Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

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.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.<div>
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. 
</div><div>
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. 
<h2>The NEW News</h2>
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>).
<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>
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.
</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

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

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the next five years. <a href="https://www.smartkarma.com/profiles/mio-kato" target="_blank" rel="noopener">Mio Kato</a> has suggested three potential candidates based on Carlyle’s previous investments in Japan - <a href="https://www.smartkarma.com/entities/a-d-company-ltd" target="_blank" rel="noopener">A&amp;D (7745 JP)</a>, <a href="https://www.smartkarma.com/entities/fujio-food-system-co-ltd" target="_blank" data-smartkarma-citation="entities:12242:1" rel="noopener">Fujio Food System (2752 JP)</a>, and <a href="https://www.smartkarma.com/entities/fuji-oil-holdings-inc" target="_blank" data-smartkarma-citation="entities:4035:1" rel="noopener">Fuji Oil (2607 JP)</a>. In this Insight, we review Fuji Oil, a food materials company, in which <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu (8001 JP)</a> has a 38.5% stake (an increase from 33.2% in March 2020).

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the next five years. Mio Kato has suggested three potential candidates based on Carlyle’s previous investments in Japan - A&amp;D (7745 JP), Fujio Food System (2752 JP), and Fuji Oil (2607 JP). In this Insight, we review Fuji Oil, a food materials company, in which Itochu (8001 JP) has a 38.5% stake (an increase from 33.2% in March 2020).

Fuji Oil In Itochu's Industry Consolidation Plans?

<ul>
<li>Japanese consumer goods company <a href="https://www.smartkarma.com/entities/meiji-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15996:1" rel="noopener">Meiji Holdings (2269 JP)</a> issued a <a href="https://www.release.tdnet.info/inbs/ek/140120200611442767.pdf" target="_blank" rel="noopener">press release</a> on Friday (12th June 2020) stating that the company is considering a stock split to boost liquidity and capital injection by investors.</li>
<li>The company previously conducted a two for one stock split on 1st October 2015. The share price rallied as much as 17.9% in the two days following Meiji’s announcement of its 2015 stock split.</li>
<li>We believe Meiji had genuine reasons for its previous stock split, whereas the explanation for the current considering stock split is not convincing. We explain our reasons below.</li>
</ul>


Japanese consumer goods company Meiji Holdings (2269 JP) issued a press release on Friday (12th June 2020) stating that the company is considering a stock split to boost liquidity and capital injection by investors.
The company previously conducted a two for one stock split on 1st October 2015. The share price rallied as much as 17.9% in the two days following Meiji’s announcement of its 2015 stock split.
We believe Meiji had genuine reasons for its previous stock split, whereas the explanation for the current considering stock split is not convincing. We explain our reasons below.


Meiji Holdings: Considering a Stock Split

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

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

In this insight, we shall discuss the impact of the worsening crisis in Hong Kong to <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> although it seemingly has no direct impact at first. As one of the oldest milk companies in China, the company has planned for foreign expansion that includes its previous listing in the US and to build plantation in Canada. 
Despite the majority of the outstanding shares are owned by Chinese, there is still a substantial sum of the outstanding shares belong to foreign shareholders including pre-IPO investors ( <a href="https://www.smartkarma.com/entities/morgan-stanley" target="_blank" data-smartkarma-citation="entities:1122:1" rel="noopener">Morgan Stanley (MS US)</a> ) which is a risk to the company's short term price outlook. China's slowing birth rate is a concern for the company as more than 90% of China Feihe's business comes from selling infant milk formula in the country. 
China Feihe is still trading at 2.61x premium PER and 22x premium PBR  to its supplier <a href="https://www.smartkarma.com/entities/yuanshengtai-dairy-farm-ltd" target="_blank" data-smartkarma-citation="entities:17091:1" rel="noopener">Yuanshengtai Dairy Farm (1431 HK)</a> while still trading at 26% premium PER and 132% premium PBR to its more diversified competitor <a href="https://www.smartkarma.com/entities/health-and-happiness-h-h-int" target="_blank" data-smartkarma-citation="entities:20582:1" rel="noopener">Health And Happiness (H&amp;H) (1112 HK)</a> . Stay short...
<div class="content-highlight">
For long term investors - Yuanshengtai offers the opportunity to gain exposure in China Feihe without having to pay its rich valuation. 
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/136/577/original/image_34589489521590677130216.png?1590677131" class="editor-image img-responsive" data-smartkarma-image-id="136577"></figure>
<div class="content-remarks">
source: Capital IQ
</div>
<h2>Related Insights</h2>
<a href="https://www.smartkarma.com/insights/short-feihe-6186-vs-hh-1112-just-starting" target="_blank" data-smartkarma-citation="insights:39329" rel="noopener">Short Feihe (6186) Vs HH (1112): Just Starting...</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-1112-q1-2020-and-swisse" target="_blank" data-smartkarma-citation="insights:39215" rel="noopener">Health &amp; Happiness (1112): Q1 2020 and Swisse</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-1112-no-soy-please-and-still-cheap" target="_blank" data-smartkarma-citation="insights:37001" rel="noopener">Health &amp; Happiness (1112): No Soy Please and Still Cheap</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-1112-wuhan-savior" target="_blank" data-smartkarma-citation="insights:36009" rel="noopener">Health &amp; Happiness (1112): Wuhan Savior</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-not-that-healthy-after-all-and-may-lead-to-unhappy-shareholders" target="_blank" data-smartkarma-citation="insights:11578" rel="noopener">Health &amp; Happiness: Not that Healthy After All and May Lead to Unhappy Shareholders?</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-1112-buy-unjustly-punished" target="_blank" data-smartkarma-citation="insights:32499" rel="noopener">Health &amp; Happiness (1112): Buy - Unjustly Punished!</a>

In this insight, we shall discuss the impact of the worsening crisis in Hong Kong to China Feihe (6186 HK) although it seemingly has no direct impact at first. As one of the oldest milk companies in China, the company has planned for foreign expansion that includes its previous listing in the US and to build plantation in Canada. 
Despite the majority of the outstanding shares are owned by Chinese, there is still a substantial sum of the outstanding shares belong to foreign shareholders including pre-IPO investors ( Morgan Stanley (MS US) ) which is a risk to the company's short term price outlook. China's slowing birth rate is a concern for the company as more than 90% of China Feihe's business comes from selling infant milk formula in the country. 
China Feihe is still trading at 2.61x premium PER and 22x premium PBR  to its supplier Yuanshengtai Dairy Farm (1431 HK) while still trading at 26% premium PER and 132% premium PBR to its more diversified competitor Health And Happiness (H&amp;H) (1112 HK) . Stay short...

For long term investors - Yuanshengtai offers the opportunity to gain exposure in China Feihe without having to pay its rich valuation. 



source: Capital IQ

Related Insights
Short Feihe (6186) Vs HH (1112): Just Starting... 
Health &amp; Happiness (1112): Q1 2020 and Swisse 
Health &amp; Happiness (1112): No Soy Please and Still Cheap 
Health &amp; Happiness (1112): Wuhan Savior 
Health &amp; Happiness: Not that Healthy After All and May Lead to Unhappy Shareholders? 
Health &amp; Happiness (1112): Buy - Unjustly Punished! 

Investors were unnecessarily negative on <a href="https://www.smartkarma.com/entities/health-and-happiness-h-h-int" target="_blank" data-smartkarma-citation="entities:20582:1" rel="noopener">Health And Happiness (H&amp;H) (1112 HK)</a> since the last quarter of the previous year as HH's net margin has recovered to FY 2017 level and even more so when COVID-19 hit China, afraid that the company's revenue will suffer despite it has adult nutrition business (health supplement) that helps to boost the immune system that is most sought after especially in the COVID-19 stricken period. 
It is trading at the level pre-name change (Biostime to Health &amp; Happiness), when the only source of revenue was from Infant Milk Formula and since then, the company earnings multiple went as high as 60x thanks to the high expectation of the wider business coverage. the company's share price should receive a re-rating due to the positive performance in Q1 2020 and early pivot from offline to online, expect around 45% from the current level. 
While the instant milk formula segment carries on growing, investors should pay attention to the more Swisse products that will come to China, creating an upside for the company. Start to collect some Health and Happiness in your portfolio. 
Related Insights
<a href="https://www.smartkarma.com/insights/health-happiness-1112-no-soy-please-and-still-cheap" target="_blank" data-smartkarma-citation="insights:37001" rel="noopener">Health &amp; Happiness (1112): No Soy Please and Still Cheap</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-1112-wuhan-savior" target="_blank" data-smartkarma-citation="insights:36009" rel="noopener">Health &amp; Happiness (1112): Wuhan Savior</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-1112-buy-unjustly-punished" target="_blank" data-smartkarma-citation="insights:32499" rel="noopener">Health &amp; Happiness (1112): Buy - Unjustly Punished!</a> 
<a href="https://www.smartkarma.com/insights/health-happiness-the-supplement-to-your-portfolio" target="_blank" data-smartkarma-citation="insights:20734" rel="noopener">Health &amp; Happiness: The Supplement to Your Portfolio</a> 
<div class="content-highlight">
Thanks in advance for reading this insight!  Please give this a thumbs up if you find this useful and follow me on Smartkarma for more original and actionable insights, it's free, anonymous, and helpful. Your continuing support renders a continuity of more original and actionable insights.  
</div>

Investors were unnecessarily negative on Health And Happiness (H&amp;H) (1112 HK) since the last quarter of the previous year as HH's net margin has recovered to FY 2017 level and even more so when COVID-19 hit China, afraid that the company's revenue will suffer despite it has adult nutrition business (health supplement) that helps to boost the immune system that is most sought after especially in the COVID-19 stricken period. 
It is trading at the level pre-name change (Biostime to Health &amp; Happiness), when the only source of revenue was from Infant Milk Formula and since then, the company earnings multiple went as high as 60x thanks to the high expectation of the wider business coverage. the company's share price should receive a re-rating due to the positive performance in Q1 2020 and early pivot from offline to online, expect around 45% from the current level. 
While the instant milk formula segment carries on growing, investors should pay attention to the more Swisse products that will come to China, creating an upside for the company. Start to collect some Health and Happiness in your portfolio. 
Related Insights
Health &amp; Happiness (1112): No Soy Please and Still Cheap 
Health &amp; Happiness (1112): Wuhan Savior 
Health &amp; Happiness (1112): Buy - Unjustly Punished! 
Health &amp; Happiness: The Supplement to Your Portfolio 

Thanks in advance for reading this insight!  Please give this a thumbs up if you find this useful and follow me on Smartkarma for more original and actionable insights, it's free, anonymous, and helpful. Your continuing support renders a continuity of more original and actionable insights.  


Health & Happiness (1112): Q1 2020 and Swisse

Japan

MEIJI Holdings Co., Ltd. is the holding company established by reorganization of Meiji Seika Pharma & Meiji Corp.  The company manages subsidiaries engaging in production & sales of confectionary, milk, dairy products, and pharmaceuticals.

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Meiji Holdings (2269 JP)

Danone Sells The Last of Their Yakult - Buy the Cleanup

Today after the close it was announced that $Danone

Travis Lundy

Fuji Oil In Itochu's Industry Consolidation Plans?

Last week, the Nihon Keizai Shimbun reported that the US private equity firm Carlyle Group intends to invest over ¥1.0 trillion in Japan over the...

Oshadhi Kumarasiri

Meiji Holdings: Considering a Stock Split

Japanese consumer goods company Meiji Holdings (2269 JP) issued a press release on Friday (12th June 2020) stating that the company is considering...

Oshadhi Kumarasiri

China Feihe (6186): Flying No More?

In this insight, we shall discuss the impact of the worsening crisis in Hong Kong to China Feihe (6186 HK) although it seemingly has no direct...

Henry Soediarko

Health & Happiness (1112): Q1 2020 and Swisse

Investors were unnecessarily negative on Health And Happiness (H&H) (1112 HK) since the last quarter of the previous year as HH's net margin...

Henry Soediarko

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