In this briefing:
- Page Industries (PAG IN)
- Yum China (YUMC): Still Yummy?
- L Brands: Sale of Victoria’s Secret Helps Draw Attention to Bath & Body’s Success
- Midea Consumer Appliances: Overseas Expansion Eases Real Estate Driven Weak Domestic Market
- Mobile World Investment (MWG VN) – From Mobile Phones to Groceries
We argue that the rich valuations enjoyed by Page Industries (PAG IN) are not recession-proof as once assumed by many. Even products like Innerwear are subject to headwinds when the broader economic environment and consumer sentiment turns down.
Volume recovery remains the key for PAG IN. The investments made by PAG IN in technology and sales may not yield the desired results as the operating environment has changed compared to the previous slow down. Trading at ~52x FY2021 consensus EPS estimates the room for further disappointments from PAG IN remains.
On the last quarterly earnings, Yum China Holdings, Inc (YUMC US) management stated that they have successfully fended off the inflated chicken raw material price as they have around 300 chicken suppliers in China and by launching innovative products that use a less premium part of a chicken.
The Novel Coronavirus outbreak has caused significant disruption to the business, confirmed by the management that more than 30% of the total number of restaurants were closed and the outlets that remained open are significantly impacted by travel restriction, suspended festivities and shortened operating hours as people do not go out as much.
Despite the Coronavirus crisis, the company’s share price has not been that depressed compared to the others such as Xiabuxiabu Catering Mgt Chn Hldgs (520 HK) . Therefore it is the right time to short-sell/reduce holdings in Yum China with potential earnings drop of between 39 to 49%.
It was reported by several news media outlets that the private equity firm Sycamore Partners Management LP has been in talks with L Brands Inc (LB US) regarding the purchase of the latter’s iconic lingerie brand Victoria’s Secret (VS). Media reports suggest that it is almost a done deal and an announcement can be expected as early as tomorrow, 18th February 2020. In addition to acquiring VS, Sycamore Partners Management LP is also weighing a private investment in public equity deal (PIPE) to help L Brands reduce its debt burden.
This is the SECOND of a series of reports on Midea Corp. in which we will be focusing on the company’s Consumer Appliances segment. Midea generates around 43% of its revenue from consumer appliances and the company is either the market leader or the second in China for a majority of consumer appliance product categories. Due to the slowdown in China’s real estate market, which in turn reduces the demand for consumer appliances, we expect a slow-down in growth for Midea’s consumer appliance segment over the next couple of years compared to its historical growth rates. That being said, we expect growth in overseas demand due to increasing disposable income, busier lifestyles and improved living conditions along with product upgrades. Midea has been expanding its presence into countries which have lower household appliance ownership, thus presents the company with high potential to grow its topline. In addition, the company’s acquisition of Toshiba and other brands have enabled the company to price these products higher compared to its own Midea branded appliances. The consumer appliances revenue has partially grown on the back of increase in average selling prices driven by acquisition of premium consumer appliance brands over the years. We believe, the expansion into countries with lower household appliance penetration alongside premium-priced products will help the company grow its Consumer Appliance’s earnings.
On the other hand, our quantamental analysis on the company’s home appliance business (includes both HVAC and consumer appliances) indicates that the company has further potential to improve its margins.
On the tail of last years Smartkarma Originals series on ASEAN retail, we continue to search out compelling retail stories in the region. Mobile World Investment (MWG VN) is one of Vietnam’s most dynamic and interesting transformation stories in the consumer space, with exposure from mobile phones, to laptops, air conditioners, and modern trade groceries. The recent correction in the share price, despite positive results, presents an interesting entry point.
It started life as a mobile phone retailer through its “thegioididong” (TGDD) brand and subsequently built its “Dien May Xanh” (DMX) consumer electronics retail chain but as penetration in those areas has reached higher levels, the company has been moving into the underpenetrated grocery space through its “Bach Hoa Xanh” (BHX) brand grocery store.
The company added more than two new stores per day in 2019 across all formats, ending the year with more than 3,000 stores, with both electronics retailer DMX and grocery retailer BHX surpassing 1,000 stores each. Despite its rapid expansion the company managed to improve margins last year.
The company will continue to expand rapidly over the next two years by opening new stores in other Provinces in South and Central Vietnam.
The company successfully upgraded 500 of its Mini-DMX stores, where the number of products on display is doubled or even tripled. This transformation has seen sales increase by as much as 30% of the new format stores.
Mobile World Investment (MWG VN) looks attractive from a valuation standpoint trading on 9.8x FY20E PER and 7.8x FY21E PER, with forecast EPS growth of +25% and +26% for FY20E and FY21E respectively. This is at a significant discount to peers, despite higher forecast growth rates.