YB new stock pitches (Tue, Sep 2)

Chongqing Machinery & Electric Co., Ltd. (2722.HK) surged +28% month-to-date and +50% since June, validating the investment thesis after delivering +50% earnings growth versus guided double-digit growth and beating across all major segments including joint ventures. The company reinstated an interim dividend for the first time since listing, signaling governance reform, with a pending share incentive scheme awaiting State approval that would further align management with minorities. A key overlooked catalyst is the Hitachi/ABB Chongqing joint venture (37.8% owned by CQME), which received ¥850 million in 2020 government support to build a new plant completed in 2023, and with Hitachi's 2023 acquisition of ABB's energy division, capacity expansion accelerated in 2024 positioning the JV for over ¥5 billion revenue capacity. The author forecasts ¥100 million NPAT attributable to CQME in 2025 from this JV alone, with earnings inflecting higher as capacity ramps, noting that over 50% of products are exported (extremely high for Chinese industrials) and the business could benefit from China's $170 billion Moutou Hydropower project given its Three Gorges Project track record. While the market currently values this JV business at near zero, a scenario of ¥5 billion revenues with 17.5% net margins at 20x PE would equate to approximately HKD 7 billion valuation attributable to CQME, similar to the company's current entire market cap, with CQME trading below book value despite multiple catalysts for earnings acceleration.

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Tactile Systems Technology (TCMD), a niche medical device company trading at less than 8x free cash flow, develops at-home devices for chronic lymphedema, chronic venous insufficiency, and respiratory conditions through two segments: vascular/lymphedema care (89% of revenue) and respiratory care (11% of revenue). The company has achieved an 11% revenue CAGR since 2019 despite being down nearly 80% from 2021 highs, with Q2 2025 growth of 7.8% driven by 52% growth in airway clearance products, though management guides for acceleration back to double-digit growth ahead. Key products include Flexitouch Plus (the only FDA-cleared device for head and neck lymphedema with the broadest reimbursement coverage), AffloVest (fastest-growing segment with 52% YoY growth, the #2 airway clearance product in the US bronchiectasis market), and the newly launched Nimbl platform (drove 30% QoQ growth in lymphedema franchise in Q2 2025) with Bluetooth connectivity and streamlined design. The company maintains a strong balance sheet with $96 million cash versus $21.7 million debt, providing a net cash position of $71 million, and has been implementing margin expansion initiatives through new CRM platforms and AI-driven tools to reduce SG&A expenses. Based on assumptions of 10% revenue growth through 2028, mid-teen free cash flow margins, and a 20x FCF multiple, the price target is $53 per share by 2028 (representing a 4x return and 51% CAGR from current $13 levels). Primary risks include competitive threats from Koya Medical's Dayspring device (which showed superior limb volume reduction in the TEAYS trial despite lacking FDA head/neck clearance and broad payer coverage), $8 million in annual stock-based compensation dilution, potential macro sensitivity affecting device adoption, and policy uncertainty around healthcare reimbursement.

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Supreme PLC (SUP.L) is a UK FMCG manufacturer and brand owner trading at 5.6x EV/EBITDA despite holding dominant market positions with approximately 35% share in batteries, 30% in vaping, and 20% in protein powders, operating through a highly integrated platform that enables structural cost advantages and serves 55,000+ UK retail locations. The company faces significant regulatory risks from the June 2025 disposable vaping ban and October 2026 vaping tax, with vaping representing 50-60% of FY25 gross profits, though management expects minimal volume impact from the ban as major retailers have successfully transitioned to reusables. Key growth catalysts include a robust M&A pipeline where the CEO expects to generate £80M in cash to acquire £20-30M in EBITDA before the vaping tax hits, international expansion through low-risk joint ventures (successful Spain JV reached £10M run-rate in under a year with plans for four additional countries), and operational leverage from the centralized platform that delivered rapid turnarounds like Typhoo Tea reaching £3M profit run-rate within five months after acquisition for £10.2M. Bull cases center on management's proven M&A track record with 1-3 year paybacks and 30%+ ROI, inelastic nicotine demand similar to Germany's brief tax-related dip, Supreme's position as the lowest-cost provider, and high single-digit organic growth potential, while bear cases include 40% revenue concentration in top 3 clients, key person risk with the CEO owning 57% of shares, and potential vaping segment decline of 25% by FY28. The conservative valuation scenario excluding M&A and international expansion shows 70% upside to fair value of 15x EV/FCF or 9.5x EBITDA, while the base case incorporating growth initiatives suggests 180% upside with a price target exceeding £55, as FY26 guidance of £36M EBITDA is characterized by management as 'overly conservative' with historical outperformance of approximately £5M.

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