Category

Consumer

Consumer: Tam Jai International, Geely Auto and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Tam Jai International IPO – Favourable Risk to Reward at Low End
  • Geely: Short-Term Pain, Zeekr Still the Key to Long-Term Peformance

Tam Jai International IPO – Favourable Risk to Reward at Low End

By Clarence Chu

Tam Jai International (2271 HK) is looking to raise up to US$179m in its Hong Kong IPO.

Tam Jai International is a restaurant chain operator of the TamJai and SamGor branded fast casual restaurant chain in Hong Kong with operations also in Mainland China and Singapore.  As of the latest practicable date (13th September 2021), the firm operated a total of 156 restaurants, comprising 79 TamJai restaurants and 77 SamGor restaurants, of which 150 were located in Hong Kong, three in Mainland China and the remaining three in Singapore. As per Euromonitor, the firm ranks No. 1 among Asian noodle specialty restaurants in Hong Kong. 

Overall, the firm’s earnings have been resilient despite facing setbacks in its track period (i.e. COVID-19 and the Hong Kong riots). Margins have expectedly fallen as rent expenses outpaced revenue, but the firm plans to expand overseas which if successful, would warrant a valuation closer to its higher valued China-based peers.


Geely: Short-Term Pain, Zeekr Still the Key to Long-Term Peformance

By Victoria Li

Share performance has been weak recently after Geely posted weak August sales data, especially the drop on Lynk&Co sales which was hurt by auto chips shortage. This is leading to downwards reversion of market consensus  estimates. Market questions on Zeekr 001 also made this model’s sales outlook blurry.

As we discussed in previous note, auto chips shortage issue may last for another 6 months. That means monthly sales data of Geely (including Lynk&Co) would remain weak and limit share performance upside.

Moreover local news reports  says Geely Group is starting smart phone business, which is a long term negative, in our view. This is because new business, no matter how profitable it might be, would divert the group company’s resources and management strategy focus away more or less from its core business-vehicle manufacturing. 

Questions about Zeekr 001 since released apparently generated negative impression on this model among potential customers, although management’s explanations indicated most of them were based on misunderstanding. Only strong sales data in the next few months could regain investors’ confidence. The good news is, factory production plan released online indicates Zeekr 001 monthly delivery might reach 6,000 in Dec 2021, which would help Geely (175.HK) regain positive momentum if it comes true.

Market concern on weak corporate sales data in the near term should have been priced in given the share price weakness of late. On the other hand, Zeekr 001 sales data might bring positive surprise. We suggest BUY on weakness.


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Consumer: Tam Jai International, Entain, Momo.Com Inc, Kakao Pay, Kusuri No Aoki and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Tam Jai International IPO Valuation: Cheaper Than Noodles
  • DraftKings/Entain: Cash and Shares Approach
  • Momo.com Placement – Selldown by Woori, Could Be Worth a Small Bet
  • Kakao Pay IPO Revised Prospectus Out: Key Revisions & Talking Points
  • Japan’s Governance: Unclear Mid-Term Management Plan Update: Kusuri No Aoki Holdings (3549)

Tam Jai International IPO Valuation: Cheaper Than Noodles

By Oshadhi Kumarasiri

  • Hong Kong based rice noodles restaurant chain, Tam Jai International (TJI HK) announced the price range to its IPO at HK$ 3.33-4.17 per share, which implies a market cap and EV range of HK$ 4.5-5.6bn and HK$ 3.1-3.9bn respectively.
  • Tam Jai International will raise HK$ 1.1-1.4bn (US$ 145-182m) via issuing 335m new shares. The parent company, Toridoll has also granted underwriters the right to sell up to an additional 50.2m shares as a part of an overallotment option.
  • The application period ends on Tuesday (28th September 2021) and the shares are expected to start trading on the Hong Kong Stock Exchange from 7th October 2021.

DraftKings/Entain: Cash and Shares Approach

By Jesus Rodriguez Aguilar

Entain (ENT LN) confirmed that it had received a proposal from DraftKings Inc (DKNG US). On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and and the balance payable in new DraftKings Class A common shares).

The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus).

PUSU deadline is 19 October.

There is some interloper risk. In case DraftKings presents a firm offer, MGM could potentially bid again for Entain. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.

Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.

BetMGM (Entain’s joint venture in the US with MGM Resorts) continues to perform strongly. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.

Valuation of Entain. By using the median of comparables 11.9x EV/Fwd EBITDA, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to £3,933 mn, or 672p per share).

Adding the base case plus BetMGM, my longer term TP is 2,300p. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be LONG.


Momo.com Placement – Selldown by Woori, Could Be Worth a Small Bet

By Zhen Zhou, Toh

Woori Home Shopping is looking to sell about 3.8m shares of Momo.Com Inc (8454 TT) . Woori Home Shopping will still hold about 7.9% stake in the company post share-sale.

In this note, we share our thoughts on the selldown and run the deal through ECM framework.


Kakao Pay IPO Revised Prospectus Out: Key Revisions & Talking Points

By Sanghyun Park

Key revisions

Kakao Pay submitted a revised registration statement (prospectus) on Friday afternoon. It plans to start bookbuilding on October 20-21 and subscription on the 25th. It then plans to go public in early November (tentatively November 3rd). However, Kakao Pay did not change the offering price.

The grace period for the registration statement to take effect is 15 business days. During this period, the Financial Supervisory Service (FSS) will undergo a final review. An issuer cannot do marketing during the grace period. After 15 business days from today (September 24th), it becomes October 20th. So, the start date of bookbuilding was decided on October 20th.

Contrary to expectations, Kakao Pay maintained its offering price at 60,000-90,000 won as before. The market capitalization based on the top of the indicative price band is 11.73 trillion won. The institutional allocation rate remains the same at 55-75%.

Kakao Pay added government regulatory risk to this revised report. It stated that it had suspended those services that violated the Financial Consumer Protection Act (the services concluded as financial product brokerage, not advertising).

However, Kakao Pay explained that the portion of sales of the discontinued services was only 1.2% of the total sales. Therefore, Kakao Pay said it did not feel the need to change its IPO valuation (the offering price).


Japan’s Governance: Unclear Mid-Term Management Plan Update: Kusuri No Aoki Holdings (3549)

By Aki Matsumoto

In my previous article “Japan’s Governance: Unclear Medium-Term Management Plan – Kusuri No Aoki (3549)”, I wrote a review of the company after attending its 4Q results analyst meeting. In this article, I wrote that the possibility of equity financing in the near future was undeniable in order to achieve the same number of new store openings as in the previous fiscal year in response to the decrease in operating cash flow due to the deterioration of working capital, and that it would be difficult to find differentiation in product strategy in the drugstore industry where competition is becoming increasingly fierce and companies are focusing on food products. In the drugstore industry, where competition is becoming increasingly fierce and companies are focusing on food products, it is unclear whether a half-baked pricing strategy will work. This is an update along with a summary of the previous articles.


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Consumer: Kobe Bussan, LG Household & Health Care, Foot Locker Inc, Simone Accessories Collection, The Walt Disney Co, Koshidaka Holdings, Garrett Motion and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Kobe Bussan: Achieving New Records
  • LG H&H (051900) – Systematic or Unsystematic Risks Being Priced In?
  • Foot Locker Buys Atmos
  • Simone Accessories Collection IPO Valuation Analysis
  • Disney: Retaining Storytelling Crown Does Not Mean High Shareholder Returns
  • Koshidaka Holdings (2157): Competitive Advantage in the Post-COVID Period
  • GTX: Gearing for Ramp in 2022

Kobe Bussan: Achieving New Records

By Michael Causton

There are few discount supermarkets in Japan and the largest by far is Kobe Bussan’s Gyomu Super franchise chain.

Despite its no frills presentation and reliance on frozen foods, over the past 12 months, prices that are up to half that charged at mainstream chains have drawn in more customers and across a wider age range.

The company is now expecting yet another record performance this year.

When we first recommend Kobe Bussan in October 2018, the share price stood at around ¥780 and has risen to ¥4,080 since. This isn’t cheap but given the five year growth potential, we remain bullish about the fundamentals long-term.


LG H&H (051900) – Systematic or Unsystematic Risks Being Priced In?

By Ken S. Kim

LG Household & Health Care (051900 KS) is down 22% from peak and has really taken a tumultuous fall to a point where it begs the question “Does the fall in share price justify its outlook or is LG being sold for the wrong reasons?” 


Foot Locker Buys Atmos

By Michael Causton

Foot Locker Inc (FL US) sees a major opportunity to expand in Asia but wants local expertise. It has acquired Text Trading, which runs Atmos, the small premium Japanese sneaker chain, as much for its founder as for the chain itself.


Simone Accessories Collection IPO Valuation Analysis

By Douglas Kim

Our base case valuation of Simone Acc Collections is an implied market cap of 1.0 trillion won or 31,104 won per share. This represents a 21% discount to the low end of the valuation range (39,200 won per share). Given the downside risk, we have a NEGATIVE view of this IPO and we would not subscribe to this deal. 

To value the company, we used a based case P/E multiple of 13.8x, which was at a 30% discount valuation multiple of its peers in 2022. We used a lower valuation multiple versus the peers mainly due to the company’s lower sales growth rate as well as lower operating margins relative to the comps.

We forecast the company to generate sales of 674.7 billion won (up 8.5% YoY) and an operating profit of 82.3 billion won (up 76.4% YoY) in 2021. The company’s revenue and operating profit have been sporadic in the past five years. The company generated revenue of 621.8 billion won (down 38.9% YoY) and operating profit of 46.7 billion won (down 65.5% YoY) in 2020.

Simone Acc. Collection is one of the most well known luxury handbag makers in Korea. Established in 1987, Simone is one of the first ODM players in Asia to have tapped into the luxury handbag manufacturing market. The company manufactures and sells luxury handbags and small leather goods (SLG)  mainly on ODM/OEM basis. 


Disney: Retaining Storytelling Crown Does Not Mean High Shareholder Returns

By Vladimir Dimitrov, CFA

  • Although it was largely due to the pandemic, Disney significantly underperformed the market since I first advised for caution.
  • The risk of Disney being a far less profitable entity is significant, even if the company retains its leading position in streaming.
  • Disney valuation remains at peak levels while competition continues to intensify.

Koshidaka Holdings (2157): Competitive Advantage in the Post-COVID Period

By Mita Securities

Company profile

Koshidaka HD is a major karaoke room operator that operates “Karaoke Manekineko” stores nationwide. The total number of stores as of the end of February 2021 was 546. In March 2020, it spun off the Curves business and is concentrating its management resources on the karaoke business.


GTX: Gearing for Ramp in 2022

By Hamed Khorsand

• Demand for light-weight vehicles remains elevated, but the lack of components is preventing automakers from ramping production. When Garrett Motion (GTX) reported second quarter results, management asserted there was little clarity into the quarter until September. Unfortunately, the environment has not improved with automakers continuing to limit their production levels.

• The second quarter did not have the typical seasonal lift due to automakers pausing orders to catchup with semiconductor shortages. The third quarter seems to have many of the same attributes of the second quarter. 

• GTX issued full year revenue guidance of $3.7 billion to $3.9 billion with our estimate being closer to the middle of the range at $3.84 billion. However, we are now adjusting our 2021 revenue down to $3.76 billion. We are leaving our 2022 estimates unchanged as demand remains healthy and inventory is light. 

• The growth story that attracted us to GTX has been delayed until 2022.


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Consumer: Tam Jai International, Tatung Co Ltd, Gudang Garam, HM Sampoerna and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Tam Jai International IPO Satisfies Investor Cravings
  • Tatung (2371 TT) – Future Ahead After Messy Board Tussle
  • Gudang Garam (GGRM IJ) – ASP hikes ahead of 2022F excise tax hike
  • HM Sampoerna (HMSP IJ) – Pushing on SKT products

Tam Jai International IPO Satisfies Investor Cravings

By Oshadhi Kumarasiri

  • Tam Jai International (TJI HK) is a popular fast casual restaurant chain in Hong Kong that offers a type of rice noodle called “Mixian” under two restaurant brands; TamJai Yunnan Mixian (譚仔雲南米線) and TamJai SamGor Mixian (譚仔三哥米線).
  • Tam Jai is an excellent business with market leadership in Hong Kong’s specialty noodles restaurants segment. It offered earnings stability during the COVID-19 lockdowns, and has an earnings growth potential of around 99% EBIT CAGR through FY21-24. Though all the restaurants are company-owned, the business model requires low initial capital, resulting in a fast payback period and above industry average investment returns. Moreover, the company expects to pay out a minimum of 30% of earnings as annual dividends.
  • We think that these factors should help tick the investment criteria of a wide range of investors. As long as it is not priced unreasonably, we think Tam Jai’s proposed US$100m IPO on the Hong Kong Stock Exchange could get lots of institutional and retail investors interested.

Tatung (2371 TT) – Future Ahead After Messy Board Tussle

By Jason Yap, CFA

Tatung Co Ltd (2371 TT) is a multinational electronics conglomerate established in 1918 and headquartered in Taipei, Taiwan.  Its principal business is the design and manufacturing of digital consumer and industrial products, with its 3 largest business segments (>90% revenue) comprising consumer products,  electromechanical energy systems, and property development. 

Its share price has risen by around 30% since its announcement of Q2 2021 earnings on 16 August 2021 which is primarily attributed to its first EBITDA level profit in 3 years and renewed confidence in its new board of directors, controlled by a certain shareholder faction, who were appointed in October 2020 after a messy board tussle.

In this article, we carry out a deep-dive analysis into Tatung and determine whether the market has now fully discounted the latest developments. In addition, we discuss Tatung’s future prospects, upcoming catalysts, and residual risks. 

Famous for its eponymous rice cookers, Tatung probably sits squarely in a state of Sheng Mi Wei Zhu Cheng Fan(生米煮成熟饭 )or the raw rice has yet to come to a boil. 


Gudang Garam (GGRM IJ) – ASP hikes ahead of 2022F excise tax hike

By Mirae Asset Securities

ASP hikes ahead of 2022F excise tax hike

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HM Sampoerna (HMSP IJ) – Pushing on SKT products

By Mirae Asset Securities

Pushing on SKT products

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Consumer: Monde Nissin Corp, Ultrajaya Milk Industry & Trading and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Monde Nissin (MONDE PM): The Indexers Come Marching In
  • Deep-Dive: Ultrajaya Milk (ULTJ IJ)

Monde Nissin (MONDE PM): The Indexers Come Marching In

By Brian Freitas

Monde Nissin Corp (MONDE PM) is a Philippines based food and beverages company. The company listed on the Philippine Stock Exchange (PSE PM) on 1 June by selling 3.6bn shares to retail and institutional investors at ₱13.50/share. A large part of the institutional allocation went to 11 cornerstone investors. Subsequently, the over-allotment option for 540m shares was also partly exercised.

The stock is now trading 44% higher from its IPO price and the increase in market cap should result in the stock being included in the MSCI Standard Index in November, the FTSE All-World Index in December and the Philippines Stock Exchange PSEi Index (PCOMP INDEX) in February 2022.

There is a lock-up expiry coming a couple of days prior to the potential MSCI inclusion and there could be some weakness in the stock ahead of the expiry, even though most of the locked up shares are held by the founders and family and are unlikely to be sold soon after the lock-up expiry.


Deep-Dive: Ultrajaya Milk (ULTJ IJ)

By Michael Fritzell

Deep-dive: Ultrajaya Milk

Ultrajaya Milk (ULTJ IJ) is the leading dairy company in Indonesia. Its most popular product “Ultra Milk” has a market share of roughly 40% and dominates the mass market.

The company focuses on “UHT milk”. Such milk has been treated with ultra-high temperatures and stored in aseptic packaging, giving it a shelf life of 6-9 months at normal room temperatures. This makes UHT milk highly convenient. Especially in Indonesia given that the climate is tropical and the cold chain infrastructure is undeveloped.


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Consumer: Xpeng, Simone Accessories Collection, BYD and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Xpeng: P5 Is Too Expensive?
  • Simone Pre-IPO – A Leader in the Industry but Recovery Will Be Slow and Blackstone’s Stake Weighs
  • Index Rebalance & ETF Flow Recap: STO/OSH, KEP/SPH, HHI, SET50, HSTECH, HSCI

Xpeng: P5 Is Too Expensive?

By Victoria Li

Once unveiled, Xpeng’s price details of its well anticipated P5 model got some pushbacks from the market. 1) Prices are higher than expected, especially model 550E and 550P. 2) City NGP might not be available in years, which leads to question on necessity of buying NGP or even Xpeng P5. 3) G3 platform based design raises concern on car driving quality/controllability.

In our view, P5 is more attractive than either A-class ICE models or EV competitor models (please see the details in our note). City NGP would be available for test drive in Oct and released in Jan-2022. And management claimed P5 would provide better driving experience although it’s based on G3 platform, which would be verified by test drive soon.

Reiterate BUY.


Simone Pre-IPO – A Leader in the Industry but Recovery Will Be Slow and Blackstone’s Stake Weighs

By Zhen Zhou, Toh

Simone Accessories Collection (381920 KS) is looking to raise up to US$341m in its upcoming South Korea IPO by selling a mix of primary and secondary shares.  

Simone is a leather accessories manufacturer with a focus on handbags and small leather goods (SLG). The company mainly produces handbags for major American masstige and luxury brands like Michael Kors, Tory Burch and Coach. The company is the leader in the luxury handbag industry with 10% and 30% of global and US market share, respectively, according to Bain’s estimates. It has a long relationship with major masstige and luxury handbag brands and a strong competitive edge over competitors.

In this note, we look at the company’s fundamentals, operating metrics, and share our thoughts on the deal.


Index Rebalance & ETF Flow Recap: STO/OSH, KEP/SPH, HHI, SET50, HSTECH, HSCI

By Brian Freitas

In this weeks recap, we look at:

There are no major index events in the coming week – there were enough in the last week!

There were substantial inflows to onshore China ETFs in the last week, while there was finally an outflow (albeit a small one) from KraneShares CSI China Internet Fund (KWEB US)


Before it’s here, it’s on Smartkarma

Consumer: Vedant Fashions, Lagardere SCA and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Vedant Fashions IPO: Pent Up Demand Could Justify an Expensive Valuation
  • Vivendi/Lagardere: Mandatory Friendly Offer

Vedant Fashions IPO: Pent Up Demand Could Justify an Expensive Valuation

By Oshadhi Kumarasiri

  • Vedant Fashions (123D IN), which owns the leading ethnic and celebration wear brands ‘Manyavar’, ‘Mohey’ and ‘Manthan’, filed for an initial public offering with the SEBI on 14th September 2021.
  • The offer comprises 36.4m secondary shares, which is around 15.0% of Vedant Fashions Limited’s outstanding shares.
  • Vedant Fashions is a stable business with excellent return on capital alongside a healthy and progressive dividend. Its revenue growth prospects might also be better than its peers’.
  • We would expect such a company to be priced expensively, and to discourage value investor participation in the IPO. However, the pent-up demand for weddings following COVID-19 could encourage value investor participation even at relatively uncomfortable valuation multiples.

Vivendi/Lagardere: Mandatory Friendly Offer

By Jesus Rodriguez Aguilar

Vivendi SA (VIV FP) will increase its stake in Lagardere SCA (MMB FP), which implies the mandatory launch of a takeover bid for the whole share capital of Lagardere.

Vivendi has agreed to purchase a 17.9% stake from of Amber Holdings in Lagardere, thus raising its stake to 44.9%. Therefore Vivendi will exceed the 30% threshold that requires launching a full takeover bid.

  • Both the 17.9% acquisition and the subsequent takeover bid are launched at a price of €24.10/share.

  • The premium paid amounts to 23.6% (18.4% to the 3-month VWAP).

  • The implied equity value is €3,401.3 mn.

It was foreseeable that Vivendi would bet on inorganic growth after the UMG spin-off. However, the premium paid seems at first glance high for a business with a net loss forecast (Capital IQ consensus) for 2021 of c. €(22) mn and an estimated 2022e EBITDA and EPS of €515.2 mn and €1.0, still lower than the pre-pandemic levels (€610 mn and €1.46 respectively). This is mainly due to the performance of the travel retail division (4th largest travel retailer globally), which accounted for 59% of revenues and 40% of gross operating profit in 2019. In fact, the premium implies paying a 2022e P/E of c. 24.1x vs. 20.5x for Vivendi (source: Capital IQ consensus).

The deal will need approval from the competition authorities and will not be fully executed until the end of FY 2022. However, some significant shareholders, such as the Qatar Investment Authority, with 11.5% of the company appear to be willing to sell. At this price they will not hesitate to do so, in my view. Completion is expected by 15 December 2022.

Gross spread is 3.5%, a bit on the low side considering the 15 months to complete. Long MMB FP, TP €24.1.


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Consumer: BYD, Melco International Development, Fast Retailing, Yum China Holdings, Inc, Globus Spirits, Minda Corp Ltd and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Hang Seng TECH Index Rebalance Preview: Autonomous Driving Change
  • StubWorld: Consultation Batters Macau Gaming Counters
  • Fast Retailing: Slowing China Demand Could Overwhelm the Domestic Market Rebound
  • Yum China (YUMC and 9987.HK): Short-Term Pressure Due to Resurge of COVID Cases in China
  • Globus Spirits: Robust Business Model Driving Medium-Term Growth
  • Minda Corporation: Order Win Momentum Picks up Pace

Hang Seng TECH Index Rebalance Preview: Autonomous Driving Change

By Brian Freitas

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.

The review period for the December rebalance ends on 30 September and stocks that are listed by the review cut-off date are eligible for inclusion in the Hang Seng Tech Index (HSTECH INDEX).

Along with the announcement of the changes at the September rebalance, the index universe was expanded to cover a new theme – ‘Autonomous’ and examples include self-driving, autonomous robots, internet of things, smart lifestyle etc.

The expansion to the universe could see BYD (1211 HK) added to the index while Weimob Inc. (2013 HK) could be deleted from the index.

XPeng (9868 HK) and Li Auto (2015 HK) fail the velocity test for tradable indices and should not be included in the index.

Estimated one-way turnover is 9.23% and will result in a one-way turnover of HK$3.65bn. There will be a lot of selling on the smaller index constituents due to the funding trade.


StubWorld: Consultation Batters Macau Gaming Counters

By David Blennerhassett

This week in StubWorld …

Melco Resorts & Entertainment (MLCO US) and other Macau gaming plays roll over after a 45-day public gaming consultation kicks off today.

Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


Fast Retailing: Slowing China Demand Could Overwhelm the Domestic Market Rebound

By Oshadhi Kumarasiri

Japan’s largest apparel retailer, Fast Retailing (9983 JP) has endured a tough time over the last six months with the share price falling over 30% since peaking in February 2021. Fast Retailing shares have also failed to benefit from the recent stock market rally (resulting from Prime Minister Suga’s planned exit), which saw the benchmark Topix index rise around 10% during the last two weeks.

We would expect the company’s 4QFY21 financial performance to remain weak, driven by disappointing domestic, China and other overseas market performance. This is mostly priced in the share price, and shares could start to rebound as Japan prepares to relax COVID restrictions in the near future following a successful vaccination campaign.

Nevertheless, the risks rewards of buying Fast Retailing hangs in the balance as valuation multiples remain expensive even after a 30% decline in the share price.

We would recommend closing any short positions as there is upside potential alongside the recovery of the domestic business.


Yum China (YUMC and 9987.HK): Short-Term Pressure Due to Resurge of COVID Cases in China

By Roger Xie

  • The resurgence of COVID-19 cases has again put the Chinese restaurant sector under pressure. Yum China Holdings, Inc (YUMC US) released a business update last night. The latest outbreak of COVID-19 Delta variant in China has caused more than 500 of Yum China stores in 17 provinces closed or offering only takeaway and delivery services. Same-store sales in August 2021 declined by mid-teens percentage year over year, or close to an approximately 20% decline compared to August 2019 (or mid-teen decline on year-over-year basis).  Based on current trend, the Company has experienced significant operating deleveraging, adjusted operating profit, which excludes special items, may be reduced by approximately 50% to 60% for the third quarter of 2021, compared to the same period last year. 
  • Other casual dining companies have experienced similar pullback  given the wide spread of Delta variants in China and record flooding in some areas. For example, Jiumaojiu (9922 HK) Tai Er restaurants and Jiu Mao Jiu restaurants have seen around 10% and 20% decline of same-store sale respectively compared with pre-COVID 2019. Haidilao (6862 HK) experienced about 30% decline of same-store sale compared with pre-COVID 2019. We believe the latest surge of COVID-19 has the bigger impact on transportation hubs and tourist locations.
  • To put the comparison in the same context, Yum China Holdings, Inc (YUMC US) recorded 40-50% same-store sale decline during the initial COVID outbreak in February 2020. Apparently, the scale of recent outbreak is not as big as the initial one. We expect that Yum China is more experienced this time to utilize delivery and take-out options as well. The company is using technology to foster brand loyalty and drive more consistent traffic. Yum China had 330 million members on its rewards app. This has facilitated the shift of sales to various digital platforms (more than 84% of sales were digital in 2020) and enabled the company to collect a vast amount of consumer data.  Through analyzing this data, the group is trying to lock in its customers through personalized menu creations based on each diner’s past order history and local tastes. We continue to believe Yum China Holdings, Inc (YUMC US) offers investors better reward/risk potential in China restaurant sector. We reiterate TP US$72 for Yum China, which is based on 30x 2021e P/E. 

Globus Spirits: Robust Business Model Driving Medium-Term Growth

By Edelweiss

Globus Spirits (GBSL) is a leading player in the Indian Alcohol Beverages Industry with strong presence in Indian Made Indian Liquor (IMIL) category. GBSL has an integrated business model complimenting its two segments – Manufacturing and Consumer. 

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Minda Corporation: Order Win Momentum Picks up Pace

By ICICI Securities Limited

Minda Corporation (MCL) primarily serves domestic auto OEMs across two main verticals – mechatronics & aftermarket (MCH – safety & security, diecasting, starter motors, etc.) and information & connected systems (ICS – mainly wiring harnesses).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

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Consumer: Demae-Can Co., Ltd., Tam Jai International, Sony Corp, FSN E-Commerce Ventures (Nykaa), Hanssem Co Ltd, China Education Group, Tata Consumer Products, Signature International, Hindustan Unilever and more

By | Consumer, Daily Briefs

In today’s briefing:

  • Demae-Can – Structurally Appalling but a Good Trade
  • Tam Jai International IPO: A Big Appetite For Growth Under Toridoll’s Control
  • Sony Part 2: Arms Dealer in an Arms Race
  • Nykaa IPO: Not Perfectly Elegant
  • Hanssem Vs. Teton Capital Partners on Mandatory Tender Offer in Korea
  • China Education (839 HK): More Flows of Positive Development
  • Gross margin pressure to ease in coming quarters
  • Disposal of Bandar Enstek Land
  • Hindustan Unilever: Transforming To An Intelligent And Future Fit Organization

Demae-Can – Structurally Appalling but a Good Trade

By Mio Kato

Demae-Can once offered a sound business model in a niche for Japan and generated consistent double-digit growth with mid-teens margins, making it a relatively attractive stock for Japan. Since its push into the delivery business though, margins have collapsed, and cash-burn has reached Wework-ian proportions. Nevertheless, on a short-term basis, this could prove attractive.


Tam Jai International IPO: A Big Appetite For Growth Under Toridoll’s Control

By Oshadhi Kumarasiri

  • Rice noodle chain operator, Tam Jai International (TJI HK) completed its listing hearing and received approval for the proposed US$100.0m IPO on the Hong Kong Stock Exchange on 13th September 2021.
  • TORIDOLL Holdings Corporation (3397 JP), the biggest operator of noodle shops in Japan, took control of stagnating TamJai and SamGor restaurant chains in 2018 from its founder to restructure and turn around the noodle chains to fast growth and highly profitable businesses.
  • We like Tam Jai International under Toridoll’s management as Toridoll seems capable of taking the popular TamJai and SamGor restaurant brands global while continuing to expand TamJai’s and SamGor’s presence in the domestic market (Hong Kong).

Sony Part 2: Arms Dealer in an Arms Race

By Drawbridge Research

This is the second of three research notes covering Sony Group. Part 1 looked at Sony’s semiconductor and electronics businesses and how they have both collaborated to redefine the interchangeable-lens camera market whilst both having their own idiosyncratic growth drivers. This note covers the company’s music business, the incredible behavioural biases currently affecting its perception and the first principles of digital and analog audio that lead to this perception. Secondly, the company’s pictures business is examined with an emphasis on the fact that Sony is the only major Hollywood studio to not have invested in its own streaming service. We show how this strategy to not pursue streaming has resulted in Sony being the sole major Hollywood studio able to supply exclusive content to streaming services, with all other majors unable to due to the fact they are competing with each other in the streaming market themselves. Finally, we look at how walls continue to be broken down between Sony’s business units whilst analysing PlayStation Productions, a collaboration between Sony’s music and gaming business. PlayStation Productions aims to leverage Sony’s extensive catalogue of renowned and maturing gaming IP into Film and TV adaptions, all at a time when exclusive content is commanding a premium price.


Nykaa IPO: Not Perfectly Elegant

By Nitin Mangal

We continue our focus on the coverage of IPO bound start-ups and next is none other than FSN E-Commerce Ventures (Nykaa) (1003622D IN). However, Nykaa stands apart from the rest since it is the one of those rare finds that have a positive profitability and this is why it looks promising in nature. Another differentiating aspect is that Nykaa operates as an omni-channel entity, having as many as 73 physical stores across the country. (However, most of the revenue is generated online).

Nykaa was founded only in 2012 and has gained a strong foothold in the beauty and personal care (BPC) space especially in the last few years. According to RedSeer, the company is the largest Specialty BPC platform in India in terms of value of products sold in F21. The company manages its BPC predominantly through inventory model, not to forget that it also has its own brands which it outsources the manufacturing. Nykaa has also started the ball rolling in the fashion territory in 2018, for which it mostly acts as a market place for its consumers and vendors.

Nykaa has a strong operational characteristics, there is hardly any doubt; however, one needs to look beyond it to get a more comprehensive view of the financials and governance. There are a few concerns on the accounting front that should not be overlooked. We also find stains on the governance, primarily related to remuneration of MD. Further, there were several small risk factors which were disclosed, that had acted as a resistance force in the past.


Hanssem Vs. Teton Capital Partners on Mandatory Tender Offer in Korea

By Sanghyun Park

For those who aren’t familiar with this Hanssem deal, here is a quick summary:

  • In July, Hanssem’s major shareholder signed an MOU to sell a 30.21% stake to IMM PE for 1.5 trillion won.
  • And Lotte Shopping will participate as a strategic investor (SI) by investing 299.5 billion won in a fund created by IMM PE for the acquisition.

Here is the link to the news article about the MOU (source: Korea Times). 

Here is the link to the news article about Lotte Shopping investing in the fund created by IMM PE for the acquisition (source: JoongAng Daily).

Now, an unexpected event occurred in this deal that was expected to be completed smoothly. Teton Capital Partners, Hanssem’s second-largest shareholder, has taken legal action.

Teton Capital first purchased Hanssem shares in October 2009. At that time, the stock price of Hanssem was 9,900 won. Teton expanded its stake to 5% in September 2011 and became subject to the disclosure of changes in its stake. As of the end of June this year, Teton’s stake was 8.43%.

So what are the legal actions Teton Capital has taken? The Korea Times article below summarizes this well.

Here is the link to the news article about Teton Capital taking legal actions.

The key reason for Teton Capital’s legal action is the MANDATORY TENDER OFFER.

Yes, Teton requests the court to legally guarantee a mandatory tender offer to minority shareholders in this deal.


China Education (839 HK): More Flows of Positive Development

By Osbert Tang, CFA

We take the recent newsflow on business development at China Education Group (839 HK) positively. While the market may still skeptical towards the company due to the sector’s regulatory worries, CEG is standing in a better position than many of its peers given its focus on the vocational and higher education segment. In our view, the beaten-down performance of CEG’s share price is not justified, and it is an interesting time to look at its long-term promising outlook now.   

The 58% increase in approval higher education enrollment quota for 2021/2022 academic year, upside from contribution of the newly added Chengdu Jincheng College, support from banks and IFC through provisions of seven-year loan facilities at low pricing, rapid execution of M&A and further potential pipeline acquisitions all lend support to CEG’s business prospects amid a turbulent time. Our belief is that at 13.5x PER for FY22, CEG is inexpensively priced relative to growth.


Gross margin pressure to ease in coming quarters

By Motilal Oswal

Tea price inflation has impacted TCP’s performance since the last four quarters. However, we expect gross margin to improve from 2QFY22 onwards as tea prices have declined (down 32% from their peak in Aug’20 to INR175/kg in Aug’21). In this note, we have analyzed the impact of the fall in tea prices on TCP in the near term. Here are the key insights:…

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Disposal of Bandar Enstek Land

By TA Securities Holdings Bhd

Disposal of Bandar Enstek Land Last Traded: RM0.925 […] Ace Logistic for the proposed disposal by Signature of 3 parcels of freehold lands at Bandar Enstek, measuring 447k sf, 373k sf and 434k sf for cash considerations of RM19.5mn, RM16.2mn and RM18.9mn, respectively. […] Meanwhile, the repayment of bank borrowings is expected to generate interest savings of RM1.6mn per year, which equivalent to 9.5% of […] Net gearing (x) Net cash Net cash Net cash Net cash Net cash […] Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Hindustan Unilever: Transforming To An Intelligent And Future Fit Organization

By Axis Direct

We marginally revise our FY23E/24E and maintain BUY with a revised TP of Rs. 3,100 (earlier Rs. 2,670) as we raise our target PE to 56x FY24E EPS (earlier 50x FY24E EPS).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Consumer: Kansai Super Market, Pinduoduo, Demae-Can Co., Ltd., METRO AG, Minda Corp Ltd, Kellogg Co, Hindustan Unilever, Wabco India Ltd and more

By | Consumer, Daily Briefs

In today’s briefing:

  • The Kansai Super (9919) Conundrum
  • Pinduoduo (PDD): Made Profit After Giving up Direct Sales and User Accumulation
  • Demae-Can Placement – Massive Dilution to Pursue Market Share
  • Metro Cash and Carry to Exit Japan
  • Pick of the Week: Minda Corporation
  • Kellogg: Even Low Valuations Are At Risk
  • Longer term growth engines robustLonger term growth engines robust
  • Wabco India Limited: Long Term Growth Remains Intact

The Kansai Super (9919) Conundrum

By Travis Lundy

On 31 August, Kansai Super Market (9919 JP) and its top shareholder (10.02% of shares out) H2 O Retailing (8242 JP) (the parent of Hanshin Department Store and related companies) announced a business merger whereby the H₂O would inject two supermarket businesses it owns – Izumiya and Hankyu Oasis – into a holding company with Kansai Super, receiving shares in a newly enlarged Kansai Super in exchange. 

H₂O would go from owning 10.66% to owning 58% of Kansai Super, and the 89.34% would own 42% of NEWCO. 

The merger was short-dated/accelerated, with the EGM to vote on this deal set for a Record Date on 15 September, the EGMs of all the related companies where an EGM was necessary (Kansai Super, Hankyu Oasis, and Izumiya (the latter two foregone conclusions because they are 100%-owned by H₂O) on 29 October, and the merger effective December 1st.

The shares popped a bit, then fell back. 

At first glance, this seemed somewhat opportunistic for H₂O, and it meant that the 89.34% “minority” in Kansai Super would become a real minority without getting paid a premium or provided a chance to exit. Based on the net assets of the companies, it seemed like H₂O was getting a good deal. Based on the OP levels in the past year, it did not seem like H₂O was getting special treatment. 

A couple of days later, on 3 September, privately-held discount (“every day low price”) supermarket chain OK Corp (primarily based in the Kanto area, but which had been aimed at expanding into the Kansai area), which was the second-largest single shareholder of Kansai Super (based originally in Osaka/Kansai) at 7.23%, stepped up and offered a press release which said that it would vote against the merger and if the merger were not approved, it would be willing to launch a Tender Offer to buy the shares of Kansai Super at ¥2,250/share (the highest price since listing and nearly vs ¥1,374/share the day before, and more than double the market price of Kansai Super in June when the proposal was made). On 3 Sep OK complained about their treatment, and noted that from the perspective of shareholder interest, their bid should be considered, but OK also had no intention of launching a hostile bid.

The shares popped, moving limit up. Then limit up another day, and then the shares traded at JPY 2,200/share in considerable volume before drifting lower.

Today the shares fell back 7+% to just below JPY 2,000/share. 

There is some very long history between the founder of OK and Yuji Kitano the founder of Kansai Super, and they once worked together, with OK seconding employees to Kansai Super to learn the business of fresh grocery sales. 

Mr Kitano passed away in 2013, and OK Supermarket started buying shares in 2016, getting to just under 5%, then it peaked its head above and by the end of the fiscal year in February, owned 7.23%. Of course, that year in October (2016), Kansai Super entered into a business and capital alliance with H₂O Retailing, and H₂O bought about 10% of the shares out. 

Fast forward five years and it turns out that OK approached Kansai Super in April 2021, and proposed a capital and business alliance on 9 June, in writing. Kansai Super put this to an Independent Committee which then took its time, setting its first meeting with OK some 11 weeks later on 26 August. The Kansai Super release (Japanese only) on 31 August suggests there was a “third party tender offer approach” but then doesn’t discuss it much while saying that intense discussions and due diligence was afforded to H₂O Retailing in the same timeframe.

Five days after the first interview with OK, Kansai Super and H₂O announced their deal. 

This is a complicated deal and it begs the question of whether shareholder interests matter and how shareholders decide. 

More discussion below. 


Pinduoduo (PDD): Made Profit After Giving up Direct Sales and User Accumulation

By Ming Lu

  • PDD made profit for the first time after IPO.
  • PDD shrank its direct sales.
  • PDD stopped actively accumulating users.
  • We believe total revenue will grow by 45% in 2022.
  • We believe PDD’s operating margin will turn positive in 2022.
  • We also believe PDD’s stock price has a downside of 15%.

Demae-Can Placement – Massive Dilution to Pursue Market Share

By Zhen Zhou, Toh

Demae-Can Co., Ltd. (2484 JP)  is looking to raise up to a total of JPY80bn (US$730m) from a combination of overseas offering to investors and share sale to Z Holdings (4689 JP) and Naver Corp (035420 KS).

In this note, we will take a brief look at deal dynamics, fundamentals, and run the deal through our ECM framework.


Metro Cash and Carry to Exit Japan

By Michael Causton

METRO AG (MEO GR) will close its Japan operations at the end of October. It follows Carrefour SA (CA FP), Tesco PLC (TSCO LN) and Walmart (WMT US) as the latest major international player to try and fail in the Japanese market and leaves Costco as the only international chain retailer – but a clearly successful one at least. 


Pick of the Week: Minda Corporation

By Axis Direct

Minda Corporation (Minda Corp) is the flagship company of the Spark Minda group and is a leading supplier of key auto components to domestic as well as global OEMs. It has a well-diversified presence across all segments including 2W, CV, PV, and Aftermarket that contributed 52%/21%/11%/16% of its FY21 sales, respectively. Geographically, India contributes ~85% of the company’s sales while the rest ~15% is contributed by the overseas markets. Its customer base comprises Indian OEMs with top marquee clients being Bajaj Auto, Ashok Leyland, TVS Motors, Suzuki Motors, and M&M.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Kellogg: Even Low Valuations Are At Risk

By Vladimir Dimitrov, CFA

  • One year since I first outlined the risks for Kellogg, it is the worst performer in its peer group.
  • The company’s low valuation is justified by its low and deteriorating profitability.
  • Going forward, Kellogg’s already low valuation is at risk.

Longer term growth engines robustLonger term growth engines robust

By Motilal Oswal

The management shared details on the augmentation of its analytics and R&D; strengths, which were already far superior v/s peers. As highlighted in our Annual Report note, there have been a host of initiatives in the past year focusing on the burgeoning E-Commerce market, which now contributes 89% to HUVR’s sales. The company’s portfolio is already wellplaced, with its E-Commerce market share higher than its Modern Trade (MT)…

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Wabco India Limited: Long Term Growth Remains Intact

By Geojit BNP Paribas

Q1FY22 revenue de-grew by -31% QoQ due to significant decline in the commercial vehicle volume, down by 92% YoY. This was largely due to production lockdown and lower demand globally. EBITDA margin came at 8.6% due to higher input cost and other expenses. Net profit tanked by 55% QoQ. Wabco ZF technological advantage in the CV segment will provide significant growth in product intelligence and will result in higher value enhancing offer for the domestic and global customers….

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma