In this briefing:
- Hyundai Motor Share Class: Time for 1P to Catch Up
- Starbucks (SBUX): China Strategy Reaped by Luckin’s Parasitical Tactic, a Visit and Case Study
- Goldwin Tops Sports Market Growth Through Store Investment
- Hengan Intl. (1044 HK): Our Analysis Suggests that Bonitas’ Allegations Have Some Substance
- Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
1. Hyundai Motor Share Class: Time for 1P to Catch Up
- 1P (005385 KS) was supposed to make a catchup move yesterday relative to 2P (005387 KS). But it didn’t. Price ratio is currently well below -1 σ. Div yield difference is at 0.53%p. This is close to yearly high. At this level, 1P has no other way but to catch up with 2P.
- In my previous insight, I suggested holding onto 1P/2P long/short position. This trade hasn’t performed well. We are at a 5.07% loss at yesterday’s closing. I’d still hold onto this position for the same reasonings as before.
- Tricky one is the recently announced hydrogen cell investment. This may be seen as something boosting Common and likely 2P. Hydrogen cell investment should rather be considered as a signal that the HMG-government relation has vastly improved. This suggests that the restructuring may get accelerated. Anything positively affecting the restructuring should be positive on 1P.
2. Starbucks (SBUX): China Strategy Reaped by Luckin’s Parasitical Tactic, a Visit and Case Study
- We believe Luckin copies SBUX’s site selection, but chooses low rental places close to Starbucks shops.
- Starbucks plans to add delivery business to raise margins and comparable store sales, but Luckin has focused on delivery since inception.
- Starbucks needs the China market as its growth momentum, but we believe Luckin’s parasitical tactic will be a major resistance.
3. Goldwin Tops Sports Market Growth Through Store Investment
Marketing of sports brands has become increasingly retail-led in the last decade and a focus on retailing has enabled Goldwin (8111 JP) to make serious gains while the two biggest domestic brands, Asics Corp (7936 JP) and Mizuno Corp (8022 JP), have been distracted by overseas expansion.
Goldwin took a close look at its beleaguered business 15 years ago and decided retail could be its salvation.
At current rates it will catch up with Mizuno’s domestic sales in a few years.
Overall, we are bullish about Goldwin but also the wider sports category because sports and sports fashion is in many ways one of the few consumer categories to be largely immune to a demographically challenged market like Japan – all age segments are buying into sports apparel, including the over 60s.
4. Hengan Intl. (1044 HK): Our Analysis Suggests that Bonitas’ Allegations Have Some Substance
Hengan Intl Group (1044 HK), China’s leading sanitary towel and nappy producer, has been targeted by a short seller, Bonitas Research. Hengan has denied Bonitas’ allegations to which Bonitas has responded that Hengan’s response was weak and evasive. The shares have continued to slide suggesting that investors are less than convinced with Hengan’s rebuttal.
The aim of our note is to analyse alternative financial metrics to judge if Bonitas’ allegations are groundless or have some substance. Overall, our analysis suggests that Bonitas’ claims have some substance and investors should not be so quick to dismiss them.
5. Alpha Smart – Pre-IPO – PE Investors Recovered 56% of Their Cost in Two Years but Left It in Debt
Alpha Smart (ALS HK), the parent of Chinese menswear fashion retailer GXG, plans to raise US$300m in its Hong Kong IPO. L Catterton, LVMH’s investment arm, along with another PE investor, owns a 73% stake in the company.
Earnings have been consistently growing with the highest contribution still coming from its flagship brand “GXG”. The recent expansion of the online channel has further aided sales growth, with ASL claiming to be the largest menswear retailer in terms of online sales.
Apart from a large dividend payout which covered half of the acquisition costs for L Capital, nothing much seems to have changed recently. In addition, operating cash flow has not kept pace with earnings due to a consistent increase in inventory. To add to that there are a few related party issues as well including some stores being run by former employees.
