Alpha-Centric ESG Research

Kyle Rudden

<p>"Social" has been a third-wheel ESG pillar for a long time. Not that it matters any less, and there is plenty of evidence that strong Social-pillar ESG performance can do a lot of  good for a stock price. Rather, it's that the Social pillar stuff is more ethereal, harder to wrap one's head around. And, let's face it, the Social ESG pillar is a little more rosewater than crude oil.</p><p>It is amazing how a global pandemic changes things. Whether it is ESG's social or Corporate Social Responsibility's (CSR) "social," socially-responsibility – as well as social irresponsibility or inaction – by corporations are front-and-center. In prior reports I assessed corporate coronavirus responses from an ESG perspective. In doing so, I something became increasingly (and painfully) obvious:</p><p>Company responses are <em>very</em> diverse (as they should be), making comparative analysis difficult.</p><p>For society, comparisons aren't necessarily relevant. A patient receiving better medical care due to a generous contribution from Company A probably doesn't care that Company B – same sector but the other side of the world – gave a larger contribution to its local hospital. For investors, however, comparisons kind of matter. After all, what's the value of a stand-alone P/E multiple?</p><p>Rather than go insane trying to standardise and normalise everything – e.g., the economic value of donated masks or cost of retrofitting manufacturing lines to produce ventilators – I decided to look at coronavirus-related corporate philanthropy as a comparative metric. It is universal, quantifiable, and decidedly much easier to measure and value than, say, vats of hand sanitiser.</p><p>This takes a data-driven look at coronavirus-related corporate social responsibility and specifically  philanthropy by listed companies in Asia Pacific countries. APAC first because Asian companies are doing a lot of giving, and nearly all of that inspirational cross-border humanitarian aid – including to the U.S., despite a certain orange-haired xenophobe in a white house.</p>

"Social" has been a third-wheel ESG pillar for a long time. Not that it matters any less, and there is plenty of evidence that strong Social-pillar ESG performance can do a lot of  good for a stock price. Rather, it's that the Social pillar stuff is more ethereal, harder to wrap one's head around. And, let's face it, the Social ESG pillar is a little more rosewater than crude oil.It is amazing how a global pandemic changes things. Whether it is ESG's social or Corporate Social Responsibility's (CSR) "social," socially-responsibility – as well as social irresponsibility or inaction – by corporations are front-and-center. In prior reports I assessed corporate coronavirus responses from an ESG perspective. In doing so, I something became increasingly (and painfully) obvious:Company responses are very diverse (as they should be), making comparative analysis difficult.For society, comparisons aren't necessarily relevant. A patient receiving better medical care due to a generous contribution from Company A probably doesn't care that Company B – same sector but the other side of the world – gave a larger contribution to its local hospital. For investors, however, comparisons kind of matter. After all, what's the value of a stand-alone P/E multiple?Rather than go insane trying to standardise and normalise everything – e.g., the economic value of donated masks or cost of retrofitting manufacturing lines to produce ventilators – I decided to look at coronavirus-related corporate philanthropy as a comparative metric. It is universal, quantifiable, and decidedly much easier to measure and value than, say, vats of hand sanitiser.This takes a data-driven look at coronavirus-related corporate social responsibility and specifically  philanthropy by listed companies in Asia Pacific countries. APAC first because Asian companies are doing a lot of giving, and nearly all of that inspirational cross-border humanitarian aid – including to the U.S., despite a certain orange-haired xenophobe in a white house.

COVID-19 and ESG: Tencent, Alibaba Lead in Coronavirus Aid for Asia Pacific Region

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

<p>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. </p>
<p>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. </p>
<p>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> . <strong>Stay short...</strong></p>
<div class="content-highlight">
<p><strong>For long term investors - Yuanshengtai offers the opportunity to gain exposure in China Feihe without having to pay its rich valuation. </strong></p>
</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">
<p>source: Capital IQ</p>
</div>
<h2>Related Insights</h2>
<p><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> </p>
<p><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> </p>
<p><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> </p>
<p><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> </p>
<p><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> </p>
<p><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> </p>

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! 

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/134/986/original/2020-05-22_06-35-57.png?1590096982" class="editor-image img-responsive" data-smartkarma-image-id="134986"></figure><div class="content-caption">Source • Japan Analytics</div><p>In the <strong>DETAIL</strong> below, we shall review yesterday's announcements:-</p><div><ul>
<li>The balance between positive/neutral/negative of the 54 results announcements was 18:7:29. The average change in Results Score was -2.1.</li>
<li>For the 24 revisions/initial forecasts, the split was 10:1:13, and the average Forecast/Revision Score was -3.3. Only one-third of companies reporting full-year results chose to make current year forecasts. </li>
<li>104 companies will announce results today, including <a href="https://www.smartkarma.com/entities/fujifilm-holdings-corp" target="_blank" data-smartkarma-citation="entities:16353:1" rel="noopener">FUJIFILM (4901 JP)</a>, <a href="https://www.smartkarma.com/entities/meiji-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15996:1" rel="noopener">Meiji (2269 JP)</a>, and <a href="https://www.smartkarma.com/entities/tokyu-corp" target="_blank" data-smartkarma-citation="entities:3357:1" rel="noopener">Tokyu (9005 JP)</a>.  </li>
</ul></div>

Source • Japan AnalyticsIn the DETAIL below, we shall review yesterday's announcements:-
The balance between positive/neutral/negative of the 54 results announcements was 18:7:29. The average change in Results Score was -2.1.
For the 24 revisions/initial forecasts, the split was 10:1:13, and the average Forecast/Revision Score was -3.3. Only one-third of companies reporting full-year results chose to make current year forecasts. 
104 companies will announce results today, including FUJIFILM (4901 JP), Meiji (2269 JP), and Tokyu (9005 JP).  


🇯🇵 JAPAN • Results & Revisions 21st May - Skylark, Resorttrust, Makita

Health And Happiness (H&H) / Equity Bottom-Up

<p>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. </p>
<p>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 <strong>60x </strong>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 <strong>45%</strong> from the current level. </p>
<p>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. <em>Start to collect some Health and Happiness in your portfolio. </em></p>
<p><strong>Related Insights</strong></p>
<p><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> </p>
<p><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> </p>
<p><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> </p>
<p><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> </p>
<div class="content-highlight">
<p><em>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.  </em></p>
</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

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/019/original/2020-04-22_06-23-27.png?1587504229" class="editor-image img-responsive" data-smartkarma-image-id="129019"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/021/original/2020-04-22_06-24-35.png?1587504305" class="editor-image img-responsive" data-smartkarma-image-id="129021"></figure><div class="content-caption">Source • Financial Times</div><p><strong>CATCHING UP</strong> - Japan has now surpassed South Korea in terms of both the number of confirmed cases of COVID-19 (11,431) and the cumulative number of deaths (275). Although the daily number of new cases has peaked, the number of daily death will increase for the rest of this month which will likely require an extension of the nationwide 'state of emergency' beyond the end of the Golden Week holidays on March 6th. Such a prolongation is not yet discounted in the equity market. A recent YouGov survey suggests that only 18% of Japan people have stopped going to work, the lowest level amongst the 26 countries covered.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/022/original/2020-04-22_06-48-21.png?1587505730" class="editor-image img-responsive" data-smartkarma-image-id="129022"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>DAIRY DEFICIENCY</strong> - With schools and many restaurants and hotels closed, the consumption of dairy products in Japan has declined to the point that the food ministry (MAFF) is requesting those at home to drink milk to save farms and livestock. Please see our recent bearish <a href="https://www.smartkarma.com/insights/quantamental-analysis-shows-meiji-s-perception-as-a-defensive-stock-could-be-a-delusion" target="_blank" data-smartkarma-citation="insights:38288" rel="noopener">Insight</a> on <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>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/024/original/2020-04-22_06-53-01.png?1587506077" class="editor-image img-responsive" data-smartkarma-image-id="129024"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>TAXI FARE</strong> - The are now hordes of empty taxis roaming the streets plying for non-existent fares.  The transport ministry (MLITT) has decided to loosen its taxi regulations to allow taxis to engage in food delivery. While a negative for <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>'s Uber Eats in Japan, this news seems to have prompted a 'pop' in the shares of Japan's only listed, and normally uninvestable, taxi company - <a href="https://www.smartkarma.com/entities/daiwa-motor-transportation" target="_blank" data-smartkarma-citation="entities:11886:1" rel="noopener">Daiwa Motor Transportation (9082 JP)</a>. </p><p>In the<strong> DETAIL </strong>below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the seven results was 2:2:3; and for the 13 revisions/forecasts, the split was 3:1:9. Of the six companies reporting annual results, only one made a forecast for the current year. Three companies withdrew annual forecasts, of which one also cancelled its dividend, while one REIT, <a href="https://www.smartkarma.com/entities/mirai-corp" target="_blank" data-smartkarma-citation="entities:27741:1" rel="noopener">Mirai (3476 JP)</a>, cut its dividend. </p>

Source • Financial TimesCATCHING UP - Japan has now surpassed South Korea in terms of both the number of confirmed cases of COVID-19 (11,431) and the cumulative number of deaths (275). Although the daily number of new cases has peaked, the number of daily death will increase for the rest of this month which will likely require an extension of the nationwide 'state of emergency' beyond the end of the Golden Week holidays on March 6th. Such a prolongation is not yet discounted in the equity market. A recent YouGov survey suggests that only 18% of Japan people have stopped going to work, the lowest level amongst the 26 countries covered.Source • Japan AnalyticsDAIRY DEFICIENCY - With schools and many restaurants and hotels closed, the consumption of dairy products in Japan has declined to the point that the food ministry (MAFF) is requesting those at home to drink milk to save farms and livestock. Please see our recent bearish Insight on Meiji Holdings (2269 JP).Source • Japan AnalyticsTAXI FARE - The are now hordes of empty taxis roaming the streets plying for non-existent fares.  The transport ministry (MLITT) has decided to loosen its taxi regulations to allow taxis to engage in food delivery. While a negative for Softbank Group (9984 JP)'s Uber Eats in Japan, this news seems to have prompted a 'pop' in the shares of Japan's only listed, and normally uninvestable, taxi company - Daiwa Motor Transportation (9082 JP). In the DETAIL below, we shall review the results, revisions and initial forecast announcements made yesterday.  The positive/neutral/negative balance for the seven results was 2:2:3; and for the 13 revisions/forecasts, the split was 3:1:9. Of the six companies reporting annual results, only one made a forecast for the current year. Three companies withdrew annual forecasts, of which one also cancelled its dividend, while one REIT, Mirai (3476 JP), cut its dividend. 

🇯🇵 JAPAN • Revisions & Results 21st April - Catching Up : Revising Down

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)

COVID-19 and ESG: Tencent, Alibaba Lead in Coronavirus Aid for Asia Pacific Region

"Social" has been a third-wheel ESG pillar for a long time. Not that it matters any less, and there is plenty of evidence that strong Social-pillar...

Kyle Rudden

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

🇯🇵 JAPAN • Results & Revisions 21st May - Skylark, Resorttrust, Makita

In the DETAIL below, we shall review yesterday's announcements:- The balance between positive/neutral/negative of the 54 results announcements was...

Campbell Gunn

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

🇯🇵 JAPAN • Revisions & Results 21st April - Catching Up : Revising Down

CATCHING UP - Japan has now surpassed South Korea in terms of both the number of confirmed cases of COVID-19 (11,431) and the cumulative number of...

Campbell Gunn

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