Consumer

• Xingda International (1899 HK)’s partial offer from a management-controlled offeror at HK$1.88 per share is now open. The IFA opines it to be fair and reasonable.
• The partial offer is conditional on the offeror/concert parties, which have a 45.60% stake, hitting 50.01% voting rights and approval by the requisite majority of shareholders on the acceptance form.
• The 4.41% minimum acceptance is not onerous. Based on a proration of 8.88% and at the last close price of HK$1.59 per share, the breakeven price is HK$1.56 per share.

• Tesla reported a 6% Q4 EPS beat, but stripping out a one-off deferred revenue booking & higher than expected regulatory credits, Q4 results missed by 9%.  
• Tesla rose +5.5% post market close after Musk said YTD orders are “2x” output. None of the data we have seen implies such demand, especially weekly China sales. 
• What went unnoticed on the earnings call is that Tesla created a $7bn credit facility this month, which should dash all hopes of them doing a share buyback in 2023. 

• OASIS Corp (370190 KS) is looking to raise up to US$166m in its upcoming Korea IPO.
• Oasis Corporation is an early morning delivery service business that delivers fresh food to consumers. It runs an e-commerce platform named ‘Oasis Market’ as well as offline stores.
• In our previous notes, we looked at the company’s past performance and peer comparison. In this note, we talk about valuations.

• ZJLD Group (ZJLD HK) is looking to raise up to US$400m in its Hong Kong IPO. The deal will be run by Goldman Sachs and China Securities. 
• ZJLD Group (ZJLD) is a Chinese liquor company primarily producing baijiu.
• As per F&S, the firm was the fourth largest privately-owned baijiu company and ranked third among all baijiu companies with three or more aroma types in terms of FY21 sales. 

• Hindustan Unilever (HUVR IN)‘s strong quarterly performance was overshadowed by a proposed hike in royalty payments to parent Unilever PLC (ULVR LN) 
• HUVR’s historical royalty growth has been below revenue and PBT growth and hence does not generate any red flags in terms of minority shareholder protection.  
• While the impact on EPS is ~3%, we believe much of the reaction around HUVR’s Royalty is Noise. 

• Hyundai Motor’s EV sales as a percentage of total sales increased from 4.3% in 4Q 2021 to 5.7% in 4Q 2022. 
• Hyundai Motor announced that it will cancel 2.14 million common shares, representing 1% of its outstanding common shares.
• The company beat consensus sales and operating profit estimates in 4Q 2022 and the consensus is likely to revise up their earnings estimates. 

• JR Takashimaya is a newbie in the world of department store retailing but has grown to become the fourth highest selling store in the two decades since it opened. 
• As a result, it is increasingly regarded by brands as the Nagoyan version of Isetan Shinjuku in Tokyo and Hankyu Umeda in Osaka.
• The store is an example of Takashimaya’s successful strategy to surround its key stores with more shopping facilities to suit all population segments, so driving traffic to the main store.

• Three years ago, Itochu Corp made it clear it would be investing heavily in its brand business.
• It has been true to its word, adding the likes of Reebok, Under Armour and Forever 21 to its portfolio in the last year alone.
• It has now signed a deal with long-term Japan operator, L.L.Bean, while gearing up for a major relaunch of Eddie Bauer.

In our view, Tata Motors’ Q3/22-23 results were solid and much better than expected, especially in terms of profitability and cash flows. The strong performance was driven by gradual improvement in chip supply, cost savings, product mix and softer commodity prices. Guidance is also positive. The financial risk profile should improve, supported by significantly higher earnings and slightly lower debt. Liquidity, at least at Jaguar Land Rover (JLR), remains sound. JLR has no debt maturities until January 2024.

While Tata Motors will likely be able to deliver earnings improvement in H2/22-23, we believe it might be difficult for the company to achieve net-zero auto debt in two years as guided, considering the challenging operating environment. In this context, a revision of this target is warranted.

• CyberAgent Q1 loss on one-off expenses from World Cup streaming. We see Q1 as a bottom this fiscal year
• Share price already discounted weak FY9/23 guidance last October and focus is now on recovery 
• The World Cup was a success for the Japanese National side and for Abema

• CyberAgent Inc (4751 JP) reported 1QFY09/2023 results. Revenue declined 2.1% YoY to JPY167.6bn (vs consensus JPY176.1bn) while OP turned negative JPY1.25bn (vs consensus OP of JPY4.1bn.
• CA’s largest investment to-date was for FIFA 2022 but top line growth has largely been in line with previous quarter. WAU have dropped to pre-FIFA levels.
• Though AbemaTV’s monetisation strategy seems to work, the growth prospects for other two segments are concerning and likely to drag down the consolidated performance.

• If we read “improved asset efficiency” as “ROA,” it would fit better. ROA, along with ROE, correlates with valuation, and higher ROA can be expected to trigger higher stock prices. 
• Companies with high ROA tend to have advanced corporate governance initiatives. In Metrical Universe of 1,779 companies, ROA (historical 3-year average) for many of corporate governance metrics are significantly correlated.
• Whether Japanese stocks are undervalued is another question, but if companies have resources but are neglecting company-wide efforts to increase margins and turnover, activist investors are likely to be interested.

• Paramount had a disappointing set of results in the last quarter as it failed to meet the revenue expectations as well as earnings expectations of Wall Street.
• The company maintained its strength in TV, expanded in cinema, and benefitted from the worldwide surge in streaming during the third quarter.
• Among major updates, Walmart chose Paramount+ when looking to add a streaming service to its Walmart+ package.

• In this insight, we discuss the major reasons why Coway Co Ltd (021240 KS) is a prime candidate for corporate activism in Korea.
• Netmarble has done a poor job with Coway post its acquisition in 2019.
• An action plan for Coway is to return at least half of its net profit through dividends and share buybacks/cancellations.

• Since simply increasing shareholder returns won’t increase corporate value/market cap, it’s more natural to present shareholder return policy together with reasonable earnings target, even when such policy is put forth.
• In fact, the companies exemplified in the Nikkei article saw share prices rise for companies with positive earnings outlooks and increased conviction that they will meet their medium-term earnings targets.
• This is  a more serious and urgent issue for transitional companies, as companies with market cap of less than 10 billion yen in October 2023 will be excluded from TOPIX.

• Sonos delivered a decent performance in the last quarter with revenue growth beyond market expectations and narrower-than-expected losses despite the challenging macroeconomic backdrop.
• In the last quarter, installer solutions revenue grew, driven by robust demand for the company’s Port and Amp products in spite of persistent supply challenges.
• Sonos continues to see strong performance in its installer solutions channel in spite of slowing house activity in the United States.

• Lululemon’s results for the last quarter continued to be strong and the company produced an all-around beat despite the fact that the external environment remains challenging.
• In terms of traffic driven and revenue, Black Friday was among the biggest days for the company.
• The revenue growth of Lululemon remained balanced and strong across various drivers, and the company’s market share gains continued.

• Restaurant Brands delivered a positive set of results in the last quarter, surpassing Wall Street expectations in terms of revenues as well as earnings.
• It delivered a strong performance across Tim Hortons Canada and Burger King International businesses.
• Improvements in the U.S. at Burger King, Popeyes, and Firehouse Subs were significant.

• With the Skechers results just around the corner, it would be interesting to see how the company has performed in the previous quarter.
• Last quarter, the company set a new quarterly sales record of $1.88 billion which was well above Wall Street expectations.
• Its direct-to-consumer and wholesale businesses experienced double-digit growth given the strength in their retail stores and digital platforms.

• New York-based hedge fund ValueAct has told Seven & I Holdings (3382 JP)’s shareholders to support them in their bid to spin off the 7-Eleven US convenience store business.
• Spinning off the only growth driver of the business does not seem like an idea that Seven & I or its shareholders are likely to entertain.
• We fear that ValueAct could be looking for reasons to call-off its investor-activism-campaign and perhaps is trying to squeeze out every last bit of gains as it exits its positions.

• The long, tortured legal mess between Universal and its ousted founder over control of its lucrative Manila integrated casino resort now has a clear path to its spin off IPO.
• The Okada Manila resort is among the sector leaders in the burgeoning Philippines gaming market now ramping rapidly toward full GGR recovery.
• At UE’s current price of 2,347jpy, the stock bears a built in premium of a Spac IPO now appearing to be pointed to debut this year.

• Naspers’ South African ventures exhibit solid growth, but an inflection point awaits, according to the company.
• The company’s exposure to China’s reopening is a roll of the dice, says Naspers.
• Naspers’ (OTCPK:NPSNY) stock has climbed by more than 20% in the past month, subsequently luring investors’ attention.

• 10 days ago I wrote Fujitsu (6702) Subsidiary Selldowns To Come after Bloomberg carried an article with the CEO. Not new news, but I was struck by the implications.
• Yesterday saw an article which pushed Fujitsu General (6755 JP) nearly 14% higher yesteday. Fujitsu Ltd (6702 JP) had launched an auction for its 42% stake. First round bids due imminently.
• This takes the urgency to a new level. People jumped into an already illiquid stock. How far can this go?

• The review period for the Nikkei 225 (NKY INDEX) March rebalance ends next week. We highlight the 3 potential inclusions and exclusions for the index.
• Lasertec Corp (6920), Oriental Land (4661) and Renesas Electronics (6723) remain our top inclusions, while Toyobo Co Ltd (3101), Nippon Light Metal (5703) and Toho Zinc (5707) could be deleted.
• Due to the large size difference between the potential adds/deletes, there will be a large funding trade with passive trackers needing to sell over 1x ADV on many index constituents.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – iQIYI Inc (IQ US), Bilibili Inc (BILI US) placements, VinFast (1905332D VN) continues to pre-market a US$1bn IPO.
• Event-Driven developments – China Internet (810 HK), Shandong Fengxiang (9977 HK), Kingston Financial (1031 HK),  Golden Energy & Resources (GER SP), Olam Group (OLG SP), Sabana Industrial REIT (SSREIT SP). 

• MSCI will likely reflect the ESOP selling in the upcoming rebalancing. Since MSCI’s rounding magnitude is 5%p, a similar passive impact as that of the previous IR may appear.
• This means that the remarkable price rally up to last November’s announcement date can be repeated this time closer to the announcement time in May.
• Conservatively assuming MSCI Korea’s tracking fund size to be ₩60T, LG Energy’s 5%p up-weight is expected to induce about ₩330B of passive inflow, which is 2.09x ADTV.

• Average fund weights in Alibaba among 270 active EM funds fell from a peak of 6.3% in October 2020 to between 1.7% and 2.5% over the last 18 months. 
• Significant switch from Growth to Value, with Value/Yield funds at record ownership levels whilst Aggressive Growth scale back holdings.
• Fund ownership trends are positive, with a growing number of managers making the move to overweight whilst index weights and prices remain at these levels.  

• METI’s survey confirms that “the number of outside directors has increased, but they aren’t completely independent, as they’re sometimes appointed by people with ties to the company” isn’t incorrect statement.
• The reality is that the parent companies of Japan’s large asset management companies are financial institutions, and it’s high hurdle to vote against proposals by clients of the parent company.
• The BOJ is a major shareholder in many companies through its ETF holdings. If the exercise of those voting rights changes, the management of listed companies in Japan should change.

• Campbell Soup is off to a good start to the fiscal year and delivered an all-around beat.
• Meals & beverages delivered a strong performance, and there is growth in key brands, particularly RTS (Ready-To-Serve) soups, Mexican sauces, and Italian soup, well-outpaced the growth.
• We provide the stock of Campbell Soup with a ‘Hold’ rating and a revision in the target price.

• Columbia Sportswear delivered a mixed set of third-quarter results as it failed to meet the revenue expectations of Wall Street given the economic, geopolitical, and supply chain challenges.
• Consumer challenges are being solved by innovations like Omni-Heat Infinity and the recently unveiled Omni-Heat Helix.
• The patent-pending Omni-Heat Helix from Columbia uses highly effective insulation cells to optimize warmth while ensuring breathability.

• On 20 January, SM Entertainment announced that Lee Chang-Hwan, the CEO of Align Partners Capital will join the company as a board member. 
• This will mark one of the first cases of an activist investor becoming a board member of a Korean company which already has a major shareholder.
• We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully improve its corporate governance.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Things are starting to pickup on the IPO front with the first somewhat sizeable US ADR filing done this week.
• Placements deal flow continued to stay strong this week, even as the performance didn’t.

• CP ALL is a unique and high-quality proxy for the recovery in domestic consumer demand plus increasing tourist arrivals, which should soon see a further boost from China.
• We would expect a strong finish to the year with an even stronger pickup in 2023 across convenience stores, Lotus supermarkets and hypermarkets, as well as Siam Makro cash-and-carry. 
• CP ALL is a top growth pick in Thailand, with EPS expected to grow by +35% and 25% for FY2023E and FY2024E, with ongoing expansion and economic recovery.

• Xpeng announced price cuts on existing G3i, P5 and P7, which surprised the market on negative side, potentially indicating weaker demand and profitability
• Recent management changes has also hurt sentiment with the new CEO from a ‘traditional’ car background
• Xpeng’s share price has bottomed in our view and we expect a 2H’23 recovery with improving fundamentals

• Softening macroeconomic circumstances in the Eurozone and cooling inflation in the U.S. could reignite demand.
• China’s reopening might smooth supply chains.
• Ford Motor Company’s EU market share is expanding, and its product-driven approach has sustained customer loyalty in North America.

• Netflix is now up 50% from its lows on hope that advertising and paid sharing drive a revenue reacceleration and multiple rerating. Part B has happened.
• Advertising uptake will be slow. But consensus has 55M incremental ad-subs (20% of the total) and $8B in revenue assumed in 2025! 
• Netflix intends on keeping content spending flat for the next few years, raising the importance of its hit rate – which has not been Netflix’s forte.

4imprint’s update shows the group continuing to trade strongly through Q422 and we again upgrade estimates. FY22 revenue will be $1.14bn, or 3% ahead of our earlier modelling, and 45% ahead of the prior year. An 8.8% adjusted operating margin compares with our earlier assumption of 8.2%. We edge our revenue forecasts up by 3% for FY23 and FY24, but assume some modest settling back in margin to reflect additional operating costs to support the increased scale of the business. As before, we suggest management may propose an FY22 special dividend, given net cash of $86.7m at the year-end.

• Anycolor (5032 JP) is conducting a Secondary Offering so that three major pre-IPO shareholders can sell their shares. Legend Capital, Skyland Ventures, and Highsino Group are selling.
• That should bring minimum publicly-traded longs to 6.3685mm shares, but it could easily be higher. 
• Based on the most conservative read of all the data, Real World Float is a net 21.2% after this offering. In reality, probably higher. But there’s still overhang.

• On 10 January, Olam Group (OLG SP) announced the potential IPO of Olam Agri through a dual primary listing in SGX ST and Saudi Arabia as early as 1H2023. 
• The Olam Agri IPO could raise US$1 billion, according to press reports. Olam will seek shareholder approval at an EGM for the transaction.
• The IPO marks the final stages of the strategy to unlock value. Our SoTP valuation is S$1.85 per share, a 19% upside to the last close price of S$1.56.

• Fewer people wear suits as a regular office uniform and there are also fewer working age Japanese.
• Combined with the fact that more people work from home some days a week, this has meant a drastic decline in suit sales
• In response, the big retailers are exploiting the growing popularity of custom and premium suits but the shift won’t offset the decline.

• Despite the steep stock rebound following a strong recovery in sales, stock attracts modest valuations in line with Infant milk players. Re-rating potential exists from valuing high-growth segments differently.
• Strong growth in Adult Nutrition and Pet products fueled overall sales. Baby Nutrition sales growth is muted and accounts for less than half of total sales (vs 2/3rd in 2020).
• Stock rebound triggered by a recovery in Sep. quarter sales thanks to its diverse product portfolio, and prospects of a revival in cross-border trade following China opening its borders.

• Japanese companies need to resolve these issues in future, as evidenced by the fact that they have only just begun to resolve issues related to human rights and human capital.
• There is risk that less accurate disclosure of ESG initiatives may emerge in future. Attention will be focused on annual securities reports that have mandate to include sustainability-related information.
• The slow growth in ROE raises concerns that ESG efforts are not progressing as expected or are being formally mended, but have not improved enough to positively impact corporate value.

• OASIS Corp (370190 KS) is looking to raise up to US$166m in its upcoming Korea IPO.
• Oasis Corporation is an early morning delivery service business that delivers fresh food to consumers. It runs an e-commerce platform named ‘Oasis Market’ as well as offline stores.
• In our previous notes, we looked at the company’s past performance. In this note, we talk about peer comparison.

• LG Energy Solution (373220 KS) (LGES) raised US$10.8bn in its South Korea IPO, after pricing at the top-end of the IPO price range.
• The stock was listed on 27th Jan 22. Its one-year lockup is set to expire soon.
• In this note, we will talk about the lock-up dynamics and updates since our last note

• In late December, I wrote 2023 High Conviction – Anycolor (5032) Aiming at TSE Prime and TOPIX – And How!. Shares closed at ¥6,470 that day. Then went to ¥5,500. 
• They have since rebounded some, and now 3 pre-IPO VC investors have announced an overseas offering. This was NOT unexpected. They need more shares to get their TSE Prime listing.
• The Offering is 3.27mm shares which is 5-6 days of volume. This lifts the TSE Prime inclusion amount, eventually, but the story is still about growth and model.

• 7-11 play CP ALL PCL (CPALL TB) is coming up “cheap” on my monitor versus cash & carry subsidiary Siam Makro Public (MAKRO TB). 
• Preceding my comments on CPALL/MAKRO are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Shandong Fengxiang (9977 HK)‘s delisting resolution was overwhelmingly voted against by independent H Shareholders. The results were not helped by the poor turnout.
• PAG’s MGO at HK$1.5132 per H Share is not conditional on the approval of the delisting resolution. The MGO remains open with a final closing date of 1 February.
• PAG currently holds 85.44% of the outstanding shares. At the last close and for a 10 February payment, the gross and annualised spread is 1.6% and 28.9%, respectively.

• HK$0.96 per share special dividend announced last Friday disappointed the market. 
• The dividend implies only 20% of the cash on the balance sheet paid out in dividends
• We think there could be 1-2 more special dividends in 2023E given lack of obvious uses for the cash balance

• The Keepers Holdings (KEEPR PM) recent move of +24% (3 months) was catalyzed by the dividend payout ratio (to 50%) increase and a solid Q4 2022 on the cards. 
• Post the move, the stock trades at 8.4x/6.6x FY22/23e. The dividend yield for FY23e/FY24e is 6.0%/7.6% ( based on a 50% payout). 8% of the market cap is net cash.
• We expect the next catalyst to be when the company reports its earnings ( probably the second week of April 2023). 

• Japan’s largest snacks maker, Calbee Inc (2229 JP) has raised prices by 10-20% for almost 75% of its product range.
• Meanwhile, main inputs such as potatoes and palm oil have seen extensive price drops in the past few months.
• With margin pressures alleviating from both angles (revenue & cost), we think Calbee’s FY24 OP is bound to exceed ¥30.0bn.

• Rakuten only has a 15% stake in Seiyu, alongside majority shareholder, KKR, but the pivot by Seiyu post-acquisition shows the potential for Rakuten in this sector.
• Building on the 5 year plan that it set out in 2021, Seiyu last month announced a ¥100 billion in investment over the next 5 years.
• Funds will be used to increase integration with Rakuten’s online supermarket, with the aim to become the biggest GMS retailer.

• Last April I wrote about Tsi Holdings (3608 JP) which was trading at 0.5x EV/EBITDA and where I suggested it could double in 2-3yrs. 
• The day after I wrote, the stock closed at ¥312/share, briefly touched ¥480 before ending the year at ¥444. On Friday they announced Q3 earnings, now TTM EV/EBITDA is 2.5x.
• They also announced a buyback, and the stock is up further. It is worth looking into the details both near-term and what they mean longer-term.

• Of the four peers, only Coupang adopts the gross method. Since the others adopt the net method, it is impossible to compare PSR with OASIS, which uses the gross method.
• If they really want to use PSR, it should only be compared with Coupang. Even if we apply CPNG’s current EV/Sales multiple (1.36x), it would only slightly exceed ₩0.5T.
• A more logical way would be to use EV/GMV. Even in this case, it wouldn’t be easy to expect a valuation higher than ₩0.5T.

• The Kingston Financial (1031 HK) scheme document is out with the scheme meeting scheduled for 9 February. The IFA considers the offer to be fair and reasonable. 
• Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and the headcount test. No shareholder holds a blocking stake.
• Peer re-rating increases the headcount test risk. At the last close and for the 10 March payment, the gross and annualised spread is 5.3% and 42.2%, respectively.

• China recorded 270,000 increases in deaths in 2022 to 10.41m (+2.7% YoY, vs. flat in 2020). This is a sad demographic trend but favourable to Fu Shou Yuan (1448 HK).  
• Death rate of 0.74% has returned to the 1974 level. With termination of “zero COVID” policy, this is poised to increase. This will also stimulate demand for its pre-need services.
• Despite a 73% rebound in share price from trough, valuation is still undemanding at 14.4x FY23F PER. This implies a 35% discount to the average of 22x since 2013. 

• Fast Retailing (9983 JP)’s 1QFY23 results were below consensus estimates with OP missing consensus by 13.2%.
• The outlook for the rest of the year doesn’t seem too well either with Domestic profitability held back by rising wages and growth markets affected by slowing demand for apparel.
• Even though China could emerge from COVID to boost Uniqlo’s profits, we see significant downside risk to Fast Retailing’s FY23 guidance.

• The Scheme Booklet is now out and Kingston Financial (1031 HK)‘s shareholders can vote on Chu Yuet Wah’s Offer on the 9 February.
• The Cancellation price of HK$0.30/share was a 47.78% premium to the undisturbed prices. It will not be increased. 
• Currently trading at a gross/annualised spread of 5.3%/44.4%, assuming payment on the 10 March. 

• OASIS Corp (1799513D KS) is looking to raise up to US$166m in its upcoming Korea IPO. 
• Oasis Corporation is an early morning delivery service business that delivers fresh food to consumers. It runs an e-commerce platform named ‘Oasis Market’ as well as offline stores.
• Oasis Corporation aims to boost its sales and presence by further improving on its omnichannel strategy. However, its explosive growth appears likely to have been driven by COVID-induced lockdown measures.