Consumer

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• The highest spreads are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Link Administration (LNK AU), Australian Unity Office Fund (AOF AU).
• The lowest gross spreads are Hwa Hong Corp (HWAH SP), Excelpoint Technology (EXLP SP), Uniti Group Ltd (UWL AU), Giordano International (709 HK), MyDeal.com.au Ltd (MYD AU).

• A third of the way through the review period, we see one potential change. There are four stocks that are close to inclusion zone and could lead to more changes.
• Currently, Miwon Specialty Chemical Co (268280 KS) is an add while Hyundai Home Shopping Network (057050 KS) is a delete.
• Samyang Foods (003230 KS), Lotte Confectionery (280360 KS), Unid Co Ltd (014830 KS) and Miwon Commercial (002840 KS) are close adds currently.

• Valora has agreed to a CHF 260/share cash offer (52% premium, 7.6x EV/Fwd EBITDA, 24.7x Fwd P/E) from FEMSA, which intends to use it as a platform for European expansion.
• I consider the offer as fair (my DCF valuation of Valora is CHF 252.2/share, WACC 8.5%, 1.7% implied perpetuity growth rate).
• Valora should benefit from FEMSA’s know-how and added scale. A counterbid could be possible from the likes of Migros and Coop.

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.

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.

• Silchester’s effort to raise awareness in Chugoku Bank (8382 JP) failed. Still, if you had a basket of regional bank longs and shorts, Chugoku would be in the short basket. 
• Dye & Durham reloads a higher Offer after Link Administration (LNK AU)‘s rejection. This probably still needs a (small) bump in terms to get up. 
• Rakuten Inc (4755 JP)is trading at a significant discount to its SOTP. A part of its Fintech segment (Rakuten Bank) could be worth ~50% of total market cap.

• LRT Capital is a fundamental investment hedge fund. We invest only in companies with durable competitive advantages, i.e. “moats.”.
• June’s strong results were driven primarily by our hedges, with our portfolio companies declining much less than the market as a whole.
• What is likely to determine the directions of stocks over the short-term (the next 6 months), is the outlook for inflation and interest rates over the coming year.
• We will happily own many technology companies if their valuations become more attractive.

• LRT Capital is a fundamental investment hedge fund. We invest only in companies with durable competitive advantages, i.e. “moats.”.
• June’s strong results were driven primarily by our hedges, with our portfolio companies declining much less than the market as a whole.
• What is likely to determine the directions of stocks over the short-term (the next 6 months), is the outlook for inflation and interest rates over the coming year.
• We will happily own many technology companies if their valuations become more attractive.

• The demand environment for offline electronic retailers has been good in Q1, the macro factors also point to good growth for FY23. 
• Companies like Haier Smart Home Co Ltd (6690 HK) and Samsung Electronics (005930 KS) have done well. Voltas Ltd (VOLT IN) has not been able to recover. 
• Indian consumer no longer wants everything cheap, assuming affordability, quality and brand value is taking prominence. 

• Nexteer Automotive (1316 HK) share price fell 50% in Q1 22 due to the China lockdown scare although it has manufacturing facilities all over the world. 
• It traded below book value at some point and rallied alongside other Chinese names in the past month to currently at book value. 
• Most of the new business won is from EV OEMs thus the company deserves a higher multiple given the high growth in the EV sector. 

• Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
• Overall, the net inflow over the past week was ~US$1.3bn, split US$0.7bn for Shanghai and US$0.6bn for Shenzhen.
• The largest inflows were into Tencent (700 HK) and Li Auto (2015 HK). The largest outflow was in Meituan (3690 HK) and Great Wall Motor (2333 HK).

• The Palm Valley Capital Fund invests in small cap stocks. While our Fund is new, its underlying absolute return-based investment strategy is not. We have practiced the same strategy throughout our careers in investment management.
• Investors’ faith in central banks is currently being tested by the highest U.S. inflation in over 40 years.
• Two-thirds of the nonfinancial members in the Russell 2000 Index are either unprofitable or trade above 20x EV/EBIT.
• The median EBIT growth since 2019 for small caps in the sub 10x EV/EBIT bucket is an astonishing 194%.
• Small caps didn’t sell off enough to create compelling opportunities across the board and the market simply unwound its undeserved gains from 2021.

• The Palm Valley Capital Fund invests in small cap stocks. While our Fund is new, its underlying absolute return-based investment strategy is not. We have practiced the same strategy throughout our careers in investment management.
• Investors’ faith in central banks is currently being tested by the highest U.S. inflation in over 40 years.
• Two-thirds of the nonfinancial members in the Russell 2000 Index are either unprofitable or trade above 20x EV/EBIT.
• The median EBIT growth since 2019 for small caps in the sub 10x EV/EBIT bucket is an astonishing 194%.
• Small caps didn’t sell off enough to create compelling opportunities across the board and the market simply unwound its undeserved gains from 2021.

• Z Holdings will integrate its eCommerce platforms in a move that boosts the PayPay brand and may generate some (very) modest synergies
• We are publishing updated forecasts and setting a new target price at ¥550 but we remain cautious on the shares in the near term as consensus remains high
• Shares of ZHD still appear expensive at 14-16x our estimate of FY22e EBITDA and are more expensive than Alphabet at these levels (12x EBITDA)

• Perfect Medical Health (1830 HK) is a recovery play for HK/China beauty trading at 11.8x PE FY23, with a dividend yield of 8.5% (assuming a 100% payout).
• With net cash (including investments) of 565 mn HKD ( > 10% of market cap ), the company is primed for M&A in an environment where restrictions have weakened competitors.
• The chairman’s recent buying of shares ( representing a 0.41% stake ) and the company share repurchase ( representing 0.08%)  indicate the company’s confidence in its prospects. 

• Giordano International (709 HK)’s 1H22 net profit is expected to be in the range of HK$91-101 million, which represents YoY growth of 52-68%. Interims will be out in early August.
• The clear sign of a retail recovery diminishes the prospect of the Cheng family’s low-ball offer of HK$1.88 per share hitting the 50%+ minimum acceptance threshold.
• The offer price has not been declared final suggesting that the Cheng family retains some room to test shareholder appetite with an improved offer.   

• With OP up by 32.1% YoY, 1QFY23 was the first genuine sign of the realisation of synergies from the Speedway acquisition.
• There could be more good news on the horizon as various news outlets have reported that the sale of Sogo Seibu is moving closer.
• Yet we are neutral on Seven & I Holdings (3382 JP) in the short-term. We think investors needs to see the true colours of synergies for shares to break ¥6,100.

• At this point, Lotte Confectionery and Miwon Specialty Chemical are currently within less than a 5% increase in market cap to beat the buffer rule.
• Three constituents are out of the buffer zone: Cheil Worldwide, HDC Hyundai Development, and Boryung Pharmaceutical. Hanall Biopharma, Samyang Holdings, and Hyundai Home Shopping sit on the buffer zone borderline.
• We should target Samyang Holdings and Hyundai Home Shopping for a short position against Lotte Confectionery and Miwon Specialty Chemical.

• Investors should ignore the news around restructuring….it’s nice but basically irrelevant
• The long-term valuation proposition is driven by the core convenience store businesses in the US and Japan
• Unlike Walmart, we think 7&I should have a good quarter in the US and beat analyst expectations for Q1

• SOCAR (403550 KS) is looking to raise up to US$159m in its upcoming Korea IPO. 
• While SoCar seeks to be an all-in-one mobility solution provider, the bulk of its revenues still come from its car sharing segment. 
• The car sharing market remains highly competitive with existing players that are already profitable. In this note, we will undertake a peer comparison of SoCar vs its listed peers

• Weilong Delicious is a is a leading spicy snack food company in China with a market share of 6.2% and ranked first among all spicy snack food enterprises in China.
• The company’s application for a HKEx IPO has been approved and plans to raise proceeds of about US$500m.
• Our analysis on the company’s financials reveal that its top line growth is slowing down while margins have come under pressure. We discuss the details below.

• After the close of trading yesterday, Giordano International (709 HK)  announced a positive  profit alert
• Giordano expects an interim net profit of HK$91mn-HK$101mn, a 52%-68% increase over the corresponding period.
• The Cheng family’s HK$1.88/share Offer was low-balled from the onset. Substantial shareholder David Webb agrees. This deal is dead without a bump.

• Same-store sales were 643.8% vs. June 2021 (1648.4% for May), 115.9% vs. June 2020 (684.1% for May), and 84.7% vs. June 2019 (83.2% for May)
• Compared to June 2021, the guest count was 601.0% (1591.9% for May), and the average check was 107.1% (103.5% for May)
• The number of stores at the end of June was 617 (flat MoM). The number of company-owned stores was 386 (flat MoM)

• This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry. 
• The reasons for the margin increases are sometimes unsustainable or fraudulent. The  critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation. 
• These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.

• One of Japan’s largest internet companies, Rakuten Inc (4755 JP) applied to list its consolidated subsidiary, Rakuten Bank (EBANKZ JP) on the Tokyo Stock Exchange on the 4th of July.
• With steady customer account growth mostly assured through leveraging Rakuten’s eco-system with more than 36.0m monthly active users, Rakuten Bank is likely to be valued at over ¥500bn.
• Thus, we think the Rakuten Bank IPO could change Rakuten’s fortunes and help the share price bounce back from a 10-year low level.

• Emperador Inc (EMP PM) is pre-marketing a secondary listing on the SGX IPO by raising US$300-500 million, according to press reports. 
• Emperador has established a track record of decent revenue growth, profitability and cash generation over the years. 
• While the fundamentals are solid the valuation looks full in comparison to peers and historical trading ranges. 

• Oriental Selection achieves high-speed user growth through bilingual livestreaming, thanks to Douyin’s  algorithmic recommendation mechanism before 6/18 ecommerce, after 6/18 the increase in the follower numbers & GMV dropped sharply.
• The unit price of the product is below average, due to the focus on produce and books, Agricultural livestreaming has always been a difficult to grow category
• 10%-15% Commission  is lower than industry average, and subsequent supply chain control and 1st party products have lower margins.

• Amazon announced a partnership with TKWY’s Grubhub where Amazon Prime members will get one year free of Grubhub+ membership.
• Amazon has the option to take a 2% stake in Grubhub which could grow to 15% depending on performance conditions.
• Deal is a direct shot at DoorDash’s Dashpass subscription program, which is 30% of DASH’s customers and accounts for ~50%? of GOV… expect a price cut to stave off churn.

• Allied Blenders and Distillers (ABD) is looking to raise about US$250m in its upcoming India IPO. The deal will be run by ISec, Axis, JM Fin, Kotak and Equirus.
• ABD is the largest Indian-owned Indian-made foreign liquor (IMFL) company and the third largest IMFL company in India, in terms of annual sales volumes between FY14 and FY21.
• It had a market share of 8.2% in the IMFL market by sales volumes in FY21. Its products are retailed at over 64,000 outlets in India.

• Same-store sales were 108.6% vs. June 2021 (113.6% for May), 101.5% vs. June 2020 (128.0% for May), and 98.9% vs. June 2019 (102.4% for May)
• The company ran a Sanrio Characters campaign in June. The prizes featuring popular characters such as “Cinnamoroll” seem to have been well received by the customers
• The number of stores at the end of June was 516 in Japan (+2 MoM), 37 in the U.S. (flat MoM), and 46 in Taiwan (+1 MoM). The total number of stores was 599 (+3 MoM)

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.