Most Read: Beyond Meat, Japan Exchange Group, Hangzhou Tigermed Consulting (H), FamilyMart Co Ltd, Hangzhou Tigermed Consulting (H) and more

In today’s briefing:

  • Smartkarma Webinar | Beyond Food: No Longer Impossible
  • JPX Goes In to Nikkei 225 – Time To Sell
  • Tigermed (泰格医疗) A+H: Past A+H Listings Suggest Upside Might Be Limited
  • Keeping It in the Family: Why Familymart Is Worth so Much More to Itochu
  • Tigermed IPO: Valuation Insights

Smartkarma Webinar | Beyond Food: No Longer Impossible

By Smartkarma Research

In this Smartkarma Webinar, we speak to David Huggins, CFA, Nutrition Portfolio Manager at Blackrock’s BGF Nutrition Fund. David will discuss current trends in food and nutrition, including plant-based protein, changing consumer behaviour, and the future of food technology.

The webinar will be hosted on Wednesday, 29/July/2020, 5.00pm SGT/HKT.

David is co-portfolio manager of the BGF Nutrition fund, a Blackrock sustainable thematic fund. Areas of expertise include nutrition, food & beverage, agriculture, and cannabis/CBD. He has a solid track record in public equity investing and is skilled in bottom-up investment analysis, modelling, and big-picture thinking. He graduated from the University of Bristol and is a CFA Charterholder.


JPX Goes In to Nikkei 225 – Time To Sell

By Travis Lundy

When it was reported in the press and subsequently announced by Sony on the 19th of May part way through the day that Sony was going to launch a Tender Offer to take out minorities in Sony Financial Holdings (8729 JP) the immediate reaction of first order thinkers was to buy Sony Financial. The immediate reaction of second-order thinkers was to buy Japan Exchange Group (8697 JP) because taking out minorities in Sony Financial would cause it to be delisted, putting its place in the Nikkei 225 Average up for grabs. 

The moment the news came out the stock was ¥2,080 a share, and quickly jumped. 

The two-hourly chart below shows the evolution of Japan Exchange Group shares against TOPIX, setting the two at the “same” price at the time of the Sony Financial announcement. 

source: tradingview.com, Quiddity

JPX shares closed 3.7% higher that day at ¥2,166, then opened the following day at ¥2,223, traded up, then briefly lower than ¥2,223 a day later before marching higher. The shares are up 37.4% since the moment before the announcement while TOPIX is up 5.9% during the same period. 

The period since the Sony Financial announcement can be split into two parts. 

  1. The period where Japan Exchange was the favorite to replace Sony Financial in the Nikkei 225 Average, starting at the blue vertical line, and 
  2. The period since when the Nikkei confirmed after the close on 15 July that indeed Japan Exchange had been selected. 

During the period prior to the Sony Financial news, Japan Exchange Group announced earnings (April 30 – the E in the red circle at the bottom) and the shares dipped, rebounded, and net did nothing. The subsequent rise in the share price was NOT linked to earnings. Or volume traded in the market, or really anything other than speculation on its inclusion in the Nikkei 225 Average.

This insight carries a bit of analysis, and a trade recommendation. You can guess which way it tilts.

The trade is later today.

More below the fold…

For the precursor to this insight, please see Nikkei 225 – JPX IN, Sony Financial OUT


Tigermed (泰格医疗) A+H: Past A+H Listings Suggest Upside Might Be Limited

By Ke Yan, CFA, FRM

Tigermed, the largest China-based clinical CRO company, launched book building today to raise up to USD 1.4 bn to list in Hong Kong. 

In our previous note, we discussed that the company was listed on the A-share market in 2012. Once listed in Hong Kong, it will be the best CRO company offering exposure to the clinical CRO business in China and therefore will likely receive strong interest from international investors (particularly those who can’t invest in the A-share market). The company’s A-share already has investments by quality investors, and was widely held by offshore investors via the northbound stock connect. Despite the impact of COVID-19 situation, Tigermed still registered high single-digit revenue growth in 1Q2020.  However, the company also guided that profit in 2020E could be lower than what they have achieved in 2019. Besides the negative impact of COVID-19, the low expectation is also due to the high base of financial gains from financial assets in 2019. 

In this note, we will provide our thoughts on the price range.  We are of the view that the deal offers limited upside for investors though there is hardly any issue for the book to be covered despite no cornerstone investors as the company is well known to the investment community. 

Our previous coverage on Tigermed A+H:


Keeping It in the Family: Why Familymart Is Worth so Much More to Itochu

By Michael Causton

Itochu’s plans for Familymart are about a lot more than control – it has had effective control for years anyway.

There is a much bigger story: the fact that food is the one last hold out of traditional distribution practices with multiple layers of importers, wholesalers and a fragmented retail sector, resulting in gross inefficiencies. 

Japan’s biggest trading companies, particularly Itochu Corp (8001 JP) and Mitsubishi Corp (8058 JP), have been major beneficiaries of this system, capturing margins at all stages of the channel, from raw material imports to retail. 

Pressure on the food sector to modernise has been building for a decade and this is now happening in the form of retailers building to national scale to finally take on this supply-side dominance and also learning to source direct, cutting out wholesalers. The trading companies know this and are themselves beginning to build what are in effect vertically integrated food distribution businesses, at the same time as pivoting themselves as the main suppliers to Japan’s biggest food-based retailers.

Itochu and Mitsubishi are spearheading this change. This rivalry in the food sector between the two venerable trading firms is as important as the rivalry between their proxies in convenience store retailing, Familymart and Lawson.

Absorbing Familymart is the basis for a much bigger consolidation of Itochu’s interests which include stakes in numerous food retailers as well as role as the biggest food wholesaler when all its subsidiaries are taking into account.

Sadly, current Familymart shareholders won’t benefit from this consolidation nor the likely spike in operating margins as some of the fat in food distribution is finally cut.

In Japan, where food prices have been kept so high for so long by entrenched interests (Japanese love food but the 24% of consumption budgets spent on food (much, much higher than most  equivalent markets) is much more about high prices than being a gourmet nation), the potential to cut costs is staggeringly large.

Even within CVS retailing, Itochu will likely benefit from the continued growth of the big three retailers – despite format saturation.

For the sector as a whole, 2019 saw the highest average daily sales per store so far of ¥590,794, a 12.1% increase on 2010. In the same decade, total store numbers increased by 33.4%, but total sales increased by 50.2%.

CVS have not just expanded in number, but their position and ability to exploit the market have improved dramatically too. Based on METI figures, CVS market share of retailing has expanded from 6% to 8.4% in the same period.

In other words, saturation is important but not that important because CVS are finding new ways to expand both their share of retailing and influence.


Tigermed IPO: Valuation Insights

By Arun George

Hangzhou Tigermed Consulting (H) (3347 HK) is a global contract research organisation (CRO). Tigermed is the largest clinical CRO in China with a market share of 8.4% as measured by revenue in China’s clinical CRO market in 2019, according to Frost & Sullivan. Tigermed has launched its Hong Kong IPO at an indicative price range of HK$88-100 per share to raise gross proceeds of $1.2-1.4 billion.

In our initiation note, we stated that Tigermed’s financial performance is creditable on a standalone basis and in comparison, to peers. However, our enthusiasm was tempered by a seemingly aggressive revenue recognition policy. Our follow-on note which examined the PHIP suggested that the positives outweigh the negatives. Our valuation analysis suggests that the IPO valuation is attractive at the low-end of the proposed IPO price range. 


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