In this briefing:
- TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
- Last Week in GER IPO Research: Leong Hup, China Tobacco, Futu and Weimob
- Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough
- China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks
- The GER Weekly EVENTS Wrap: Don Quijote, M1, Healius and Upcoming M&A Catalysts
1. TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
Take out an ad in a magazine or pay a one of the Wondergirls to post an Instagram photo of herself using our makeup? How do we get Americans and Europeans to want our bubble tea sleeping packs and panda-shaped palettes? All valid questions for K-beauty companies in the midst of a global expansion.
Korean beauty products powerhouse, Amorepacific is going through some growing pains at the moment. In the 3Q18 the group reported a YoY sales increase of 6% but OP tumbled 24% due to increased personnel and marketing costs. In a management policy statement last week, Chairman Suh outlined the problems the group is encountering as it copes with reaching customers in a world where online and offline customer interaction is changing.
The stub is now trading at its widest discount to NAV in at least 3 years and has reached 22% discount to its Sum of the Parts NAV by my calculations. This level represents a level 1.5 standard deviations below its long-term average and also offers compelling value.
In this insight I will detail:
- an actionable market-neutral trade idea
- an analysis of the various business units of Amorepacific
- reasons for the under-performance of Amorepacific parent and a sign of a rebound
- a recap of ALL my stub trade ideas on Smartkarma, including track record of performance
2. Last Week in GER IPO Research: Leong Hup, China Tobacco, Futu and Weimob
We slide into 2019 with GER’s recap of our latest IPO research. This week, we talk chicken as Arun initiates on the IPO Malaysian poultry producer Leong Hup International (LEHUP MK). Secondly, Venkat initiates on China Tobacco International (GHALPZ CH) with a cautious view. In addition, Arun initiates on online broker Futu Holdings Ltd (FHL US) and we remind of Arun’s valuation piece on Weimob.com (2013 HK) .
Quote of the week
Are you insane?
-Sky news presenter to UK MP Boris Johnson ahead of the Brexit parliament vote planned for today
Best of luck for the week and new year- Rickin, Venkat and Arun
3. Apple (AAPL): Reduces Prices in Mainland China – Right Action, But Not Enough
- Tim Cook passed the buck to the weak sales in China. However, we believe China’s retailing is running well based on our visits to shopping malls with Apple stores.
- Luxury goods sold better in China than all other major markets in the world in 2018.
- We believe that the price reduction in Mainland China is just taking market share from Apple Stores in Hong Kong, but not from competitors.
- We also believe that the app review process is the fatal shortcoming for AAPL.
4. China Kepei Edu (科培教育) IPO – Regulation Poses Significant Near-Term Risks
China Kepei Education (1890 HK) is looking to raise up to US$122m in its upcoming IPO.
Overall, the company has continued to show that its undergraduate program is the driver behind its growth. It grew its 8M 2018 revenue and gross profit both by about 24% YoY. However, there are significant near-term risks if the MOJ Draft for Comments gets implemented. It may result in Kepei registering its schools as for-profit private schools which would shrink its net profit margin.
In this insight, we will provide updates on the company’s 8M 2018 financials and operating performance, the potential impact of policy change and compare its valuation to other listed education peers. We will also run the deal through our framework.
5. The GER Weekly EVENTS Wrap: Don Quijote, M1, Healius and Upcoming M&A Catalysts
In this week’s GER M&A wrap, we highlight the dwindling likelihood of a follow-on deal for Don Quijote Holdings (7532 JP) , which is now trading below terms. Secondly, we take a contrarian view on the M1 Ltd (M1 SP) deal and contend there is less likely to be a bidding war. Finally, we update on rejected by Healius (HLS AU) and provide a comprehensive list of upcoming catalysts for near-term M&A deals.
The rest of our event-driven research can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
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