In today’s briefing:
- 7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- A/H Premium Tracker (To 21 Feb 2025): AH Premia Continue to Fall; Wider Spreads Narrow Most
- HK Connect SOUTHBOUND Flows (To 21 Feb 2025); Another HUGE Jump in Value Traded, Consumer Still Bid
- Merger Arb Mondays (24 Feb) – Seven & I, Proto, Tam Jai, Pentamaster, Vesync, Canvest, Domain
- Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- HSI Index Options Weekly (Feb 17-21): Alibaba Reignites Momentum
- NIFTY50/NEXT50 Index Rebalance: Zomato, JioFin Slide In as BPCL, Britannia Drop Out; US$3.3bn Trade
- MIXUE Group (2097 HK) IPO: Reasonably Attractive Pricing
- Mixue Group IPO: The Good, The Bad and Valuations
- Airbnb Inc.: A $250 Million Bet To Make It the Amazon of Travel?
7&I (3382) – Bain Gets York Holdings with a Surprising Price, And We Approach Deal Deadlines
- Over the weekend, the Nikkei and Jiji reported the 7&i Board met Saturday and decided Bain would have preferred negotiating rights to buy York Holdings. They bid “over ¥700bn.”
- That’s a trifle lower than the ¥1.2trn Reuters reported (on Christmas Day) Bain bid but details aren’t known. Proper structuring would get the vast majority to 7&i in post-tax cash.
- For 7&i to decide by the AGM (which could be contentious), they need time to debate. Bids are likely needed in 3wks. In the meantime, “Trump Risk” lurks.
A/H Premium Tracker (To 21 Feb 2025): AH Premia Continue to Fall; Wider Spreads Narrow Most
- AH Premia continue to fall with the widest spreads narrowing more than the narrowest spreads, and liquid pairs seeing more narrowing than illiquid pairs.
- Average AH Premia are at a new 5yr low (longer, actually, but charts below only show 5yrs). The big warning sign? Rolling 52wk performance of A vs H in pairs.
- Momentum is going to work until it does not. A new Trump EO this weekend seems to have potential to lead to more restrictions on US ownership of Chinese stocks.
HK Connect SOUTHBOUND Flows (To 21 Feb 2025); Another HUGE Jump in Value Traded, Consumer Still Bid
- This past week saw SOUTHBOUND Connect clear HK$800bn of gross value traded, and net value was near recent highs at +HK$51bn. Consumer and finance names continue to be the rage.
- Notable is the HUGE back-and-forth. If HK$800bn traded and SOUTHBOUND only bought HK$51bn, HK$375bn was round-tripped for short-term purposes.
- That is twice the “excess” traded seen for the past year. Tencent (700 HK) saw US$14bn traded but net buying was US$121mm.
Merger Arb Mondays (24 Feb) – Seven & I, Proto, Tam Jai, Pentamaster, Vesync, Canvest, Domain
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Seven & I Holdings (3382 JP), Smart Share Global (EM US), Tam Jai International (2217 HK), Vesync (2148 HK), ESR Group (1821 HK), Goldlion Holdings (533 HK).
- Lowest spreads: Makino Milling Machine Co (6135 JP), Shibaura Electronics (6957 JP), Millennium & Copthorne Hotels Nz (MCK NZ), Domain Holdings Australia (DHG AU), Avjennings Ltd (AVJ AU).
Seven & I Restructures but Discontent Rises Among Franchisees and Customers
- York HD is due to take over operation of all group business except Seven Eleven at the end of February and press reports suggest Bain’s bid has been accepted.
- All of which is fine but this leaves Seven Eleven Japan which is struggling against rivals. Even franchise owners are becoming more critical.
- A recent survey by Nikkei also suggested that consumers are increasingly favouring Lawson and Familymart and 30% visited Seven Eleven stores less frequently in 2024. This is a big problem.
HSI Index Options Weekly (Feb 17-21): Alibaba Reignites Momentum
- The scorching rally continues with Alibaba saving a lackluster week with huge earnings driven move on Friday.
- Implied vols are in the 85th percentile and struggling to move higher with spot.
- Third week in a row where Call volume as a percent of total slipped indicating that buying fatigue might be setting in.
NIFTY50/NEXT50 Index Rebalance: Zomato, JioFin Slide In as BPCL, Britannia Drop Out; US$3.3bn Trade
- Zomato (ZOMATO IN) and Jio Financial Services (JIOFIN IN)‘s stock prices have taken a beating this year, but they still make it into the NIFTY Index (NIFTY INDEX) in March.
- Bharat Petroleum (BPCL IN) and Britannia Industries (BRIT IN) will be out of the NIFTY Index (NIFTY INDEX) but will be added to the NSE Nifty Next50 Index (NIFTYJR INDEX).
- Hyundai Motor India (HYUNDAI IN) will be added to a global index on 28 February and will then be added to the NSE Nifty Next50 Index (NIFTYJR INDEX) in March.
MIXUE Group (2097 HK) IPO: Reasonably Attractive Pricing
- Mixue Group (MIX HK)‘s IPO price of HK$202.5 looks attractive, as it is priced at 16.6x FY24 and 13.5x FY25 PER, below the mainland China peer average.
- We estimate a P/B of 4.6x, putting it marginally lower than the sector best-fit line. We think there is potential for at least a 20-30% upside after the IPO.
- MIXUE offers the possibility to participate in the spin-off of its overseas businesses in the medium term, which is explicitly spelt out as a plan.
Mixue Group IPO: The Good, The Bad and Valuations
- Mixue Group (MIX HK) is offering 17.1 million shares at a price of HK$202.50 in its Hong Kong IPO aiming to raise up to HK$3.45 Bn.
- The company demonstrated stellar growth in store count, revenue, and profits, focusing on the mass-market freshly made beverage segment despite a sector slow down in 2024.
- Mixue’s pace of store expansion may slow down going forward, however its ultra-low prices (RMB4-10) and scale provide a strong foundation for long-term sustainable performance.
Airbnb Inc.: A $250 Million Bet To Make It the Amazon of Travel?
- Airbnb’s latest earnings report sent its stock surging 12.6% as investors reacted to stronger-than expected financial performance and ambitious growth plans.
- Despite missing out on much of the recent travel boom, the company is now positioning itself as the “Amazon of travel” by expanding beyond its traditional short-term rental business.
- CEO Brian Chesky emphasized this strategic pivot, revealing plans to invest up to $250 million in new businesses set to launch in May.
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