase prices to expand its margins further or maintain its discount to peers and continue taking market share the fact that chipotle has been able to maintain and even expand this value proposition through explosive growth is a testament to a strong execution this is due to Chipotle's fully corporate owned store model which reduces operational risks combined with a debt-free balance sheet watch police operating leases are similar to debt they are not reliant on Capital markets and we expect Chipotle's value proposition to make it a preferred tenant with landlords which probably is price Gap and operational advantages have been a historical magnet for throughput resulting in our forecasted same store sales growth of 5.6 annually through 2032. based on its wide price Gap we expect chapooli to maintain pricing power as it sustains high and sustain High transaction growth as it grows store account in its large domestic Market Chipotle currently operates over 3000 stores in North America and our analysis shows that chipotle has the potential to more than double its store count to confirm this we connected our own independent store density analysis to find Chipotle's domestic tangible addressable Market or Tam by looking at the top 30 cities in the United States which pulley achieved the highest density of the stores per person and applying that density to North American cities our analysis shows that chipotle has the potential for more than 7 200 stores in North America Chipotle still has massive domestic store growth potential and they can realize its potential through their use of chipotleans or Chipotle's mobile pickup windows stores with Chipotle's have 15 percent higher auv on average than traditional stores from increased digital throughput and we believe that these Chipotles will help drive storage growth domestically we consequently forecast store account growth going 11 annually before Chipotle begins to taper off as it reached our 7200 store account in 2032. Chipotle expands domestically there is still extreme room for them to grow in the international markets we connected the same Tam analysis with more conservative assumptions and we're looking at the top cities in Europe and Asia where we believe that chipotle could expand the easiest our analysis shows that chipotle has the potential to expand into 2 600 stores in Europe and 3 200 stores in Asia Quick Service Brands like McDonald's and yum have seen significant success in adapting their menu items and we believe that Chipotle's modular menu design will find similar success by 2032 our forecast only incorporates 800 international stores while we do not teach Chipotle reaching the same size and skills McDonald's or yum having just a fraction of their store base gives you probably the runway for sustained storage growth along with strong expansion Chipotle's unit economics allows for same store sales to catalyze margin expansion driving are forecasted 29 restaurant margins by 2032. with labor and occupancy costs largely fixed on the Restaurant level throughput will be a substantial contributor to margin expansion and our historical analysis shows potential for over four percent margin expansion through sales leverage alone this will be bolstered by automation ashtabole is already investing initiatives to increase initiatives efficiencies ranging from chipotleans mobile ordering and food preparation automation while these initiatives are still being tested Chipotle's modular menu design corporate owned structure and experience management should allow for seamless integration of these Technologies throughout all stores even when factoring an increased marketing Investments which could contract margins AAA has a clear path to 29 restaurant margins and 18 operating margins by 2032. after independently ranking Chipotle's environmental social and governance practices we see numerous initiatives that lower the business model risk justifying its below average cost of equity due to lower financial leverage environmentally Chipotle's most impactful practice are their large investments in local farmers which we believe will only enhance and prolong the sustainability of their supply chain socially Chipotle emphasizes the clear career path available to employees in boasts a 90 percent internal promotion rate while Chipotle has prioritized diversity on the Restaurant level they've yet to do so with their board currently only a quarter of the board are women or minorities and we see this as Chipotle's primary area that needs Improvement while third parties do rank Chipotle lowering governance due to board and management turnover we see the addition of CEO Brian Nichol as beneficial due to his strong track record at Taco Bell and other Fortune 500 companies as well as his successful turnaround of Chipotle's brand Nichol and the rest of the board are also well aligned with shareholder value creation as their compensation is tied to 90 percent of variable performance elements Chipotle's strong and sustainable growth leads to substantial free cash flow generation in our forecast we utilized our 5.6 auv and 8.7 star count annual growth rates to derive are forecasted 16 annual revenue growth with strong store expansion Capital expelling expenditures will accelerate and we forecast them growing 15 annually through our forecasting period and despite this growing scale we still see restaurant margins reaching 29 and operating margins reaching 18 due to sales leverage and automation the result is free cash flow growing 18 annually through our forecasting period with this substantial free Castle generation Chipotle has significant excess cash which they can return to shareholders in the form of sharebacks and dividends when we incorporate this into our earnings model EPS grew 22 annually on top of our expectations that they can issue a dividend after 2027. with this cash flow generation we derived our 2400 price Target representing a 15 upside to the current price for evaluation utilized a 10-year DCF and 8.4 percent weighted average cost of capital which we believe incorporates Chipotle's lower risk business model due to their financial and operational strengths as well as improving ESG we then use the price to earnings exit multiple to calculate our terminal value to account for tripoli's lasting growth internationally and our multiple represents a 10 discount appears that are currently growing internationally to account for the potential of lower penetration than this peer group to confirm our DCF price Target we also compared it to multiple other relative valuation methodologies using the same 10 discount appears and the results confirm the significant upside that we see in Chipotle stock today however we do recognize that there are risks to upside materializing the primary one being Chipotle is already premium valuation appears as their price to earnings is double that of the industry average however because the triple a strong growth and free cash regeneration our forecast shows that they can quickly grow into this valuation over the next five years making it a strong opportunity today Chipotle may also face challenges with its ambitious plans to both improve unit economics and double store count our sensitivity analysis of auv Growth Store growth margins and our exit multiple does show potential downside however we remain confident in Chipotle's continued value creation due to its lasting competitive advantage and our Tam analysis shows a long runway for growth without interfering with current stores finally we recognize the international growth for Chipotle must be proven we incorporate this risk using the terminal growth method in our base case we see a downside of growth cannot persist nonetheless Chipotle's simple business formula is easily transferable outside of North America and CEO Brian Nichols prior experience at Taco Bell and other Fortune 500 companies should allow for franchising if needed franchising May both help reduce operational risks and provide long-term margin Tailwinds justify your PE exit multiple method to conclude Chipotle's simple business model sets them up to serve affordable convenient and high quality products to their growing customer base domestically and internationally with their debt free balance sheet and corporate owned strategy Chipotle's growth Runway is clear and when combined with improving unit economics the substantial free cash flow generation results in a 15 upside for investors today thank you for your time and we now open the floor to questions [Applause] well we saw the last week report uh an improvement in margins is very impressive after the price in food that we have experienced recently do you think there is still room to go on this margin Improvement and the or this price these food prices increases could affect the the positioning of of Chipotle by trying to to position themselves as a price quality story yeah I can start off there thank you for the question Jericho if you go to slide five please so we definitely recognize that um inflation and food input um cost increases do affect do affect the business but they will affect the entire industry so where Chipotle sees input costs increase the rest of the industry will as well and this can allow Chipotle because of their 20 average discount to increase their prices sometimes even faster than competitors and still remain cheap relative to their competition in addition to that input cost increases aren't consistent across the board and we noted that in the most recent earnings report they did say that the price for avocados had actually Fallen which caused a positive margin impact yes and then to answer your question with regards to how that impacts our margin expansion um we think that kind of confirms the fact that we see significant margin expansion uh throughout long-term time period And the main reason for that is because our margin Bridge shows that a significant amount of the margin expansion is primarily through sales leverage instead of uh increasing prices so we conducted this by doing a historical regression analysis to look at the impact of one percent of same store sales on the overall effect on labor and occupancy costs being the largest fixed cost in the Restaurant level and that was the basis of our overall margin expansion and now with the most recent quarter now we're seeing more sales leverage than we expected we see pensional for even faster margin expansion than we originally uh firstly thought price there doesn't appear to be much upside because average Target price around two thousand um but you have a 15 upside and where do you differ with regards to how your consensus estimates yeah yeah um I can take that one as well I'm sure if you could go to slide four please um so again back on the price front um we believe that chipotle occupies a unique space in the fast casual Market um where they are cheap relative to competitors and have been able to execute this at scale for decades um and when you tie this in with its corporate owned store structure that allows for easier facilitation between headquarters the store level and everything in between including the supply chain this allows them to roll out limited time offers very quickly and efficiently as well as roll out Regional price increases versus franchise restaurants who may see difficulty being efficient with these yes and this throughput on top of the significant white space that we're seeing not only domestically internationally as well as the fact that with their improving ESG we see a lower risk in the business model overall we still see upside in addition to consensus and while we do recognize that a significant amount of the growth is being recognized by investors today because of the substantial growth we see them quickly growing to this valuation over time and making it a strong opportunity still today looking at the international expansion that you were forecasting is such in line with management guidance on and boats are both the domestic expansion and the international um and particularly on the international side why didn't they do it before if it's such a great opportunity yeah so I can I can start you off with that one thank you so much for the question um Jericho if you can go to our international team please so Chipotle actually has started out um their previous CEO Steve Ellis he did expand internationally mainly into the UK and before he left in 2018 he pulled all of this back but when Brian Nichols came in the first thing he did was reopen up these stores so these stores are still inside the stage gate process and we understand that there are a lot of cultural differences in some of these regions but due to Chipotle's modular menu design I'm using their staple foods all these cultures are going to have to do essentially just change the spices to whatever the preferences for the local um and so we believe that this is easily transferable outside of North America and we think this will be very successful abroad can you spend some time talking about the risk associated with store expansion I know you had a slide per se that went through some of I just love to hear uh more about the risk that you see that that could happen sure yeah we definitely recognize that there can be detrimental store expansion if they expand too fast or into non-strategic areas we've seen this in the qsr market with McDonald's and Subway as two examples of store cannibalization but what makes us very confident in Chipotle not seeing these effects is because uh more than 50 percent of the cities that could out of Chipotle do not have one already and that's just representative of the massive amount of white space that they can expand into domestically and eventually internationally yes and additionally to see the impact of this risk on our valuation to see if it would impact our overall recommendation we did conduct a store count sensitivity analysis to see what would happen if they did reach our same store sales growth forecasts but they did fall short of our overall Tam and what we saw was that even if they don't reach our exact time they're still significant margin for error for there to be upside in addition to that foreign my second question with the first one because maybe the alternative for for customers is not going to another restaurant but staying at home and because if they feel the pain of of the price increases so if we take this into consideration do you think that the risk of investing in Chipotle is asymmetric because uh valuation and the multiple SIM seems expensive yes I can start off with that so we definitely recognize that in addition to other restaurants that overall price increases could detriment our same store sales growth assumptions and that could definitely be judgmental since that same Source sales does catalyze our margin expansion so similar to same store sales we did conduct a sensitivity analysis to see what would happen if they did reach our store count growth rates but they fell short on auv and constantly didn't reach our overall margin expectations and similar with the store count growth rates we still see margin of error and with the most recent quarter quarterly earnings beating our auv and margin expectations we do see potential Fair even more upside so with that I'll go ahead and passive Sam to further explain why we are confident in the pricing power of Chipotle yeah another reason that we're confident in Chipotle's pricing power is again in their most recent earnings call they did discuss how the strength of their target consumer hasn't really wavered they often Target um higher income individuals who don't who and they haven't seen that demographic slip and in fact throughput from that demographic has increased in the most recent quarter again giving us confidence that chipotle and their consumer are relatively resilient to that so from an international market standpoint I know you talked about Europe as well as um Asia is there any discussion or analysis of uh going to Mexico or or South America you know yes I can start us off with that initially we just wanted to focus on Europe and Asia for two reasons one because Europe has already been tested there prior and we Chipotle thinks that that is their going to be their next target audience and we also included Asia as well because the Quick Service Brands there have been significant and we think that they can drive substantial unit economics there and in terms of why we didn't include Mexico Chipotle we just don't think they'll be competitive is the truth and chipotle has even said they have no intentions to expand towards Mexico for this exact reason so for that reasons we don't see them expanding outside of those two regions just again on the University within Europe you know the UK being probably more similar to the US in terms of eating patterns but a lot of differences when you look at places like France Germany do you think there is an ability I take a point on different flavors but it's very different from the local it's successful food there so what is is do you see it as a homogenous region or different areas within it so through the stage gate process we they've been constantly taking in data on both the consumer preferences and demands and because of this robust stage gate process that they've been going on going through and the fact that they haven't yet uh entirely focused on International because they still have their lofty domestic expansion to reach first this gives us confidence that even when they're ready to fully expand and ramp up expansion in international that they'll have the necessary preferences and demands of the local areas that they are already having their stage gate locations throughout Europe as of now yes and in addition it goes back to our confidence with management CEO Brian Nichols he's had extensive experience at Taco Bell and their expansions in China he before that he also expanded with the um before with Pizza Hut and he created the big New Yorkers he's always been Innovative in trying to go Broadway wherever he's gone so we have a lot of confidence in his team as well one major difference between Chipotle and the competitors that you've outlined in your slides here is quality in my opinion um especially when it comes to the sourcing of ingredients could you talk about the potential supply chain impacts or risks that you've been able to incorporate into your analysis regarding the international expansion any differences between Chipotle and those peers that you've identified for expansion and supply chain internationally we tie that back into the stage gate process and that um they're over there as of now um hopefully creating those relationships with those local uh business people um as well as their like I said the long the not yet entire focus on the international so it just ties back into that stage gate research data taking in as well as Brian Nichol his success at expanding internationally with Taco Bell and in addition we also want to mention that we would love Chipotle to maintain corporate owned in these International inventures but if they have to in some of these more rural areas and some of these more untested markets for them they do have the opportunity to franchise and get a local business partner that would help guide them into the right direction so those are a few things that we see in helping them with their National Expansion and the capacity to finance the international expansion uh it with more depth because they have a around 150 percent debt to equity ratio I don't know if at some point the market could become a little bit worried about the leverage position of the company yes I can cover that question the reason that we overall feel confident in aaa's ability to expand not only domestically but internationally in a organic way is mainly because of the significant amount of sales leverage that can be achieved from the um sales average from the same store sales and that not only improving margins but contributing to substantial free cash flow generation and if overall We compare our operating cash flow that we're projecting compared to the capital expenditures that we're projecting over our next 10 years we see that chipotle has significant excess cash on top of covering those stores and we see them as a result having plenty of cash to be able to expand internationally as well being able to provide a quantitative upside to International expansion given your UD analysis on the 10. yeah because I can start us off um our time and our forecasts for now only incorporates 800 international stores so we are projecting a lot of these stores after our forecast as Chipotle continues to focus on their more domestic expansion um after those 10 years are up it could be much larger for all we know but we see them primarily focusing domesticism now yes and in addition to the 800 stories that we forecast within the next 10 years the main area that we incorporated are international expectation is through our P exit multiple method where we compared it to multiple other peers growing internationally and focus on International growth to see the overall evaluation impact and overall we see that because of the substantial growth they have to add significant stores internationally that contributes significantly to our valuation do you see an impact on I suppose consumer preferences due to um uh yeah changing preferences with regard to yeah on the individuals but also in terms of cost of living crisis and what people can afford to see that fundamentally changing the market yeah I can start off there um we don't really see this fundamentally changing again going back to the strength in Chipotle's primary target consumer um we don't see you know any any increase of cost of living um impacting I guess consumer preferences there we're confident in both the company to be able to maintain its value proposition to its customers as well as its target market to continue going back oh and in addition to um the pricings we do see some of the other International countries their labor might be cheaper so a lot of these operating expenses also might fall such pulley will have the potential to hopefully lower prices as well to Target their consumers of those regions just the last Point too I think one of their main Innovation techniques that they utilize constantly are there limited time offers and these are their new um seasonal new types of proteins they're also innovating with cauliflower rice stuff like that and the purpose of these ltos is to draw in new customers as well as bring in other existing customer base more often [Applause] thank you [Music] good afternoon Amazon with me or Samantha Benjamin Brendan and divitash we're initiating coverage on AMD a designer of CPUs gpus and other semiconductors products are vital to powering the world's Computing devices we issue a cell recommendation with a Target price of 86 dollars representing a four percent downside from April 28th closing price of 89 dollars strong cyclical headwinds it's weak economic moat and geopolitical uncertainty supporter cell recommendation the demand for semiconductors is driven by the Dynamics of global computational device sales and underline our recommendation are two key characteristics of this industry first the demand for computer components is derived from the demand for computational devices this means that amd's economic success is ultimately sourced from the demand for computing and products second PC lifespans have expanded to eight years leading consumers to replace their PCS less frequently this means that today's PC sales will likely cannibalize future sales additionally covet resulted in a surge in PC Demand with analysts extrapolating this trend resulting in amd's overvaluation and despite collapsing PC sales in 2022 analysts are still optimistic predicting the Swift recovery in Q3 2023 When taking into account excessive coveted induced PC purchases and expanding lifespans our analysis indicates that demand will fall well short of recent analyst expectations AMD designs integrated circuits developed on the x86 architecture for a wide range of computing applications manufacturing is outsourced to tsmc and Global foundries the business consists of four key operating segments the embedded segment Services automotives Industrials and iot devices with the 49 billion dollar acquisition of xilinx contributing to Growing revenues in the space the data center segment provides Cloud Solutions and data processing for companies like Microsoft Google and meta the client the client segment serves original equipment manufacturers like HP Lenovo and Dell while the gaming segment Powers graphics for PCs and gaming consoles the industry is comprised of foundries which are pure play manufacturers fabulous design firms like AMD and idms which both design and manufacture products and the industry primarily sources its revenue from three countries the U.S China and Taiwan Additionally the primary Catalyst for Semiconductor growth will be AI with Tam expected to grow at a 34 percent kager through 2025. the AI Revolution requires significant computational power and speed and while AMD does produce gpus that are capable of parallel processing the market leader Nvidia is likely to dominate this space in the near future placing AMD at a disadvantage in The crucial battle for AI market share in both the data center and embedded segments headline inflation is trending downwards but continued labor market strength has resulted in PPI growth and elevated Services inflation in response to persistent High inflation central banks have been aggressively raising rates bringing the FED fund rate to 5 yield curve inversion the deepest since 1981 suggests high probability of recession additionally the current banking liquidity crisis has increased contingent risk further tightening Financial conditions these factors put downward pressure on demand for computational devices and consequently semiconductor products there are three key drivers supporting our cell recommendation with the first being cyclicality faced by AMD in the industry kovitz work from home conditions created abnormally high demand for amd's products with year-over-year sales growth peaking at 68 percent by 2021. this spike in chip demand led to a rapid expansion in Supply capacity resulting in accumulating inventories and the erosion of pricing power industry cyclicality stems from the need for companies to continually introduce new product lines requiring significant upfront investment additionally computational devices are semi-durable Goods when a recession occurs demand for these products suffers adversely impacting Downstream revenues in anticipation of recession memory motherboard and ship prices have been slashed in recent quarters compressing margins industry-wide second intense competition from Intel and the encroachment of the Armed chip architecture significantly weakens amd's economic mode AMD and Intel operate in a duopoly when it comes to the x86 market and produce perfectly substitutable products making consumers price sensitive due to minimal switching costs now AMD has been able to produce competitive products in recent years whereas Intel has struggled internally however we do not believe that AMD will be able to outperform Intel in the long run Intel still holds the majority of the x86 market share and has a higher cash position allowing it to outspend on R D moreover its strong financial position allows it to implement aggressive pricing strategies that may undercut amds the armchip architecture also boasts greater power with higher Energy Efficiency making it an increasingly viable alternative to x86 especially when it comes to PCS and data centers Apple has already implemented arm in all of its devices with Amazon and Google following suit in their data center operations further dampening the growth outlook for x86 third the China Taiwan conflict presents a significant risk to AMD recently tensions have escalated as a result of increased U.S military activity in Taiwan escalation of conflict could imperil tsmc fabrication as a result amd's manufacturing costs could Skyrocket severely compressing its margins AMD derives 38 percent of its revenues from the Chinese and Taiwanese markets comprehensive sanctions could impair amd's operations finally supply chain fragility could drive customers away from fabulous designers towards vertically integrated idms like Intel we developed our own econometric model to project amd's Revenue growth that accounts for our key drivers the small link sells growth to Global Peace unit shipments consumer prices for computers and electronics and semiconductor profitability based on this model protective five-year sales kegger of 15 which is consistent with amd's average long-run growth as you will see further under a base case we expect cogs and r d to grow in line with revenues with considerable variation under best and worst case scenario we also expect margins to remain consistent with shorwin averages going forward in order to Value AMD we constructed a DCF valuation under three scenarios and for each scenario we took into account macroeconomic conditions industry factors and firm specific assumptions we then went to the forward-looking options Market to calculate the weights for each of these scenarios by deriving Market implied probabilities we also utilized a Monte Carlo simulation to account for the uncertainty in our DCF and simulated a variety of drivers now amd's capital structure is nearly all Equity therefore for each scenario the free cash flow to equity and terminal value have been discounted at a dynamic cost of equity instead of a whack this cost of equity Falls over time as AMD matures and its beta shrinks to complement our DCF valuation we conducted a relative valuation comparing AMD to 10 of its industry peers using median peer multiples yielded a fair value of 69 dollars finally we've developed our own novel econometric model that links amd's price to the fundamentals of the semiconductor industry this modeling CMD is priced to the value of computer shipments of the production of computer components and the production of circuit boards and yields a fair value of 71 dollars our final fair value of 72 dollars is a weighted average of these three models and our Target price one year out of 86 dollars represents a rate of return 23 percent below the required rate of return as relative to the market closing price on April 28th recently green washing and ESU manipulation has become an investor concern accordingly we've adjusted our ESG scoring systems to reflect the quality of rating agency using these weights our ESG scoring system is a weighted average of factset Morningstar and refinitive AMD scored below its key competitors in the industry 33 percent of amd's board are women and 22 percent are racial minorities additionally AMD must comply with regulation on disclosure of conflict minerals and ensure that there are no occurrences of forced labor in their supply chain we identify the following significant risks to AMD first the U.S banned the export of AI Computing chips to China additionally Intel is the primary beneficiary of the chips act with much of the funding being allocated to expanding manufacturing capability in the US domain in China 2025 plan aims to unsure both designing and manufacturing of semiconductors to China second the inability to retain Talent can lead to less Innovative and less competitive products semiconductor engineering is highly specialized and talents crazy can lead to Fierce competition among industry Rivals with amd's main competitors being better positioned to acquire Talent downward Trends and skilled immigration since 2016 further intensified this problem these risks in addition to other operational and Market risks have large valuation impacts should they fully materialize to close reset our cell recommendation based on amd's weakening economic moat geopolitical uncertainty and strong cyclical headwinds thank you we'll now open it up for questions can you justify your use of a DCF valuation given that uh the stock is actually really cyclical and follows a semiconductor cycle yeah um absolutely we use our DCF mainly because it is an industry standard and would have been very difficult to leave it out um although this cyclicality was really implemented our model overall to Value the company and we also valued it the most added the most weight to it compared to two other models that yielded our fail value of 72 dollars when you look at our other models they all reinforce each other uh that DCF intrinsic value has a value of 72 dollars the comps has a value of 69 and then that industry model reinforces both of those with a value of seventy dollars so that's why we have so much confidence in each of these three valuation models that were all developed uh in parallel but separately um to quickly add on to that um our DCF valuation allows us to take into account time and to analyze intrinsic factors that affect AMD and we felt that that was vital for our valuation and because it allows us to take into account time going forward we can also take into account further cyclicality and factors that come up well not all processors are made equal and this is a technological company in which technology should have an edge against competitors they recently presented two new processors uh but I couldn't understand how much of a competitive apps do they have against competitors can you please explain me a little bit on on their positioning so AMD is positioned in the Middle Market uh while we do understand that not all processors are created equal in the consumer's mind the consumer looks at it from a performance to dollar ratio so Intel operates in the lower and middle markets AMD really focuses on the Middle Market and then we have companies like Nvidia that operate in that high Market with gpus and stuff like that so that's it AMD strategy that's where it lives in that Middle Market and we don't see too much of a performance Advantage as you go through those markets uh Moore's Law is considered to be dead uh in the Computing industry so with each added Improvement in product roadmap that these companies come out with you're not seeing the added compute gain uh when you move through those products um to add on to that Benjamin if you could go to the intellectual property analysis we can see that AMD um in a few years so in 2016 they really had an increased growth in filing grants for patents however since 2019 it has really been stagnating and we can be really be questioning their ability to innovate in the future and come up with new products that will actually compete uh with big competitors like Intel and Nvidia and to add on to that if you could go to Intel's cache position um Intel has a much higher ability to invest in R due to their High cash reserve and just their ability to make r d go into their patent portfolio and their increasing they're the fifth largest bat holder in the world so you can really see that their r d is translating in new patents and new products adding on to that AMD has been increasing its r d spending and yet we're still seeing this stagnation in Innovation and patent filings you commented on the exposure to to China what do you think in in terms of that exposure why is your expectations so different from the market is that issue not already priced into the stock yeah so thank you for asking that question um in terms of what our our recommendation is different from the market um we are pricing a very a very low probability our worst case incorporates the China Taiwan event um that is less than two percent um but the fact that it has such a large impact on valuation and we can see that uh an elimination of Taiwanese and Chinese sales uh would cause a 46 percent drop in um in amd's valuation we took the Russia Ukraine war as kind of a really poignant precedent for uh the kind of sanction regime that could result um and on on the point of what we know different from the market we believe the market is actually uh over is expecting PC um the PC market to recover uh more quickly than we believe it is we saw after 2008 it stagnated for close to 10 years and we believe that the market is overestimating the probability that that market will return quickly um despite the sanctions that you guys have issued on China we've got City chips um AMD was actually able to redesign the chips through circumvented sanctions can you comment on that yeah so AMD they had their Mi 250 chip banned to China um and they are still uh offering their Mi 300 chip to them and that was actually not a major Revenue driver for them but we see it as kind of a really interesting indication of where the sanct the regulation regime could go in the future um if we see a tip for Tat uh situation occur where it occurs with less and less advanced technology that could really put downward pressure on amd's ability to operate in these markets over the long run yeah we're really looking at that as a signal uh to what new products could uh face what risks that new products could face coming down the line well we have a uh uh pretty recent news because the company reported yesterday and they lower the federal guidance even though they beat expectations on on this quarter they lower the guidance maybe it is consistent with the testes that that you are presenting us here but I don't know if you have the chance to see if the guidance meets or matches your expectations or there's still more pain that is not on the guidance so our analysis space is based on the fact that PC unit shipments are going to continue to deteriorate our analysis actually overestimated what the PC market did uh in that recent earnings report AMD reported I'm sorry the IDC reported 56.9 million computer shipment PC shipments in q1 and our analysis forecasted 62 million so we're off a little bit however the market continues to see that rebound in Q3 and AMD Lisa Sue did note yesterday that she sees a rebound in Q3 however we see a transition away from PCS as a result of this covet exuberance and these higher life cycles so people that bought a PC during covid they're not going to need to replace that for eight more years so we don't see the justification on that PC market rebounding uh in q323 and to add on to that we can also see how the utility of PCS has been changing over the past two decades and as Benjamin mentioned earlier after 2008 PC sales Decline and that was mostly um um at the same time that there was a rise in use of cell phones tablets and other computational devices and therefore people switching either in between um a different device and a PC and now during covid this demand was exacerbated people bought PCS and with the expanding life cycles will hold on to those PCS for a much longer period of time and it is also important to note that when it comes to other devices such as cell phones and tablets AMD has a very weak foothold in those because most of those run on the armchip architecture and and that's why we believe that this PC slump as AMD currently stands will be detrimental to their future growth prospects maybe yeah could you talk a bit about the your approach the valuation just how you came about the the split um and part of what's behind my question is um I'm just looking at some of the different valuations it looks quite bear Market I know a lot of the information you've you've presented as such um I'm just wondering did you did you go low enough on your final Target recommendation but would love to hear you just talk about the valuation yeah we gave our DCF valuation the most weight given that it's the industry standard and Then followed by our comps valuation because again that's another industry standard and then our novel regression model just further reinforce the prices that we got from those two other models yeah and so our approach to valuation really centered on you know how can we justify what the current market price is you know what are the what are the assumptions that are necessary to come up with that price and then do we really agree with that so that price we calibrated our model to the current market price and that resulted in growth that was significantly higher than their long run growth and we don't see that happening given the derived demand Story the PC units we don't see that as Justified so we had to go back through all those assumptions lower the margins lower the sales growth and that's kind of how we arrived at our uh about intrinsic valuation um happy to explain more if you're thinking about something specific on our approach in terms of raw materials what is your exposure to raw materials that comes directly to them and also the the interaction via tsmc in terms of raw materials does that also flow through to MD yeah so AMD does not do any manufacturing of their products so most of the raw material costs input costs of that sort are going to be borne by manufacturers like tsmc and then Global foundries which is their manufacturer for the lower market items um so AMD actually does not have a significant exposure to those types of input costs so in that most recent report uh we saw margins compress uh gross margins uh which is the direct result of higher input costs from tsmc and they're passing on they are the market leader they have a lot of pricing power they developed the I'm sorry they manufacture the most advanced chips across the world for Apple for AMD for all these Tech firms so they do have quite a bit of power moreover another important thing to note is Ben if you could go to the supply chain map is the the supply chain for semiconductors is global and a lot of different nations and regions contribute towards providing raw materials as well as um human human capital for the production of semiconductors and due to this um due to the amount of suppliers and how all of that concentrates towards these few products that that AMD manufactures we can see that AMD currently being completely fabulous and not manufacturing their own firms is to some extent a major extent at the mercy of these suppliers and the raw material costs that kind of get carried over into the production of the chips that they design these xilinx acquisition are there any synergies that have yet to been realized from that deal that you anticipate having a positive impact on AMD in the near future um xilinx was their latest acquisition as of today and their largest one especially for the industry they have declared that they do not plan on acquiring any other company anytime soon so we don't see it happening however if they were to expand we would say that it would be beneficial for them to acquire a company that's probably in the AI industry where they can have foothold in that door especially Ben could you pull up the business segments so AMD actually wasn't operating a lot in the embedded segment which is how they refer to xilinx so as you can if you can look at 2021 the embedded segment was um basically non-existent and so the addition of xilinx contributed to a whole nother segment for them so that's kind of where the synergies are coming in and we see growth in that sector so that's that's where a lot of the growth is going to be for them um instead of the synergies if that makes sense and I would add that that acquisition actually uh put a massive amount of Goodwill on their balance sheet so it's opened them to a large impairment risk on the bottom line for the next few years so while they're digesting that it would be hard to initiate any more merger acquisition activity you have a six percent downside to your target prize would you say I love this typical hit wins and the risk you mentioned already priced in so our Target price is the result of our intrinsic value grown at our cost of equity uh so while our Target price is 86 dollars the intrinsic value today of AMD is closer to 72 dollars so the answer to your question would be uh no there's still a lot of downside to pricing uh I believe that number is 23 percent foreign [Laughter] that's thank you very very much [Applause] [Music] are you tired of struggling to find the perfect temperature at home or work or in this hotel let's face it traditional heating ventilation and air conditioning systems known as HVAC can be a headache but what if I told you that these small orange devices are changing the game with energy efficient solutions that save you money and reduce your carbon footprint bilimo is the ultimate win-win today we're excited to share Why by investing in bilimo you're not just investing in a company you're investing in a brighter Greener future for all we strongly believe that the potential of bulima devices is currently undervalued therefore wish you buy recommendation with 17 upside and a Target price of 501 Swiss Francs we base our recommendation on the following three catalysts firstly bilimo is best position to benefit from energy transition secondly believer's ability to thrive through premium pricing and thirdly Fortress Financial Foundation to capture growth and secure future success belima offers a wide range of HVAC control Solutions as downper actuators control valves and sensors to control air and water flows in HVAC systems geographically the main region for bilimo is emea which accounts for 49 of total revenue followed by Americas and Asia Pacific with digitization ramping up in America's urbanization booming in APAC and climate change impacting as all these favorable Trends Propel future growth of HVAC industry we expect climate change and energy transition to be the strongest drivers of a truck market growth and here is why to meet climate goals energy consumption of buildings has to be reduced as buildings consume up to 40 percent of global energy for buildings to become more energy efficient HVAC systems have to be optimized as many countries globally fall behind to reach Net Zero more and more building energy codes are introduced new regulations emerged in Europe in response to EU energy crisis nearly power e-regulation doubles all previous renovation and climate targets energy efficient HVAC market growth is expected to accelerate due to positive push and pull Dynamics regulations push building companies towards Energy Efficiency while increasing electricity prices created a pool effect by reducing the payback period this results in clear purchase benefits for building Mass customers and faster retrofit market growth as EU aims to end its Reliance on Russian fossil fuels by 2027 EU is required to double renovation rates to 3 percent this translates to the highest sales growth in the Mia by 2027. we project positive growth in all regions where emea is the main gross driver Billy will have above industry sales growth and expand their market share will tell us why would it be feasible will Thrive and grow through premium pricing first thing explains premium pricing is that belimo bilimo produced best energy efficient Solutions very more invests seven percent out of sales in r d annually this is significantly higher than their competitors belimo provides the best energy efficient products consuming up to 80 percent less energy than their competitors secondly premium pricing is Justified due to Quality and longevity of palimos products bilimo's products are tested rigorously which in results in the low phosphere rate in the industry and up to 20 years of useful life therefore bilimo's products are attractive from a total cost of ownership perspective customers are willing to pay premium price to receive premium products this results in building more having justifiably higher and stable margins of 17 percent for the last five years it is higher than the competitive average of 8 percent we protect strong margins going forward we believe that bulima raises prices beyond what is necessary to offset Rising input costs meaning it exploits current inflationary environment as an opportunity to increase prices more than necessary to boost profit for instance in September 2022 billimo Incorporated an extraordinary price increase of six percent we expect two price increases this year as a result of HVAC price increases affecting the entire industry to summarize the margin development let's have a closer look at the beta Bridge firstly premium pricing will result in lower material expenses as a percentage of sales secondly labor shortage and labor inflation will affect Personnel expenses negatively altogether a bit the margin will improve by 250 basis points what is the growth outlook for bilimo bilimo has Financial strength and flexibility to support growth first billimore has an asset light business model since 86 percent of production costs are outsourced this business model allows belimo to scale globally without incuring additional investments in fixed assets Billy Mo's law of capital intensity leads to an outstanding performance with the unmatched return on invested capital of 26 percent enabling Feature Feature strong free cash flow margins secondly strong foundation of the balance sheet lies in bailamos capital structure and healthy located team with the superior current ratio and 167 million of net lukita sets billimo can afford additional capex moreover low depth results in less financial and cash flow risks this further implies law of default risk which is also supported by Auckland z-score and distance to default we reflected to our evaluation through a lower beta than the industry and their peers which now brings us to valuation in the context of ESG bilimo performs well in indirectly reducing carbon dioxide emissions and providing adequate working conditions however when it comes to gender diversity and management level we think that they can do better maybe they can learn from us overall bilimo has not been involved in any major ESG controversies to that which makes Billy Mo an attractive investment for ESG conscious investors our ESG scorecards combining our own insights with refinitives V1 ESG confirm speedmost strong ESG credentials nonetheless empirical evidence show that the difference in cost of capital between High SG and low vs scoring companies in the industrial sector is 40 basis points therefore we assign a 10 basis points on vac incorporating ESG analysis lets us EST adjusted back of 6.5 percent which is very close to cost of equity due to beleiman's capital structure our multi-stage DCF valuation results a Target price of 501 service francs and are sensitive analysis supports our buy recommendation our Grace Sky scenario analysis show The Limited downside where we simulates the loss of revenues due to failure the capture growth in emea nonetheless Blue Sky scenario analysis results as stronger sales thanks to both organic growth and a successful acquisition to further enhance our evaluation methodology we conducted relative violation we formed a comprehensive peer group multiple's analysis has showed that bulima trades at premium bilema has Superior heroic highest earnings growth and a beta margin which justifies the premium we can see that high Evita multiple is in line with high earnings growth we believe that the premium is Justified bilimo has Superior earnings growth and high earnings quality High earnings quality is sustainable and will persist going forward this ensures quality growth and justifies billimos valuation premium to come up with our final Target price we rely on DCF valuation which results in a final price of 501 Swiss franc and we see no hyperability high impact risks that could disrupt beliema's growth to sum up we identify three main drivers that underline billingman's highly appealing perspectives don't let your portfolio get left out in the code thank you [Applause] could we slide back to slide number 13 please could you just talk about the difference between the competitor and peer groups that you generated and how you came up with each of those on the left side of the slide please uh yes absolutely in our analysis we distinguish peers from competitors as bilimo is a niche player and focuses on developing field devices for HVAC systems and their main competitors Siemens Honeywell Johnson Controls and Schneider Electric they compete with bilimo only in a small Niche their big conglomerates that not only produce products for HVAC systems but also many different products and they also have different growth different underlying fundamentals therefore we believe that competitors are not appropriate to be peers and to construct the peer group we analyze the companies that analyze that operate in HVAC industry and we found out that there are no com truly comparable peer set for bilimo as they also produce um uh not only few devices but also radiators and other different devices for HVAC systems you have emia recording the highest growth historically and this is largely driven by regulation and the need to for energy transition but do you expect them to command similar kind of market shares and growth in other regions yes we expect billimo to increase market share in other regions for instance in 2022 there was a supply chain crisis material shortage and inflation crisis but billimo could be could be able to surpass this uh problems and belimo increase their market share in every country in Europe and America's region and we expect them to increase their market share in America's too but not in APAC region because we we believe that billimo underestimates their competitors in APAC region so we expect moderate sales growth in APAC region but not a high increase in market share foreign so one of the things that you mentioned as a benefit is that they Outsource a lot of their business model um can you talk a bit about who they're Outsourcing to and what risk if any um that you know that Outsourcing brings belimo has a satellite business model uh they don't produce their products in their facilities they assemble their products and they um label them to with their tags but they most they 86 percent of production costs Outsource and nine percent is for logistic and five percent is for customizing and customizing an assembly and they mostly they are relying on their suppliers they have more than 400 suppliers and they depended on their supply each Supply is like a 20 or 30 percent and they uh buy their materials and they just assembly and then they deliver it to their subsidized or OEM times do you think that a model puts them at a disadvantage in terms of achieving the growth rates and that you're expecting uh we think it's it's not a problem actually it's an advantage for bellimo uh let's like for instance in 2023 in America's region there was a Supply in America there was a supply chain crisis most of the films were struggling to find raw materials but bilimo increased their sales uh in local currencies by 20 which was unexpected uh we think that uh Outsourcing is an advantage for bellimo because they don't uh when if there is like a crisis like raw materials or logistic crisis they do not have these problems because also they have um inventory build up system they buy their materials in advance and they stock uh so we think it's an advantage also yes well the company flagged recently some short-term challenges for example labor shortages Supply and chain concerns do you think the company has the pricing power in this Con competitive landscape to to to face these these challenges uh yes thank you for your question we reflected labor shortage in uh our gray sky scenario analysis we believe that uh indeed as in HVAC industry uh there are not enough qualified Specialists that can install HVAC products efficiently and uh we believe that it will not be a constraint it might be a constraint for bilimo however um um they have strong pricing power as historically they were able to pass on Rising input costs to their customers and this we can see in increasing margins from 2017 to 2022 and therefore due to its pricing power we believe that bilimo will Thrive and grow through premium pricing EE you noted that you expected the premium pricing to drive even higher margins in future you had one chart so I think was chart you know um um page 11 where he expected an additional increase in the ebitda bridge is that a further gap on pricing additional premium pricing going forward and you know giving the comments you had how do you think that's achievable uh yes we believe that bilima has a strong pricing power and this ultimately contributes to our margin projection and also we expect inflation to decrease by 2026 will which will further support the expansion of margins another question regarding the company capabilities the industry is facing structural changes regarding Energy Efficiency and also improving indoor quality of of the equipments does the company have the the latest technology on this uh yes uh belimo invests seven percent out of sales and uh in RND every year and it is significantly higher than their competitors even the competitors are big companies like Siemens Johnson Controls but they are HVAC field is a relatively small compared with belimo and yes billimore follows all of the Technologies and since they have asset light business model they don't have tangible assets fixed assets so they can invest uh their cash to new technologies and rnds and as you may see on the slide since their founding year bilimo was continuously introducing new products to the market and recently in 2020 they even expanded their product offerings offerings and entered new sensors segment it proves that bilimas bilimo is very efficient with their R D's and continuously innovates ahead of its competition to satisfy the demand of the clients can you talk a little bit about the end consumers for these products or is bulimo selling to a retail audience in say A you know Big Box store are they doing business directly with contractors and if it is the latter or if there is a significant percentage that are sold directly to builders um are you concerned at all about the housing markets impacts on bullima's ability to continue to grow revenues mainly serves non-residential segment 95 and 5 is residential segment so they have distribution channels all over the world and they they're B2B provider so they do not sell directly to the clients but rather to oems and building advisors and we believe that it's an advantage for bilimo and also because bilimo prioritizes their relationships with customers and these uh building automation systems uh they are delivering products swiftly which is a great Advantage for them I guess there's significant challenges on Commercial Real Estate in in Europe is that a concern do you think that's a major concern if we see you know yeah problems coming true to that market uh we don't see it as a major risk because we see a great potential of bilema to capture the growth in emea given uh EU energy crisis and that 85 percent of building stock in Europe is energy inefficient and belima offers best solution to this issue and given recent developments in regulations like new power e regulation European countries have to double renovation rates to three percent so bilima is best positioned to capture growth and expand in retrofitting right that's another question and obviously Europe is very different in terms of the regulatory environment and what's happened previously does that drive different profitability by region um with you know different subsidies provided does that impact the margin if I understand correctly our regulations is the main driver for emea region but for America's region and Apec region uh the drivers are different for America's region the main driver is a data center segment uh we we expect moderate sales growth in America's region because main focus is on emea we expect a 9.2 percent of uh cargo for uh for the next five years it is higher than a billimos of past five years but it is uh lower than the data center Cargo in APAC region we expect billimo will increase their sales due to a Chinese and swiss government have launched an agreement called Chinese Zero Energy buildings with Swiss know-how Chinese government legs in implementing energy efficient Technologies Technologies in their buildings so they will get help from our service companies especially expertise in HVAC field devices like billimo we expect that billima will benefit from this agreement yet uh belimo underestimates their presence and their competitors presence in APAC region so we expect Billy mode to increase their demand and sales in APAC region but it will be a slower than their expectation unless you're different on the difference on the margin between the regions as well uh yes so APAC represents only 13 percent of sales which has a limited impact on margins and we believe uh that uh the believer's ability to raise prices and premium pricing will contribute to margin expansions and it's mainly driven by uh emea so they have a competitor I think less than gymnical knife Industries however belimo actually commands Superior margins and Roes compared to the peer what do you think it trades at a discount though um yes indeed has Superior margins compared to its competitors and as we mentioned earlier because bilima offers best energy efficient products and also that they have very high quality and long useful life therefore customers are willing to pay for that premium and accept the price increases which further supports the margin expansion you still have 40 seconds okay with no further questions thank you very much [Applause] so I am delighted to announce the winner of the 2023 CFA Institute research challenge is the University of Sydney [Applause] [Applause] it is way better in real life [Applause] foreign [Applause] of you it is hard when you're all here at the finals to know just about how extraordinary an accomplishment this is Sydney congratulations enjoy the rest of the evening [Applause] [Music] thank you [Music]