Consumer

• The offeror and acceptances reached 44.98%, just short of the 50% minimum acceptance condition. The closing date has been extended to 13 September. 
• If the offer is declared unconditional on or before 8 September, Giordano International (709 HK) shareholders who accept the offer will get HK$1.88 but not the dividend of HK$0.085.
• The offeror likely remains confident that it will hit the 50% threshold. At the last close, the gross and annualised spread for 17 Sep payment is 1.1% and 37.2%, respectively.

• Last week, The UNHR Office published a carefully worded report saying that the actions of the Chinese Government in Xinjiang “may constitute international crimes, in particular, crimes against humanity”.
• Meanwhile, apparel brands in the US seem to be exploiting loopholes in the Uygur Forced Labour Prevention Act with Xinjiang’s clothing exports rising to a 2-year high in July 2022.
• With pressure mounting on US customs to increase oversight, Fast Retailing (9983 JP)’s newest growth pillar (the US) could be about to meet major setbacks in the near term.

• Beneunder has large sales volume on Chinese e-commerce platforms and has a large physical store chain.
• However, outdoor brands and apparel brands compete with Beneunder and some brands’ prices are close to Beneunder.
• Beneunder has to keep physical stores and control online advertising budget.

• Late last night, Giordano International (709 HK) announced the Offeror – the Cheng Family – had 44.98% in the bag after 20.41% of shares out had been tendered.
• The Offer has been extended for one week, until the 13 September. 
• Whether investors receive the Offer consideration AND the interim divided is still up for debate.

• Starbucks has recently been in the news for its big CEO announcement with Laxman Narasimhan taking over the reins of the company from Howard Schultz.
• In this quarter, Starbucks continued to extend its coffee leadership, bringing and innovating further elements of premiumization and customization to the total coffee category, which includes plat-based, handcrafted, and cold coffee beverages.
• The demand for premium tailored cold coffee all over the world is enormous and this is bound to help the company.

• Skechers had a solid quarter and surpassed Wall Street expectations in terms of revenues with strong growth that was distributed geographically and is evident in both its Direct-to-consumer and wholesale segments in spite of Covid-19 headwinds in various markets.
• During the quarter, the wholesale business of the U.S. increased because of improvements in categories and genders, including accessory and apparel lines.
• In the quarter, Skechers opened 46 stores owned by the company, which included 15 large box shores in the US.

• Driven by recovery of Casarte after lockdown removed and premiumisation of product and pricing, Haier Smart Home (6690 HK) should see sustained healthy earnings growth in 2H22.
• We expect room to improve gross margin sequentially as cost pressure subsides in 2H22. Meanwhile, overseas markets still present good expansion opportunities. 
• Premium valuations are justified by its brand strength, global presence and strong execution capability. Healthy 1H22 should clear market’s concerns on impact of weak property market. 

• China MeiDong Auto (1268 HK) presents an excellent investment opportunity, trading at 13.3x/8.1x FY22/23e, post street estimate revisions downwards with a dividend yield of 6.0%/10% (assuming an 80% payout). 
• China MeiDong Auto (1268 HK) ‘s integration of Starchase is progressing better than we expected, with metrics on inventory dramatically improving. We believe the management will focus on aftersales now. 
• The company will join the EV bandwagon by collaborating on aftersales with players having operational (not financial) difficulties performing this service, presenting a good opportunity for the company. 

• Protests against unfair labor exploitation and labor union suppression by workers continue gaining traction by civil society and leading to the boycott of SPC SAMLIP CO.,LTD(005610).
• France’s leading labor union organization, the CGT (Confédération Générale du Travail), held a rally in front of the Paris Baguette store in Paris condemning SPC partners’ unfair labor practices. 
• Dunkin’s headquarters, run by SPC affiliate BR Korea Co, Ltd has been known to be engaged in unfair practices against franchisees.

• In early May 2022, Yamada Denki (9831 JP) launched a GINORMOUS buyback program. I wrote about it suggesting the company meant business. The stock popped outright and vs Peers.
• Then it fell back, and has only recently started moving back up. Surprising given buyback dynamics but it may have been overhang. If so, that overhang should be gone now.
• And the stock is cheap, a chunk of the register is sticky, so this could get squeezier now.

• Although not many, there are strong candidates for a safe play aimed at constituent change. Inclusion: Lotte Confectionery & Exclusion: Samyang Holdings
• Lotte Confectionery’s average daily market cap must fall by more than 30% to be pushed out of the borderline. Samyang Holdings’s market cap gap to the second-lowest one is 17%.
• The trading volume of these two is so small that a significant passive impact (relative to DTV) will likely occur. We should consider a little more aggressive approach, timing-wise.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Leapmotor (2007699D HK) and Onewo Space-Tech (ONEWO HK) are pre-marketing a US$1.5 billion and US$2.0 billion HKEx IPO, respectively.
• Event-Driven developments – BYD (1211 HK), Giordano International (709 HK), MACA Ltd (MLD AU), Nitro Software Ltd (NTO AU), Link Net (LINK IJ).

• The Nikkei 225 rebalance will likely be announced this week. I continue to be slightly off-kilter, expecting Nidec, SMC, and Oriental Land to replace Unitika, Oki Electric, and Toho Zinc.
• Others would expect Hoya to replace Maruha Nichiro instead of Oriental Land replacing Toho Zinc, but I think it Nikkei Sector balance may matter. It could go either way.
• Tactically speaking, cumulative volumes and Real World Float tell you how you might trade this. 

• There are 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed this week: Potentia’s rejected proposal for Nitro Software Ltd (NTO AU).
• Key updates took place for MACA Ltd (MLD AU), Giordano International (709 HK), and Link Net (LINK IJ).

• Despite the increasingly difficult consumer environment, Macy’s delivered a decent quarterly result which also happened to be an all-around beat.
• Its $5.6 billion in quarterly net sales exceeded its projections, despite a 1.6% decline in comparable owned plus licenced sales.
• Elevated inventory levels within particular categories were caused by the high industry-wide inventory levels and the decline in consumer discretionary spending.

• We continue to see global equities as being in pullback mode, with the MSCI ACWI index (ACWI-US) already testing important support in the $86-87 range, highlighted last week.
• A bounce here would be ideal for the bullish case, but we could easily see a test of the YTD lows near $81.50 if $86 fails to hold.
• Japan’s TOPIX/Nikkei225/TOPIX Small remain bullish, as does India’s SENSEX — add exposure. Seeing some failed breakouts in Europe, notably the EURO STOXX 50 and STOXX Europe 600; a concerning development.

• The September 2022 index changes for the STOXX Benchmark Indices were announced yesterday. 
• There will be 16 ADDs/DELs for the STOXX Europe 600 Index and there will be 5 ADDs and 6 DELs for the EURO STOXX Index.
• In this insight, we take a closer look at the index flow expectations and the historical performance of Rebal events.

• Leapmotor (2007699D HK), a Chinese EV manufacturer, is pre-marketing a US$1.5 billion HKEx IPO, according to press reports.
• We previously discussed the IPO in Leapmotor IPO: The Bull Case, Leapmotor IPO: The Bear Case and Leapmotor IPO: Look Before You Leap. 
• In this note, we present our forecasts and take the first look at Leapmotor’s potential valuation range. 

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry
• Overall, net inflow over the past week was ~US$0.7bn, split between Shanghai (US$0.3bn) and Shenzhen (US$0.4bn).
• The largest inflows were into Gree Electric Appliances (000651 CH) and CATL (300750 CH). The largest outflows were in Industrial Bank (601166 CH) and China Merchants Bank (600036 CH).

• Chongqing Hongjiu Fruit (6689 HK) raised around US$71m in its Hong Kong IPO.
• CHJF’s subscription rates were lackluster with weak coverage on the institutional tranche and the retail portion being undersubscribed.
• However, after applying a discount to the local peer average, we think there still remains some upside for investors given its higher revenue and profitability growth.

• Home Depot had a surprisingly good quarter unlike its rival, Lowe’s and delivered and all-around beat.
• All of the merchandizing departments of Home Depot posted positive comps; hardware, paint, millwork, plumbing, and building materials were all above average.
• Home Depot launched new capabilities on its B2B website to enhance the interconnected quoting and shopping business for its Pros.

• Lowe’s had a disappointing quarter and saw a decline in its total revenues.
• Pro sales remained strong for the quarter.
• The trends of underlying home improvements during the quarter remained strong in the quarter, but the sales of DIY have been lower.

• Yesterday FTSE Russell announced two Asian additions to its FTSE EPRA Nareit Global Developed Index – Sekisui House (1928 JP) and Healthcare & Medical Investment Corporation (3455 JP). 
• Sekisui House is larger cap, and will see big dollars added. H&M IC is much smaller and will see less, but has had a huge run-up, outright and relative.
• Trading impact will be significant on both tickers in terms of days of ADV.

• Kadokawa announced yesterday that subsidiary From Software would conduct a third-party allocation of shares to Sony and Tencent. 
• The allotment values From Software at about ¥120bn with Tencent acquiring 16.25% and Sony acquiring 14.09% of the company. 
• This creates opportunities for both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat later than we had anticipated.

• Leapmotor (LM) aims to raise around US$1.5bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In our previous note, we spoke about the company’s past performance,  PHIP updates and undertook a peer comparison. In this note, we will talk about valuations.

• While its peers in Japanese e-commerce are losing momentum, Tokyo-listed B2B e-commerce company, Raccoon Holdings, Inc. (3031 JP) continues to march forward from the COVID elevated levels.
• With the advertising cost no longer growing at the same rate as before, we expect around 60% upside to Raccoon’s FY+2 consensus OP of ¥1.6bn.
• This would put Raccoon on 9.5x FY+2 OP with an OP CAGR of close to 50% and seems reasonably cheap in our opinion.

• TBO Tek (0395045D IN) is looking to raise approximately US$285m in its upcoming India IPO.  
• TBO Tek is a global travel distribution platform. Its two-sided technology platform serves companies involved in the travel industry such as hotels, airlines, travel agencies and travel management companies. 
• The firm’s profitability recovery is underway post-COVID. However, the implied take rate of its largest revenue contributor (Hotel and Ancillary) appears to be declining despite the overall increase in GTV.

• Colgate-Palmolive had a splendid quarter and surged past Wall Street expectations on all counts by delivering growth over all of its categories as well as its divisions.
• The company has built up its innovation capabilities to deliver more transformational innovation and breakthroughs that can drive both market share and category market.
• Organic sales growth has been seen in four of its categories Home Care, Personal Care, Pet Nutrition, and Oral Care.

• Leapmotor (2007699D HK) is said to be looking to raise between US$1bn-US$1.5bn by selling 290.9m shares in its IPO. At the top end, the company will be valued at HK$53bn.
• The performance of its peers over the last year leaves a lot to be desired and could lead to lower demand in the IPO.
• Leapmotor (2007699D HK) should be added to the HSCI and the Hang Seng Tech Index, though timing depends on when the stock lists on the HKEX (388 HK). 

• Leapmotor (2007699D HK), a Chinese EV manufacturer, is pre-marketing a US$1.5 billion HKEx IPO, according to press reports.
• We previously discussed the IPO in Leapmotor IPO: The Bull Case and Leapmotor IPO: The Bear Case. This note updates our view for the PHIP and recent developments.
• While the 1Q and truncated 1H numbers outline rapid growth and declining loss margin, key metrics continue to lag peers over comparable periods. We would pass on the IPO. 

• Ace Hardware Indonesia (ACES IJ) 1H2022 results continued to reflect a hangover from COVID-19 in terms of slower growth although the company continues to demonstrate its resilience.
• The company’s store expansion continues with plans for 15 stores in total for 2022, whilst SSSG have seen a sharp recovery recently bringing YTD SSSG into positive territory.
• Ace Hardware is one of Indonesia’s top quality retailers with the potential for a sharp recovery and valuation looks attractive on 15x FY2023E PER versus 27x 5-year average PER.

• Pinduoduo (PDD US)’s 2Q22 was rather strong with revenue of RMB 31.4bn (consensus: RMB 23.6bn) and OP of RMB 8.7bn (consensus: RMB 3.6bn).
• However, the management was quick to dismiss the pretence that piduoduo would be able to maintain these elevated growth/margin numbers throughout the rest of the year and over the medium-term.
• This creates a lot of downside to consensus 2H22 and medium-term revenue and OP estimates in a time when valuation multiples have expanded over 70% from the March 2022 bottom.

H&H International’s H1/22 results were adequate in our view, despite the challenging operating conditions in China. The company is gradually diversifying its businesses, with ANC and PNC accounting for 48% of total H1/22 revenue. Moreover, demand for PNC products is increasing, and H&H is focused on leveraging this to expand in the US and China. The Swiss brand under ANC is also growing steadily. Going forward, these would allow the company to balance any revenue decline from the intensified BNC business. H&H has a moderate financial risk profile overall, with sound liquidity.

• Leapmotor (LM) aims to raise around US$1.5bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In our previous notes, we spoke about the company’s past performance and its PHIP updates. In this note, we will undertake a peer comparison.

• The NFT bubble has popped. You only have to look at the volumes to know this is true.
• But regardless of the bubble popping — I can tell you for certain — NFTs are still a HUGE talking point at almost every consumer facing company.
• CMOs and strategy directors will be asked in boardrooms; what is our Web3 strategy?

• If stock price is high, then a stock split is the way to go, and stockbrokers have provided a mechanism for trading shares in less than single-unit in the past.
• The issue isn’t “the trading unit should be lowered because people can’t buy shares with high stock prices” but “let’s improve so that people can become shareholders with one share.
• If Japanese companies are reluctant to increase the number of diverse shareholders, this would be in line with their slower progress in solving issues: diversity, human rights, and environment.

• State-Owned-Entities (SOEs) in Tianjin are set to complete the migration of their data from private sector operators like Alibaba Group (9988 HK) to a state-backed cloud by 30th Sept 2022.
• This has already started to tip the balance of power in Chinese cloud computing in favour of politically favoured cloud operators like China Telecom.
• We think the impact of nationalising the cloud could escalate to Alibaba Cloud’s overseas markets as most of its customers overseas are Chinese companies with a global presence.

• Leapmotor is getting ready to complete its IPO in Hong Kong in the next few weeks, aiming to raise US$1 billion to US$1.5 billion.
• Leapmotor is one of the fastest growing pure play EV companies in China in terms of delivery volume. Leapmotor shipped more than 43,000 EVs in 2021, up 443.5% YoY.
• Leapmotor’s revenue surged from 117 million RMB in 2019 to 3,132 million RMB in 2021. Operating margin improved from -625% in 2019 to -137.7% in 2020, and -91.6% in 2021.

• In 2Q22, revenue growth rate accelerated and the operating profit achieved record high.
• However, we believe PDD does not fully explain its exclusive advantages over competitors.
• We set a downside of 19% and a price target of US$47 for year end 2023.

• YH Entertainment Group (2306 HK) is looking to raise up to US$144m in its Hong Kong IPO.
• YH Entertainment (YHE) is an artist management company in China. Its business covers the entire artist management industry value chain, from auditioning, training, artist operation to artist promotion.
• As per Frost & Sullivan (F&S), YHE was ranked first amongst artist management companies in China with a market share of 1.9%, based on artist management revenue generated in 2021. 

• Leapmotor (LM) aims to raise around US$1.5bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In our previous notes, we spoke about the company’s past performance. In this note, we will have a look at its PHIP updates.

• Not many individual investors understand the value of ESG investing and buy ESG investment trusts, as inflows/outflows from ESG investment trusts have much to do with market volatility.
• It’s unclear how much ESG investing contributed to the performance, as aspects were saved by the performance of sectors in which they invest and by the benefits of weak yen.
• Efforts must be made to help individual investors understand the value of ESG investing and encourage long-term investment. To this end, investment managers should establish investment approach to ESG investing.

• IPAR has taken over the Donna Karan and DKNY brands setting the stage for further growth with larger brand licenses in its portfolio
• IPAR reported second quarter sales of $244.7 million, which was in line with IPAR’s preannouncement
• The Euro declining in value versus the US Dollar dented European sales growth figures, but sales managed to increase by double-digits over last year

• JD Health bucked the trend and grew in 2022H1. The Company has turned a profit first in front of its competitors Alibaba Health and Ping An Good Doctor.
• The performance of the second growth point would determine whether JD Health can maintain good momentum under the challenges of policy risks and possible future bottlenecks of products revenue growth. 
• Hopefully, the smart healthcare solutions and digital health business or the pet healthcare business can achieve breakthroughs. Then, there’re more certainty in long-term performance and valuation growth of JD Health.

• PepsiCo reported a decent result in the quarter as the business momentum continued in spite of ongoing geopolitical and macroeconomic volatility and greater levels of inflation over the markets.
• The company delivered an all-aroubd beat driven by organic revenue growth of double digits in the quarter.
• We provide the stock of PepsiCo with a ‘Hold’ rating with a revision in the target price.

• Restaurants Brands International has been facing a difficult and uncertain environment because of ongoing wage and commodity inflation, broader macro uncertainties, and rising interest rates impacting the restaurant industry.
• During the quarter, Restaurant Brands raised menu prices to help offset rising freight and food costs.
• We provide a ‘Hold’ rating on the stock of Restaurants Brands International with a revision in the target price.

• Friday in US time, the China Securities Regulatory Commission (CSRC), China’s MOF, and the US Public Company Accounting Oversight Board (PCAOB) “agreed” on a Statement of Protocol.
• This SoP sets the outlines for PCAOB access to inspect/investigate audit papers and accounting firms in China and HK for companies listed in the US.
• The releases’ difference in language is to be expected – different constituencies – but as PCAOB Chair Williams said, “Now we will find out whether those promises hold up.”

• PT Surya Citra Media 1H2022 reflects a recovery in advertising activity but also a normalisation of costs and investment in future growth, especially in its leading Indonesian OTT business Vidio.
• The company continues to gain audience share, as it invests in new fresh content and its sporting content such as Liga 1, and the English Premier League kicks in.
• PT Surya Citra Media is a proxy for recovering advertising spending as the Indonesian economy recovers plus its digital strategy through Vidio has already been proving successful.

• We turn Bullish on Shiseido. The market has now digested the weak results for 2022 and can look to a recovery over the next year
• Recent commentary from Estee Lauder’s CEO suggest that China is recovering and that the outlook is bright
• Shiseido is one of the key beneficiaries as Japan re-opens its borders to foreign travellers

• Chongqing Hongjiu Fruit (6689 HK) is looking to raise up to US$93m in its HK IPO.
• Chongqing Hongjiu Fruit (CHJF) is a multi-brand fresh fruit distributor in China with an end-to-end supply chain. They have 1.0% market share as China’s second largest fruit distributor
• CHJF had grown at an impressive rate even in the face of COVID-19. In this note, we will take a look at its valuations vs that of listed peers.

• Gome Retail Holdings Ltd, one of China’s largest bricks-and-mortar electronics retailers, plans to acquire real estate to develop into shopping malls and a customer experience center.
• The company will modify an eight-story shopping mall in Gome Commercial Capital into an arena capable of accommodating roughly 300 manufacturers of home appliances and consumer electronics to display and sell their products.
• The Beijing property covers an area of 524,638 square meters and also includes catering and entertainment facilities, a hotel, a warehouse and an underground parking lot.

• For the first time since the Covid-19 pandemic, Booking Holdings managed to exceed the levels for room nights in the last quarter which is a significant milestone in its recovery.
• Nearly 0.25 billion room nights were reserved by the company’s clients in Q2, a slight increase from the first quarter’s 9% fall and a rise of 16% compared to Q2 2019.
• The near-term macroeconomic climate is unpredictable which is why we maintain our ‘Hold’ rating on Booking Holdings with a revised target price.

• Procter and Gamble delivered a decent top-line growth in the last quarter surpassing Wall Street expectations and continued its strong cash productivity which enables its high dividend payouts.
• Feminine care, fabric care, and Personal health care were up by double digits, whereas personal care, skin and hair care, and oral and home care all grew low-single digit.
• We provide the stock of Procter and Gamble Company with a ‘Hold’ rating with a revision in the target price.

• Conagra Brands’ strong result was driven by the excellent performance of its snacks business and it managed to deliver an all-around beat.
• With the joint venture, Ardent Mills, the company had a strong quarter performance that recently managed through the latest instability in the wheat markets as well as proved to be an effective windbreak against inflation.
• Conagra brands are planning to deliver $1 billion in cost savings in the upcoming three years as it updates and renovates its supply chain.

• YH Entertainment Group (2306 HK) is looking to raise up to US$144m in its Hong Kong IPO.
• YH Entertainment (YHE) is an artist management company in China. Its business covers the entire artist management industry value chain, from auditioning, training, artist operation to artist promotion.
• As per Frost & Sullivan (F&S), YHE was ranked first amongst artist management companies in China with a market share of 1.9%, based on artist management revenue generated in 2021. 

• WM Motor Technology Co Ltd (WMT CH) (WMM) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• WM Motor is a smart EV player in China. As of the latest practicable date, it had a total of four main EV models. 
• In this note, we talk about the not-so-positive aspects of the deal.

• Nike Inc had another stellar quarter and managed to surpass Wall Street expectations in terms of revenues as well as earnings with plenty of new innovations coming out.
• A new lifestyle show, Nike Spark Flynit, was launched that introduces the latest innovation of NIKE Running with the Spark cushioning system.
• This quarter, in Jordan, Luka Doncic debuted his anticipated signature shoe Luka 1, during the NBA Playoff.

• Colgate-Palmolive (NYSE:CL) is hardly a business for risk-seeking and short-term oriented investors.
• While the management has given us a master class in long-term value creation, the share price is also unlikely to make anyone rich quickly.
• On the contrary, CL is an investment akin for anyone looking for steady value accumulation, superior risk-adjusted returns and a wide moat.

• Levi Strauss & Co continued to see a strong consumer demand in the last quarter as the management continued executing its strategic initiatives that are viewed clearly in the results.
• Its strategic priorities continue to be focused on margin expansion with a direct-to-consumer (D2C) first approach.
• We provide Levi Strauss with a ‘Buy’ rating and a revision in the target price.