Most Read: FamilyMart Co Ltd, Jardine Matheson Holdings, Li Auto Inc., Haier Electronics Group Co, and more

In today’s briefing:

  • Keeping It in the Family: Why Familymart Is Worth so Much More to Itochu
  • StubWorld: Would Jardines Move Back To HK?
  • Li Auto (理想汽车) Trading Update – No Mention of Hillhouse’s Investment
  • Haier (1169 HK): Avatar Scrip Offer From Parent
  • Asia Short Interest Weekly: Alibaba, JD, Wharf, SMIC, JPX, Itochu, Canon, Kyushu, Shinpoong, Seegene

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.


StubWorld: Would Jardines Move Back To HK?

By David Blennerhassett

This week in StubWorld …

Jardine Matheson Holdings (JM SP) is trading “cheap” at a 32% discount to NAV, adjusting for cross-holding. Jardine Strategic Holdings (JS SP) is even wide at 51% discount to NAV, also adjusting for cross-holdings. Is the time ripe for the Keswicks to collapse the structure? Would a move back to Hong Kong help narrow the discount?

Jardine Cycle & Carriage (JCNC SP) was trading cheap on a NAV and stub basis this time last month (StubWorld: Matheson Buybacks As Ratio Mean Reverts; JCNC Looking Cheap). It is now even cheaper. Time for a JCNC breakout.

Preceding my comments on Jardines, are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.



Haier (1169 HK): Avatar Scrip Offer From Parent

By David Blennerhassett

Haier Electronics Group Co (1169 HK) (HEG) was briefly suspended pursuant to the Takeovers Code on the 19 December 2019, which was followed by a press release from Haier’s parent Haier Smart Home (600690 CH) (HSH) that it was contemplating taking Haier private with newly issued Hong Kong shares, implying HSH was seeking an H-share listing, either first, or concurrent with the share swap.

Then crickets.

The Announcement

This past Friday evening, HEG announced a pre-conditional Scheme such that HEG shareholder will receive 1.6 new HSH H shares plus HK$1.95 in cash. 

An independent valuer places a fair value for the (as yet unlisted) H shares between RMB16.45-RMB16.90/share. This backs out an indicative value under the Scheme of HK$31.11-HK$31.90 – or $31.51 at the mid-point, against HEG’s last close of HK$26.85; but a 44.20% premium to the price at the time of the 2019 December suspension. Plus an all-time high. The cash/equity split is 6.2%/93.8%. The A-shares closed last Wednesday (the day before shares were halted) at RMB 18.00, which would be closer to HK$33.95 (including the $1.95 in cash).

The pre-conditions concern CSRC approval with respect to the issuance of the H shares and approval by two-thirds of HSH’s shareholders to approve the resolutions.

And then there are the exchangeable bonds to take into account.

More below the fold.


Asia Short Interest Weekly: Alibaba, JD, Wharf, SMIC, JPX, Itochu, Canon, Kyushu, Shinpoong, Seegene

By Brian Freitas

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Alibaba Group (9988 HK), Sino Biopharmaceutical (1177 HK), Sunac China Holdings (1918 HK) and JD.com (HK) (9618 HK) while there was short covering on Wharf Real Estate Investment (1997 HK), Ping An Insurance (H) (2318 HK), Semiconductor Manufacturing (981 HK) and Wharf Holdings (4 HK). Shorts increased in Health Care and Consumer Discretionary, and were covered in Real Estate, Information Technology, Financials and Communication Services.

Japan saw an increase in shorts on Japan Exchange Group (8697 JP), Itochu Corp (8001 JP), Fast Retailing (9983 JP) and Lasertec Corp (6920 JP) and a reduction in shorts on Canon Inc (7751 JP), Kyushu Railway Company (9142 JP), Inpex Corp (1605 JP) and Otsuka Corp (4768 JP). Sectorally, shorts increased on Financials, Health Care and Industrials, and reduced on Energy and Information Technology.

Short Interest in Korea decreased in almost all industry groups led by Pharmaceuticals, Media & Entertainment and Automobiles. Stocks that saw the most short covering were NCSOFT Corp (036570 KS), Shinpoong Pharmaceutical (019170 KS), Samsung Electronics (005930 KS), Korean Air Lines (003490 KS) and Seegene Inc (096530 KS).

Short Interest in Taiwan decreased in Technology Hardware, Materials and Capital Goods, while shorts increased in Semiconductors. Stocks that saw the highest increase in shorts were Macronix International (2337 TT), TSMC (2330 TT), Elan Microelectronics (2458 TT) and Quanta Computer (2382 TT) while shorts were covered in Hon Hai Precision Industry (2317 TT), Yageo Corporation (2327 TT), Wiwynn Corp (6669 TT) and Asia Cement (1102 TT)


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