IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

China Youran Dairy Group Ltd / Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/china-youran-dairy-group-ltd" target="_blank" data-smartkarma-citation="entities:31075:1" rel="noopener">China Youran Dairy Group Ltd (1836774D CH)</a> is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a> until PAG Capital’s investment in 2015. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports.   </p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/china-youran-dairy-group-ipo-initiation-ecownomics" target="_blank" data-smartkarma-citation="insights:51709" rel="noopener">China Youran Dairy Group IPO Initiation: Ecownomics</a>, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look. In this note, we present our forecasts and take the first look at Youran's potential valuation range. </p></div></div></div>

China Youran Dairy Group Ltd (1836774D CH) is the world’s largest raw milk provider as measured by herd size of dairy cows as of 30 June 2020 and raw milk production volume in 1H20, according to Frost &amp; Sullivan. Youran was once a wholly-owned subsidiary of Inner Mongolia Yili Industrial Group (A) (600887 CH) until PAG Capital’s investment in 2015. Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports.   In China Youran Dairy Group IPO Initiation: Ecownomics, we stated that notwithstanding its high revenue dependence on Yili, Youran is capitalising on the favourable demand-supply imbalance for raw milk in China by delivering strong organic growth (on a pro-forma basis), rising margins and accretive acquisitions. We concluded that Youran is worth a look. In this note, we present our forecasts and take the first look at Youran's potential valuation range. 

China Youran Dairy Group IPO: Valuation First-Look

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>Today after the close it was <a href="https://www.globenewswire.com/news-release/2020/10/06/2103999/0/en/Danone-intends-to-sell-its-stake-in-Yakult.html" target="_blank" rel="noopener">announced</a> that <a href="https://www.smartkarma.com/entities/danone-sa" target="_blank" data-smartkarma-citation="entities:21403:1" rel="noopener">Danone SA (BN FP)</a> - currently the largest shareholder in <a href="https://www.smartkarma.com/entities/yakult-honsha-co-ltd" target="_blank" data-smartkarma-citation="entities:17153:1" rel="noopener">Yakult Honsha (2267 JP)</a> - intended to sell down the last of its stake after a 20-year run.</p><p>The press release notes <em>"Danone's collaboration with Yakult began in 2004."</em></p><p>That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.</p><div>
<p>Yakult and Danone signed an <em>Alliance Agreement</em> in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their <em>Strategic Alliance</em> and signed a <em>Memorandum of Understanding on a Collaborative Relationship</em>.</p>
<p>The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. </p>
</div><div>
<p>That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. </p>
<h2>The NEW News</h2>
<p>Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the <a href="https://ml-eu.globenewswire.com/Resource/Download/768c55f8-a7c0-4ba7-b4e8-9f01bf4bef68" target="_blank" rel="noopener">announcement</a>).</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/665/original/Screenshot%202020-10-06%20at%204.58.37%20PM.png?1601974734" class="editor-image img-responsive" data-smartkarma-image-id="163665"></figure><p></p>
<p>The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.</p>
<p>After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.</p>
<p>This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. </p>
<p>Much more below the fold.</p>
</div>

Today after the close it was announced that Danone SA (BN FP) - currently the largest shareholder in Yakult Honsha (2267 JP) - intended to sell down the last of its stake after a 20-year run.The press release notes "Danone's collaboration with Yakult began in 2004."That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.
Yakult and Danone signed an Alliance Agreement in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their Strategic Alliance and signed a Memorandum of Understanding on a Collaborative Relationship.
The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. 

That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. 
The NEW News
Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the announcement).

The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.
After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.
This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. 
Much more below the fold.


Danone Sells The Last of Their Yakult - Buy the Cleanup

Making sense of the Global Market, Euromonitor International Ltd.

Yu Mitsuhashi

Making sense of the Global Market

Euromonitor International Ltd.

We are a global market research company focused on industries, countries, economies and consumers worldwide. Our cross-country comparable research helps your organisation identify opportunities and develop growth strategies in countries and regions across the globe. With offices around the world, 1,200 analysts in 100 countries and market research on every key trend and driver, we give you powerful access to the real story behind consumer change.

Thematic (Sector/Industry)

<ul><li>Population decline encourages focus on value-added products and automation</li><li>Players target products at increasing number of elderly consumers</li><li>Concerns over lifestyle diseases boost interest in FFC <span class="TextHighLight">packaged</span> <span class="TextHighLight">food</span></li><li>Consumers seek healthy vegetables amidst busy lifestyles</li></ul>

Population decline encourages focus on value-added products and automationPlayers target products at increasing number of elderly consumersConcerns over lifestyle diseases boost interest in FFC packaged foodConsumers seek healthy vegetables amidst busy lifestyles

Sector Briefing: Packaged Food in Japan  (Key Trends and Development) - Part 2

<ul><li>Retail sales of baby food grow by 5% to reach TWD15.5 billion in 2017</li><li>The low birth rate dampens demand for baby food in 2017</li><li>HA powder milk formula and powder growing-up milk formula post the fastest value growth rates in 2017, with 6% sales increases</li><li>Rising input costs fuel a further increase in the average unit price of baby food in 2017</li><li>Nestlé Taiwan Ltd remains the leading player in 2017</li><li>Baby food is projected to record a value CAGR of 1% at constant 2017 prices over the forecast period, and to be worth TWD16.5 billion in 2022</li></ul>

Retail sales of baby food grow by 5% to reach TWD15.5 billion in 2017The low birth rate dampens demand for baby food in 2017HA powder milk formula and powder growing-up milk formula post the fastest value growth rates in 2017, with 6% sales increasesRising input costs fuel a further increase in the average unit price of baby food in 2017Nestlé Taiwan Ltd remains the leading player in 2017Baby food is projected to record a value CAGR of 1% at constant 2017 prices over the forecast period, and to be worth TWD16.5 billion in 2022

<ul><li>In 2017 butter and margarine declines by 4% in retail current value terms to JPY83.9 billion and also declines by 4% in retail volume terms to 56,600 tonnes</li><li>The supply of butter recovers in 2017, having a negative impact on sales of margarine and spreads</li><li>Butter sees the highest retail current value growth in butter and margarine in 2017, with an increase of 2% to reach JPY32.6 billion</li><li>Butter and margarine sees unit price growth of 1% in current terms in 2017, due to the rising price of butter</li><li>Megmilk Snow Brand maintains its lead in butter and margarine in Japan in 2017, accounting for a retail value share of 31%</li><li>Butter and margarine is expected to record a negative value CAGR of 2% at constant 2017 prices in the forecast period to fall to JPY75.2 billion in 2022</li></ul>

In 2017 butter and margarine declines by 4% in retail current value terms to JPY83.9 billion and also declines by 4% in retail volume terms to 56,600 tonnesThe supply of butter recovers in 2017, having a negative impact on sales of margarine and spreadsButter sees the highest retail current value growth in butter and margarine in 2017, with an increase of 2% to reach JPY32.6 billionButter and margarine sees unit price growth of 1% in current terms in 2017, due to the rising price of butterMegmilk Snow Brand maintains its lead in butter and margarine in Japan in 2017, accounting for a retail value share of 31%Butter and margarine is expected to record a negative value CAGR of 2% at constant 2017 prices in the forecast period to fall to JPY75.2 billion in 2022

Sector Capsule: Butter and Margarine in Japan

Japan

MEGMILK SNOW BRAND Co., Ltd.  was formed through the merger of Snow Brand Milk Products and Nippon Milk Community Co.  The Company will manage the operations of group companies involved in the manufacture and sales of milk and dairy products.

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Megmilk Snow Brand (2270 JP)

China Youran Dairy Group IPO: Valuation First-Look

Youran is pre-marketing an HKEx IPO to raise $800 million, according to press reports. In this note, we present our forecasts and take the first...

Arun George

Danone Sells The Last of Their Yakult - Buy the Cleanup

Today after the close it was announced that $Danone

Travis Lundy

Sector Briefing: Packaged Food in Japan (Key Trends and Development) - Part 2

Population decline encourages focus on value-added products and automation Players target products at increasing number of elderly...

Euromonitor International Ltd.

Sector Capsule: Baby Food in Taiwan

Retail sales of baby food grow by 5% to reach TWD15.5 billion in 2017 The low birth rate dampens demand for baby food in 2017 HA powder milk...

Euromonitor International Ltd.

Sector Capsule: Butter and Margarine in Japan

In 2017 butter and margarine declines by 4% in retail current value terms to JPY83.9 billion and also declines by 4% in retail volume terms to...

Euromonitor International Ltd.

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