Consumer

• I tally 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deals discussed this week: Sigma Healthcare (SIG AU)‘s reverse takeover; Tanotos’ tilt for Vinda (3331 HK); and Tender offers for Shinko Electric (6967 JP) and Outsourcing (2427 JP).
• Key updates took place on: Pact Group Holdings (PGH AU), Allkem (AKE AU), Costa Group Holdings (CGC AU), T&K Toka Co Ltd (4636 JP) and Hollysys Automation Technologies (HOLI US).

• It was a busy week with rebalance implementations at the close of trading on Thursday in Korea and then across the region on Friday.
• The SET 50 Index changes should be announced this week and the Yuanta TW Div+ ETF will continue to implement the changes till Thursday.
• There were inflows to China ETFs during the week while there were big outflows from Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) ETFs.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• A few large placements in India, along with Denso Corp (6902 JP) pricing, kept the market ticking this week.
• In the IPO space, India saw a flurry of launches, as companies and banker try to cash-in on the market frenzy.

• Las Vegas Sands (LVS US) announced it will buy  ~1% of Sands China (1928 HK). Melco International Development (200 HK) mean reverts after a roller coaster out/under-performance. 
• Preceding my comments on Las Vegas Sands and Melco 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%.

• Vinda International (3331 HK) has announced a pre-conditional voluntary offer from Sukanto Tanoto at HK$23.50 per scheme share, a 7.8% premium to the undisturbed price (26 April). 
• The pre-condition relates to China SAMR and Japan Fair Trade Commission approval. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
• Irrevocables ensure the satisfaction of the minimum acceptance condition but also rule out a competing proposal. The timing of China SAMR approval is the key risk. 

• Olympic Industries (OLYMPI BD) sustained and improved profitability despite the revenue drop. 
• Square Textiles (SQTT BD) faced challenges in FY23 but now seems to be turning around. 
• Bashundhara Paper Mills (BPML BD) saw a weak performance driven by lower profitability due higher interest rates on borrowings.

• Back on the 27 April, personal hygiene play Vinda International (3331 HK) announced its controlling shareholder Essity (ESSITYB SS) would commence a strategic review of its 51.59% ownership.
• That spurred, allegedly, a variety of suitors including Brazil’s Suzano, the world’s largest hardwood pulp producer, Bain Capital, CVC Capital, DCP Capital, and Indonesia’s Tanoto family.
• And the Tanoto’s have now emerged with a HK$23.50 pre-conditional Offer. The key risk is PRC regulatory approval . Elsewhere, this is a done deal. 

• A meeting with Ace Hardware Indonesia revealed a newfound enthusiasm and confidence in the outlook for growth with new store formats and an omnichannel approach as key future drivers. 
• The company will accelerate its store buildout in 2024 with plans for 20 new stores versus 13 in 2023 with new format stores taking the lead, with an emphasis ex-Java.
• Ace Hardware Indonesia (ACES IJ) will also accelerate the buildout of smaller-sized Ace Express stores with a pilot started this year.  Recent share price weakness looks unjustified.

• The hosts discuss the abundance of bowl lunch options in midtown Manhattan and how it has changed over time.
• They raise the question of how businesses in this crowded market can stand out and win customers.
• The co-founder of Sweetgreen, Nick Jamaic, is introduced as the guest to discuss their success in the salad bowl game and their recent announcement of not cooking anything in seed oils.

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• There were 6 inclusions and 6 exclusions for the Nasdaq-100 Stock Index (NDX INDEX) at the annual December reconstitution. Then another ad hoc change was added on top of that.
• Impact on the inclusions ranges from 1-8 days of ADV to buy, while the impact on the deletions varies from 0.7-2.6 days of ADV to sell.
• Apart from the constituent changes, there are expected to be inflows in Tesla Motors and Broadcom and outflows from Apple, Microsoft, Amazon.com and NVIDIA.

• China Tourism Group Duty Free Corp Ltd (601888 CH)  (CTG) share price has plunged by 63% despite solid 9M23 profits growth and cash flushed balance sheet 
• Underlying fundamentals is solid, Chinese people still buying duty free goods, albeit tilting towards value than decadence purchases 
• CTG is cheap relative to its own history on all valuation metrics (PE, P/Book, P/FCF) and many technical indicators suggest it is in OVERSOLD territory 

• GoTo Gojek Tokopedia Tbk PT (GOTO IJ) announced on Monday a partnership with TikTok  which would combine former’s e-commerce biz Tokopedia with TikTok Shop Indonesia.
• TikTok was forced to close its e-commerce services in Indonesia following regulations banning online shopping on social media platforms in September citing protection of smaller merchants and data privacy.
• It seems TikTok will certainly be a winner if the deal is approved but surprised at GoTo’s move to retain a minority stake given e-commerce business is nearing profits.

• With Toyota (7203 JP) having sold some of its stake in Denso, KDDI and Harmonic Drive this year, it has firmly set the ball rolling for unwinding some of its cross-shareholding.
• Toyota has a shareholding in around 60 listed companies, with its combined disposable stake worth over US$26bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Li Auto’s deliveries and revenues surged by three digits since 3Q23.
• The company is building new factories in Changzhou and Beijing. 
• However, we believe the stock is overvalued apart from comparing with Tesla.

• Research shows that El Niño results in milder weather leading to higher precipitation and consequently ~3.5% higher yield leading to depressed bean prices.
• Bean prices have outperformed seasonal trends in November and December. It is surprising given surplus inventory outlook and El Niño effect on production.
• Notifications of large export sales have driven much of the bullishness in prices over the past week. Prices are up 1.7% from last Friday’s settlement prices.

• Adelson family interests have sold 10% of their LVS equity to acquire a pro basketball franchise. This triggered am 8.5% decline in the stock when it was actually  bullish.
• The market has not yet grasped the magnitude of  the Asian  gaming  recovery arc which points to 2024 reaching baseline 2019 arrivals and GRR pace by mid-2024.
• LVS has the scale and amenities to outperform peers but this  is  not  yet reflected in its trading  range dead pooled in  the $40s.

• Since 11/21/23 Compass we have discussed weekly that even a minor 2-5% pullback is far from a guarantee, considering “breakaway gaps” and what appeared to be an ongoing “lockout rally”
• All we got was a 1% peak to trough decline in the S&P 500, while the Nasdaq 100 (QQQ) pulled back 2.9% (though left the 11/14/23 gap unfilled).
• Now, SPX and QQQ are breaking out yet again after a multi-week consolidation period, including SPX breaking above 2-year resistance at 4600-4607. This is what a strong market looks like.

• Consumption of used products is rising fast as exemplified by the rise of 2nd Street. 
• Operated by Geo Holdings (2681 JP), once just a DVD rental business, it is now Japan’s largest used goods retailer.
• Sales are booming in a market increasingly focused on thrift and re-use, allowing 2nd Street to even take on the might of Mercari.

• So there we were today, scanning the latest corporate filings to the Securities and Exchange Commission , when we noticed that Johnson Controls ($JCI) had filed its latest earnings report .
• We started reading, and were immediately stopped short by this earnings adjustment, right there in the second bullet point: Fiscal Q4 GAAP EPS of $0.80; Q4 Adjusted EPS of $1.
• Hold up — what cybersecurity incident? When did that happen, and what has Johnson Controls said about it so far? 

• Since the US$4.0 billion secondary placement announcement, Denso Corp (6902 JP)’s shares are down 4.3% from the undisturbed price of JPY2,298 per share (28 November).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Denso’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 13 December. Investors participating in previous large Japanese placements tend to secure positive returns.

• Tongcheng Travel Holdings (780 HK) is expected to replace GDS Holdings (9698 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the March review.
• Constituent changes and capping changes will result in a one-way turnover of 2.32% and that will result in a round-trip trade of US$628m.
• Short interest on Tongcheng Travel Holdings (780 HK) is near its lows while there has been some recent short covering in GDS Holdings (9698 HK). 

• CEO Group JSC (CEO VN) will be added to the MarketVector Vietnam Local Index at the close on 15 December.
• Estimated one-way turnover is 5.24% and that results in a one-way trade of US$30m. There are a couple of stocks with more than 1x ADV to buy from passives.
• The largest passive inflows will be in Vingroup Jsc (VIC VN), Vietnam Dairy Products JSC (VNM VN), CEO Group JSC (CEO VN) and Vinhomes (VHM VN). 

• JSE indices get rebalanced in the closing auction on Thursday.
• No constituent changes will be made to the ALSI, Top 40, Top 40 SWIX, FINI, FINDI or INDI. HAR will enter the RESI and AMS will fall out.
• Largest buys: BTI, MNP, BHG, APN.

• KT&G is a high conviction pick in 2024.We believe KT&G Corporation (033780 KS) is likely to announce cigarette price hikes in 2H 2024.
• Three major reasons include a) no cigarette price hikes in nearly 9 years, b) Korean legislative election will be in April 2024, and c) reduce government tax revenue shortfall.
• We believe that the Korean government could raise cigarette prices to about 7,000 won to 8,000 won per pack from current price of 4,500 won. 

• The contents of quarterly reports are the same as those of financial summaries. Therefore, it’s in order that the quarterly reports for 1Q /3Q be unified with the financial summaries.
• The major difference between quarterly securities reports and financial summaries is the significance of legal responsibility. By requiring partial review by auditors, TSE will ensure the reliability of financial summaries.
• Meanwhile, TSE must continue to enhance the ethics of company managers and require companies to eliminate malicious misreporting. Unification of quarterly reports would further increase the role of the TSE.

• RPSGV’s BPO business, Firstsource Solutions, is stabilizing and reported flattish QoQ revenue growth. EBIT margin has also bottomed out and is now at around 11%, an expansion of 300bp YoY.
• FMCG Business continues to maintain an annualized revenue run-rate of INR 400cr+. The Sports business generated revenues of INR 50cr+ vs INR 15cr YoY. 
• The FMCG and the Sports businesses hold tremendous scalability potential going forward. The IPL Lucknow franchise also owns a team named Durban in the South Africa T20 league.

• I wrote a brief write-up on why I liked Anexo (ANX) almost a year ago when the stock was trading at 84p.
• I had hoped that the VW payout would be 10-20 million GBP and turned out to be only about 7.2 million for 12,000 of their 16,000 VW clients.
• As of their H1 2023 report they had another 12,000 Mercedes emissions clients, and they believe the VW settlement has created a precedent and have several other car manufacturers lined up, so this could turn out to become a nice profit stream after all.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Wynn Macau Ltd

• Li Ning (2331 HK) announced yesterday that the company has acquired a HK office project, the Harbour East, from Henderson Land, for a total consideration of HKD2.2bn. 
• The acquisition is quite unexpected given that Li Ning has had a clean corporate governance track record.
• The company now trades at 11x foward PE, assuming no growth in 2023 and 2024 earnings.  It is now a value stock, though the visibility is very low. 

• On 28th Nov 2023, Toyota Motor (7203 JP) announced that it would sell around 9.4% of Denso Corp (6902 JP) in order to reduce its cross-shareholding.
• The shares hadn’t corrected much till our last note on 7th Dec 2023, they have since corrected by 6% .
• We have covered the deal background and deal dynamics in our earlier notes. In this note, we talk about the recent share price movement, as compared to prior deals.

• We review the major tender offers of Korean companies in 2023. Some of the major M&A tender offers that have closed this year include Osstem Implant and SM Entertainment.
• Among the 15 companies targeted for tender offers, there are 5 companies including Osstem Implant, SM Entertainment, Lutronic Corp where the purpose of the tender offers is for M&A. 
• There were a total of 18 companies that submitted tender offer results announcements in 2023 (as of 11 December), up 157% YoY.

• The prevailing sentiment in Yeouido signals a shift of companies, originally preparing for EB issuances, toward block deals. Local brokerages are competing to identify potential block deals involving major issuers.
• The local market anticipates LG Chem opting for a short-term block deal, considering the potential reduction of the LG Energy stake below 80% to alleviate global minimum corporate tax burdens.
• Timing is a challenge, but based on corrections before July’s EB issuance, we could proactively plan for January. Abundant liquidity in LG Energy’s futures eases trading instrument concerns.

• GoTo Gojek Tokopedia (GOTO IJ) has announced that it will sell a controlling 75.01% stake in Tokopedia to TikTok in order to create Indonesia’s leading e-commerce platform.
• There had been earlier indications that a deal was in the offing but the size of TikTok’s stake was surprising plus it has committed to invest US$1.5bn in Tokopedia. 
• GoTo will retain a 24.99% non-dilutive stake and will receive an ongoing revenue stream from Tokopedia in line with its scale and growth contributing directly to its EBITDA. 

• The Costa Group Holdings (CGC AU) IE considers Paine Schwartz Partners’ A$3.20 offer fair and reasonable as it is towards the upper end of its A$2.62-3.28 valuation range. 
• The scheme requires China SAMR and European Commission approvals. SAMR approval poses a timing risk but the scheduling of the scheme meeting reflects PSP’s confidence in securing the approvals.
• While not a knockout bid, the profit warning should help sway the retail vote in favour of the scheme. At the last close, the gross spread was 8.1%.

• REPT BATTERO Energy (1998104D CH), a leading EV battery manufacturer, has launched an HKEx IPO to raise up to US$306 million. Pricing is on 14 December.
• We previously discussed the IPO in Rept Battero IPO: The Bull Case and Rept Battero IPO: The Bear Case. 
• There are no cornerstone investors. Our valuation analysis suggests that the IPO price range is unattractive. Therefore, we would pass on the IPO.

• On the 22 September, Costa Group Holdings (CGC AU) backed Paine Schwartz Partners’ (PSP) revised (and reduced) A$3.20/share best and final Offer. 
• Costa’s Scheme Meeting has now been tabled for the 30 December, with implementation expected on the 26 February. The IE is supportive and Costa’s board unanimously recommends the transaction.
• This appears  done. Key conditions are Costa’s shareholder vote and SAMR approval. I can’t see SAMR getting into a bind over berries. 

• Doms (DOMS IN) IPO opens for subscription soon. The INR 12 bn IPO includes INR 3.5 bn fresh issue and the remaining as offer for sale. 
• The company is a prominent player in the Indian stationary market and has one of the most diverse product portfolio with a market share of 12% in F23. 
• DOMS ticks right in majority of the boxes when it comes to operations and B/S health. One must still be cautious regarding dependence on FILA group, and faster depreciating rates.  

• The investment case revolves around the Company’s strong long-term fundamentals
• An attractive and complementary skincare-focused brand portfolio centred on flagship Nivea brand in the mass segment, Eucerin in the growing dermocosmetics category and La Prairie in the higher-margin luxury segment.
• Less expensive option than L’Oréal to gain exposure to an attractive skincare portfolio. The Company’s business model should prove resilient in a more challenging marker environment

• A2 Milk Co Ltd (A2M AU), AMP Ltd (AMP AU) and Charter Hall (CHC AU) will be deleted from the MVIS Australia Equal Weight Index at the close 15 December.
• Constituent changes plus capping and float changes result in a one-way turnover of 5.05% and will result in a one-way trade of A$99m.
• There is a fair amount of short interest on the deletions and shorts could look to cover against the passive flow.

• REPT BATTERO Energy (1998104D CH) is looking to raise up to HK$2.39bn (US$306m) in its IPO by selling 116.07m shares at HK$20.6/share, valuing the company at HK$46.9bn (US$6bn).
• The H-share market cap is a lot lower at HK$6.33bn (US$811m) since most of the pre-IPO shares will remain as Domestic Unlisted Shares.
• The stock will be eligible for HSCI inclusion in March but will need to trade higher than the upper end of the IPO range to be added to the index.

• Travelers increased by 75% YoY and traveling spending increased by 144% YoY in China in 9M2023.
• TCOM’s total revenue rose by 31% in 3Q23 over 3Q19 before COVID.
• We conclude an upside of 33% and a price target of US$43.70.

• We set out to compare prices & the “retail experience” at AMZN, SHEIN
• Selecting comparable items, we looked at landed costs, transit times, returns
• SHEIN’s value proposition is obvious; will consumers accept its drawbacks, too?

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts to play with.
• Last week saw NORTHBOUND net sell RMB 5.8bn of A-sharesin higher-than-normal activity.
• Looking at the change in the weekly position charts over the last year is striking (easiest in the Sectors table to start).

• BYD offers a reward up to RMB5 million for reporting defamation.
• NIO denied further layoff after releasing the 3Q23 results with both revenue and loss increasing significantly.
• Meituan’s GMV of live broadcasting food delivery reached RMB2 billion.

• REPT BATTERO Energy (1998104D CH), a leading EV battery manufacturer, has launched an HKEx IPO to raise up to US$306 million. Pricing is on 14 December.   
• In Rept Battero IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on market share losses, high related party revenue, weak outlook, EV battery weak performance, FCF burn, high impairments and receivable financing. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, Sino-Synergy Hydrogen Energy Technology (9663 HK) and Dekon Food didn’t do much even as other are lining up to try their luck.
• On the placements front, Japan and India flows continue like there is no tomorrow.

• REPT BATTERO Energy is looking to raise around US$300m in its Hong Kong IPO.
• REPT BATTERO Energy (REPT) is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs.
• We have looked at the company’s past performance in our previous notes. In this note, we talk about valuations.

• India is top global sugar producer & exporter. India ordered mills to halt ethanol blending on domestic shortage concerns in addition to export restrictions imposed earlier this year.
• Sugar prices soared to a 12 year high in late Oct. Despite India’s order on blending, global sugar prices have tanked 13% since start of Dec.
• Brazil’s bumper sugar crop will depress near term prices. However, intensifying effects of El Niño could send sugar prices soaring during later part of next year.

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in March 2024.
• Based on the current data, I see only one low-conviction ADD and one low-conviction DEL.

• Electric-vehicle (EV) startup Nio Inc. looks set to begin building its cars independently, announcing plans to acquire two manufacturing assets shortly after a subsidiary was added to a government database for companies approved to produce vehicles.
• Nio on Tuesday entered into “definitive agreements” to buy equipment and assets from two “advanced manufacturing” bases from state-owned automaker Anhui Jianghuai Automobile Group Corp. Ltd. (JAC) (600418.SH +1.67%) for approximately 3.16 billion yuan ($443 million), excluding tax, according to a Hong Kong Stock Exchange filing accompanying its third quarter results the same day.
• JAC has been producing all of Nio’s cars on a contract basis since 2018.

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• In this insight, we take a look at the rankings of potential ADDs and potential DELs for the March 2024 index rebalance.
• Based on the current numbers, our estimate shows there could be one ADD and one DEL but there are some question marks due to the past index review outcomes.

• Buoyed by strong post-pandemic domestic consumption and the return of inbound visitors to Japan, Sapporo Holdings (2501 JP) has been firing on all cylinders in recent quarters.
• Business fundamentals for next year look strong, with the company positioned to benefit the most from Japan’s liquor tax revisions.
• Additionally, activist investor 3D Investment Partners could successfully advance their proposals to divest the Real Estate business.

• Softbank Group (9984 JP) is looking to raise US$135m from selling its remaining stake in Zomato (ZOMATO IN).
• Since receiving shares from Zomato’s acquisition of 91% of Blinkit’s outstanding shares, Softbank has been busy trimming its stake in Zomato. The stake sale now will be a cleanup one.
• Representing just 1.2 days of Zomato’s three month ADV, the deal here would be easily digested by the firm.

• By canceling the IPO of Rakuten Securities, it is assumed that Rakuten Group wanted to generate cash on schedule even if it was 10 billion yen less than originally planned.
• Although Rakuten Group could generate cash in the predetermined time. it remains unclear whether the company has secured a path to improve cash flow in the pending cell phone business.
• If Rakuten Securities went to public, another parent-subsidiary listing would have been created, so the cancellation of the IPO can be evaluated as positive for the quality of the market.

The Europe HY Trade Book for December 2023 includes current trade recommendations drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

Deliveroo’s (ROO’s) November capital markets day (CMD) saw its leadership team present initiatives aimed at progressing the customer value proposition (CVP) to drive revenue growth and improve profitability. ROO’s strategy is to unlock growth through greater market penetration and by growing customer loyalty via a hyperlocal approach, hosting both national and local brands on its platform. The shares are down 65% since the IPO in 2021, with trading affected by the weaker consumer environment amongst other factors. ROO trades at a discount to its peers, although delivery on financial targets and the tailwind of an improving consumer environment could enable the discount to narrow.

While we believe H223 represents a pause in growth at paragon’s ongoing automotive operations, we are cutting our near-term EBITDA margin contribution from the Electronics segment. As a result, we lower our FY23e and FY24e sales estimates by 2% and 3% and EBITDA by 25% and 17% respectively, reducing our DCF valuation to €9.4/share.

Games Workshop Group’s (GAW’s) H124 trading update indicated a robust start to the year in line with management’s expectations. The launch of the new edition of Warhammer 40k in Q1 helped to boost core year-on-year revenue growth in the first half by an expected 11% to no less than £235m (H123: £212.3m). Licensing revenue is expected at £12m (H123: £14.3m), taking total group revenue to c £247m (H123: £227m). There was an implied slowdown in core revenue growth in Q2 versus Q1, although this is expected following a new edition of Warhammer 40k. PBT is expected to grow 12% to ‘not less than’ £94m (H123: £83.6m). We have left our estimates unchanged, anticipating broadly a 50:50 H1:H2 split for both revenue and profit. The H124 results are scheduled for 9 January 2024.