Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Italian shoe and handbag maker <a href="https://www.smartkarma.com/entities/tod-s-spa" target="_blank" data-smartkarma-citation="entities:21231:1" rel="noopener">Tod's SpA (TOD IM)</a> has been discussed as a takeover target for LVMH since 2017. See my previous insights in 2017, 2018, and 2019 for background.Yesterday, LVMH made its opening salvo raising its stake to 10% by acquiring 2,250,000 shares at 33.10 EUR per share (total value of 74.5 million EUR) from founder Diego Della Valle who will still control 63.64% after the transaction. Please note that Diego Della Valle is also a board member at <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a>.Tod's is in the early innings of potential brand revival having added 33-year old influencer Chiara Ferrangi to its board of directors earlier this month. Chiara has 23 million followers on Instagram alone.This follows news of Tod's appointing 42-year old Walter Chiapponi as its head designer in late 2019. Tod's goal is to try and push Tod's brand into the millenial "cool" bucket and revive sales after years of declines.The long-term age of Della Valle (67) means LVMH will acquire the brand outright in FY22/FY3. Before this happens Della Valle will attempt to maximize value for himself one last time.Tod's market cap has shriveled to 1.2 billion EUR (from 4.8 billion in 2013) which means it trades at just 1.5x P/S, 1.2x P/B, and 11x FY22 EV/EBITDA. P/S and EV/EBITDA are the right metrics here as weak execution and heavy investment in company-operated stores have meant the company was printing red-ink for the last three years. Luxury brands typically get sold between 15-20 EV/EBITDA.For Della Valle to sell his life's work it will require a much larger premium by LVMH to get his remaining shares. As highlighted in my 2019 insight large upside remains for Tod's minority shareholders from today's share price levels.

Italian shoe and handbag maker Tod's SpA (TOD IM) has been discussed as a takeover target for LVMH since 2017. See my previous insights in 2017, 2018, and 2019 for background.Yesterday, LVMH made its opening salvo raising its stake to 10% by acquiring 2,250,000 shares at 33.10 EUR per share (total value of 74.5 million EUR) from founder Diego Della Valle who will still control 63.64% after the transaction. Please note that Diego Della Valle is also a board member at Lvmh Moet Hennessy Louis Vuitton (MC FP).Tod's is in the early innings of potential brand revival having added 33-year old influencer Chiara Ferrangi to its board of directors earlier this month. Chiara has 23 million followers on Instagram alone.This follows news of Tod's appointing 42-year old Walter Chiapponi as its head designer in late 2019. Tod's goal is to try and push Tod's brand into the millenial "cool" bucket and revive sales after years of declines.The long-term age of Della Valle (67) means LVMH will acquire the brand outright in FY22/FY3. Before this happens Della Valle will attempt to maximize value for himself one last time.Tod's market cap has shriveled to 1.2 billion EUR (from 4.8 billion in 2013) which means it trades at just 1.5x P/S, 1.2x P/B, and 11x FY22 EV/EBITDA. P/S and EV/EBITDA are the right metrics here as weak execution and heavy investment in company-operated stores have meant the company was printing red-ink for the last three years. Luxury brands typically get sold between 15-20 EV/EBITDA.For Della Valle to sell his life's work it will require a much larger premium by LVMH to get his remaining shares. As highlighted in my 2019 insight large upside remains for Tod's minority shareholders from today's share price levels.

Tod's: LVMH Goes from 3.3%-> to 10%; 100% Next Year?

Julie Lee

Luxury brand companies raised price by 2~4% again in January again after raising price by 10~15% in 2020.  Luxury fashion industry is one of a few industries which has shown strong pricing power even during the pandemic.  The core personal luxury goods market is expected to be contracted for the first time since 2009, falling by 23 percent to hit EUR217 billion, according to Bain&amp;Company.  But it has been showing strong recovery since 2H20. Even though the prolonged pandemic and lock-down can still weigh on the luxury industry, it will continue to show resilience given increasing disposable incomes of high-end consumers thanks to wealth effect and lack of spending on travels.  <a href="https://www.smartkarma.com/entities/prada-s-p-a" target="_blank" data-smartkarma-citation="entities:889:1" rel="noopener">Prada S.P.A. (1913 HK)</a>  is one of a few luxury brands which has been improving its brand equity by appointing the new co-creative director, Raf Simons, enhancing its online marketing and changing its distribution model.We will review details of Prada's strategies and its long term growth potentials in the below section.

Luxury brand companies raised price by 2~4% again in January again after raising price by 10~15% in 2020.  Luxury fashion industry is one of a few industries which has shown strong pricing power even during the pandemic.  The core personal luxury goods market is expected to be contracted for the first time since 2009, falling by 23 percent to hit EUR217 billion, according to Bain&amp;Company.  But it has been showing strong recovery since 2H20. Even though the prolonged pandemic and lock-down can still weigh on the luxury industry, it will continue to show resilience given increasing disposable incomes of high-end consumers thanks to wealth effect and lack of spending on travels.  Prada S.P.A. (1913 HK)  is one of a few luxury brands which has been improving its brand equity by appointing the new co-creative director, Raf Simons, enhancing its online marketing and changing its distribution model.We will review details of Prada's strategies and its long term growth potentials in the below section.  

PRADA (1913. HK): Improving Brand Equity to Fuel Its Long Term Growth

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

<ul><li>
<a href="https://www.smartkarma.com/entities/christian-dior-se" target="_blank" data-smartkarma-citation="entities:21415:1" rel="noopener">Christian Dior SE (CDI FP)</a>’s 41.2% owned listed subsidiary, <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a>, has outperformed Christian Dior shares by over 31% since LVMH made a non-binding proposal to acquire the US luxury jewellery and speciality retailer <a href="https://www.smartkarma.com/entities/tiffany-co" target="_blank" data-smartkarma-citation="entities:14729:1" rel="noopener">Tiffany &amp; Co (TIF US)</a>.</li></ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/744/original/image_9822495321611673131890.png?1611673132" class="editor-image img-responsive" data-smartkarma-image-id="184744"></figure><ul>
<li>After a lawsuit and a counter lawsuit by Tiffany and LVMH respectively, (LVMH requested an amended deal due to COVID-19 led disruptions) LVMH finally managed to complete the acquisition on 7th January for $15.8bn, a 3% discount to LVMH’s original offer.</li>
<li>Dior is 97.4% owned by the Arnault Family and therefore has a very low free float compared to LVMH’s 50% free float. The lack of liquidity meant that Dior failed to keep up with LVMH’s share price movement, even though Dior’s only source of revenue/income is LVMH.</li>
<li>Dior’s current NAV discount is 23.9%, compared to an average of 4.0% during 2018-3Q2019. As the trading volume of LVMH normalises following the Tiffany transaction, we expect Dior’s NAV discount to return to the undisturbed long-term average discount range of 10-18%.</li>
</ul>


Christian Dior SE (CDI FP)’s 41.2% owned listed subsidiary, Lvmh Moet Hennessy Louis Vuitton (MC FP), has outperformed Christian Dior shares by over 31% since LVMH made a non-binding proposal to acquire the US luxury jewellery and speciality retailer Tiffany &amp; Co (TIF US).
After a lawsuit and a counter lawsuit by Tiffany and LVMH respectively, (LVMH requested an amended deal due to COVID-19 led disruptions) LVMH finally managed to complete the acquisition on 7th January for $15.8bn, a 3% discount to LVMH’s original offer.
Dior is 97.4% owned by the Arnault Family and therefore has a very low free float compared to LVMH’s 50% free float. The lack of liquidity meant that Dior failed to keep up with LVMH’s share price movement, even though Dior’s only source of revenue/income is LVMH.
Dior’s current NAV discount is 23.9%, compared to an average of 4.0% during 2018-3Q2019. As the trading volume of LVMH normalises following the Tiffany transaction, we expect Dior’s NAV discount to return to the undisturbed long-term average discount range of 10-18%.


Christian Dior: Holdco Discount Could Normalise Following the Completion of Tiffany Acquisition

HK/China Equity Long-Short

Osbert Tang, CFA

China Tourism Group Duty Free Corp Ltd / Equity Bottom-Up

China Tourism Group Duty Free Corp Ltd (601888 CH)

The approvals of more players in the Hainan duty free market at end-2020 is likely to pose challenge to <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> only in the long term, given the weaker relative competitiveness of the new entrants, CTG Duty Free's established strengths and the sustained positive growth in the overall market. Despite so, we see a trend of rise in competition in China's duty free industry, which is a threat that it cannot overlook in the long run.With the Dec (up to 28th) duty free sales value maintained a solid growth of over 150% YoY, the sustained market growth will offer CTG Duty Free a near-term buffer to competition. The low base in 1H20 as well as the limited appetite of overseas travel due to new coronavirus strains will continue to be positive factors for the company at least in the next six months.

The approvals of more players in the Hainan duty free market at end-2020 is likely to pose challenge to China Tourism Group Duty Free Corp Ltd (601888 CH) only in the long term, given the weaker relative competitiveness of the new entrants, CTG Duty Free's established strengths and the sustained positive growth in the overall market. Despite so, we see a trend of rise in competition in China's duty free industry, which is a threat that it cannot overlook in the long run.With the Dec (up to 28th) duty free sales value maintained a solid growth of over 150% YoY, the sustained market growth will offer CTG Duty Free a near-term buffer to competition. The low base in 1H20 as well as the limited appetite of overseas travel due to new coronavirus strains will continue to be positive factors for the company at least in the next six months.

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

Quality-first, Business-perspective, Long-term, Urbem (HK) Limited

Urbem Capital

Quality-first, Business-perspective, Long-term

<ul>
<li>Despite the elevated valuation, family-controlled Hermes demonstrates its superior quality from a business-owner perspective, and hence, is worth following among patient investors;</li>
<li>At the same time, we find that the French heritage name has been increasingly APAC-driven in recent years and can very likely continue to benefit from rising emerging Asia in the foreseeable future.</li>
</ul>


Despite the elevated valuation, family-controlled Hermes demonstrates its superior quality from a business-owner perspective, and hence, is worth following among patient investors;
At the same time, we find that the French heritage name has been increasingly APAC-driven in recent years and can very likely continue to benefit from rising emerging Asia in the foreseeable future.


Hermes: An Increasingly APAC-Driven Story

France

LVMH Moet Hennessy Louis Vuitton SE is a diversified luxury goods group. The Company produces and sells wine, cognac, perfumes, cosmetics, luggage, and watches and jewelry.

LVMH Moet Hennessy Louis Vuitton SE (MC FP)

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LVMH Moet Hennessy Louis Vuitton SE (MC FP)

Tod's: LVMH Goes from 3.3%-> to 10%; 100% Next Year?

Tod's as a standalone company is on its last legs. Della Valle will attempt his final push to revive the brand with influences Chiara Ferragni on...

Nicolas Van Broekhoven

PRADA (1913. HK): Improving Brand Equity to Fuel Its Long Term Growth

Luxury industry stays resilient given increasing disposable incomes of high-end consumers. We review Prada's strategies and its long term growth...

Julie Lee

Christian Dior: Holdco Discount Could Normalise Following the Completion of Tiffany Acquisition

Dior’s current NAV discount is 23.9%, compared to an undisturbed long-term average discount range of 10-18%. As trading volumes of LVMH normalises...

Oshadhi Kumarasiri

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

New players to Hainan duty free market will not bring near-term impact to CTG Duty Free's leadership, but can be long-term challenges. However,...

Osbert Tang, CFA

Hermes: An Increasingly APAC-Driven Story

The French heritage story has been increasingly APAC-driven in recent years and can very likely continue to benefit from rising emerging Asia in...

Urbem Capital

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