Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Hengan International Group / Equity Bottom-Up

In the past 3 months, <a href="https://www.smartkarma.com/entities/vinda-international-holdings-limited" target="_blank" data-smartkarma-citation="entities:475:1" rel="noopener">Vinda International Holdings (3331 HK)</a> share price has outrun the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> index by 32% and <a href="https://www.smartkarma.com/entities/hengan-intl-group-co-ltd" target="_blank" data-smartkarma-citation="entities:29:1" rel="noopener">Hengan Intl Group (1044 HK)</a> by 13% thanks to the demand surge in tissue paper in China and Asia in the onset of COVID-19. Going from risk-on to risk-off, investors will see a growth-to-value rotation prompting a shift from Vinda to Hengan - the latter has better profitability due to economies of scale combined with a larger market capitalization. Historically, the pair trade of long Hengan/Vinda has the following upside:<table class="table table-striped"><tbody>
<tr>
<td style="width: 250px;">State</td>
<td style="text-align: right; width: 250px;">Upside/(Downside)</td>
</tr>
<tr>
<td style="width: 250px;">Bullish - from the peak</td>
<td style="text-align: right; width: 250px;">45%</td>
</tr>
<tr>
<td style="width: 250px;">Normal - from average</td>
<td style="text-align: right; width: 250px;">24%</td>
</tr>
<tr>
<td style="width: 250px;">Bearish - from the lows</td>
<td style="text-align: right; width: 250px;">(16%)</td>
</tr>
</tbody></table><div class="content-remarks">source: analyst</div><div class="content-highlight">Thus, the downside of 16% is much more limited to the potential upside of 45% presents a compelling pair trade of long Hengan and short Vinda. </div>

In the past 3 months, Vinda International Holdings (3331 HK) share price has outrun the Hang Seng China Enterprises Index (HSCEI INDEX) index by 32% and Hengan Intl Group (1044 HK) by 13% thanks to the demand surge in tissue paper in China and Asia in the onset of COVID-19. Going from risk-on to risk-off, investors will see a growth-to-value rotation prompting a shift from Vinda to Hengan - the latter has better profitability due to economies of scale combined with a larger market capitalization. Historically, the pair trade of long Hengan/Vinda has the following upside:

State
Upside/(Downside)


Bullish - from the peak
45%


Normal - from average
24%


Bearish - from the lows
(16%)

source: analystThus, the downside of 16% is much more limited to the potential upside of 45% presents a compelling pair trade of long Hengan and short Vinda. 

Hengan (1044) Vs Vinda (3331): Which One?

This is part three after <a href="https://www.smartkarma.com/insights/li-ning-or-anta-which-one" target="_blank" data-smartkarma-citation="insights:34873" rel="noopener">Li Ning or Anta: Which One?</a> ,and <a href="https://www.smartkarma.com/insights/anta-2020-big-growth-but" target="_blank" data-smartkarma-citation="insights:35239" rel="noopener">Anta (2020): Big Growth But... </a>which has so far produced +15% dollar neutral and +20.55% by shorting <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a> since its trade inception. 
Despite the seemingly stabilizing growth of COVID-19 infected patients in China, a restrictive mall operating hour and cautious mood will hold consumers shopping spree in FY 2020 prompting investors to choose which one between two - <a href="https://www.smartkarma.com/entities/li-ning-co-ltd" target="_blank" data-smartkarma-citation="entities:6047:1" rel="noopener">Li Ning Co Ltd (2331 HK)</a> or <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a> that will be better performer during a tougher economic climate.
Li Ning's ability to produce growth while enhancing its ROIC through a lower working capital required is a quality that makes Li Ning shine over Anta.
At the inception of the trade, the ratio of Long Li Ning and Short Anta was 0.34x and for a while, it has hovered around that level until last Friday when it reached 0.39x. Expecting a difficult environment moving forward, Anta's share price shall continue to go down while Li Ning's should hold up - increasing the ratio to reach 0.45x. 
<div class="content-highlight">
Thanks in advance for reading this insight!  Please give this a thumbs up if you find this useful and follow me on Smartkarma for more original and actionable insights, it's free, anonymous and helpful. Your continuing support renders a continuity of more original and actionable insights.  
</div>

This is part three after Li Ning or Anta: Which One? ,and Anta (2020): Big Growth But... which has so far produced +15% dollar neutral and +20.55% by shorting Anta Sports Products (2020 HK) since its trade inception. 
Despite the seemingly stabilizing growth of COVID-19 infected patients in China, a restrictive mall operating hour and cautious mood will hold consumers shopping spree in FY 2020 prompting investors to choose which one between two - Li Ning Co Ltd (2331 HK) or Anta Sports Products (2020 HK) that will be better performer during a tougher economic climate.
Li Ning's ability to produce growth while enhancing its ROIC through a lower working capital required is a quality that makes Li Ning shine over Anta.
At the inception of the trade, the ratio of Long Li Ning and Short Anta was 0.34x and for a while, it has hovered around that level until last Friday when it reached 0.39x. Expecting a difficult environment moving forward, Anta's share price shall continue to go down while Li Ning's should hold up - increasing the ratio to reach 0.45x. 

Thanks in advance for reading this insight!  Please give this a thumbs up if you find this useful and follow me on Smartkarma for more original and actionable insights, it's free, anonymous and helpful. Your continuing support renders a continuity of more original and actionable insights.  


Li Ning (2331): Still Preferred over Anta in Difficult Period

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Hitachi Construction Machinery / Event-Driven

With a relatively full slate of large value takeovers in Developed Asia in the past year - often by parents but also by buyout funds - and the availability of significant credit to finance such takeovers, this Smartkarma Original insight looks at what constitutes an attractive target for takeover, and seeks to construct a framework for screening and filtering companies for further study. 
The filtering is conducted across two basic measures which seek to answer two basic questions:
<ol>
<li>What might supply look like?</li>
<li>What might demand look like?</li>
</ol>
The first basic problem with creating such filters is that on the Supply side, using databases to determine whether a controlling shareholder wants to sell is almost a lost cause from the beginning. But the exercise throws up some interesting case studies, and it is important to understand why such screening could lead to interesting results. 
On the demand side, it is a difficult and complicated exercise because financial data moves around, shifting through time and relative price because competitors also shift in time and price. A clear example of a company which might have been "relatively" attractive vs peers a month ago might not be after the market ructions at the end of February 2020 when this was written. Prices were, of course, lower, which means that a good screening process is dynamic, both in relative and absolute measures. It is also somewhat difficult to create a one-size-fits-all screen for attractive targets because in certain countries, certain industries (telecom, airlines, social infrastructure, defence) are covered by foreign ownership limits, other industries (banks, brokers, insurers) rarely see leveraged buyouts, and takeovers in other industries (Chinese homebuilders) are, for lack of a better word, simply off the table at certain times.
In addition, there are lots of ways in which companies might present themselves as attractive targets. If someone controls a company, and wants to sell it cheaply, there are lots of potential buyers who will fall all over themselves to get in line to buy it. But companies can be attractive targets because of the potential for changing profit metrics and multiples through restructuring, asset reorganisation, industry reorganisation, or simply waiting for the cycle to change. 
Using valuation metrics with a cutoff line can be challenging because common multiples such as PER, PCFR, PBR, EV/EBITDA may ignore significant value available from longer-term securities holdings, non-operating real estate assets which are not managed in optimal fashion, etc. 
In short, screening can only go so far. But we try.
At the end, we take a brief look at 10 companies from Developed Asia which show up as a result of our screening efforts. The resulting list is dominated by Japanese companies because some of the companies which show up from other countries fit the "no-go" categories above (airlines, financial companies, defence technology subject to foreign ownership limits, Chinese homebuilders subject to skepticism, etc.). Some are also clearly Emerging Asia businesses with Developed Asia listings. Screening for Emerging Asia got a few companies which are high on anyone's target list, including one which saw an unsolicited takeover approach earlier this week (end-Feb 2020), and another which has been in acquisition mode for years. 
We find the thinking process and screening technology has thrown up some previously less-than-obvious candidates which deserve further work.

With a relatively full slate of large value takeovers in Developed Asia in the past year - often by parents but also by buyout funds - and the availability of significant credit to finance such takeovers, this Smartkarma Original insight looks at what constitutes an attractive target for takeover, and seeks to construct a framework for screening and filtering companies for further study. 
The filtering is conducted across two basic measures which seek to answer two basic questions:

What might supply look like?
What might demand look like?

The first basic problem with creating such filters is that on the Supply side, using databases to determine whether a controlling shareholder wants to sell is almost a lost cause from the beginning. But the exercise throws up some interesting case studies, and it is important to understand why such screening could lead to interesting results. 
On the demand side, it is a difficult and complicated exercise because financial data moves around, shifting through time and relative price because competitors also shift in time and price. A clear example of a company which might have been "relatively" attractive vs peers a month ago might not be after the market ructions at the end of February 2020 when this was written. Prices were, of course, lower, which means that a good screening process is dynamic, both in relative and absolute measures. It is also somewhat difficult to create a one-size-fits-all screen for attractive targets because in certain countries, certain industries (telecom, airlines, social infrastructure, defence) are covered by foreign ownership limits, other industries (banks, brokers, insurers) rarely see leveraged buyouts, and takeovers in other industries (Chinese homebuilders) are, for lack of a better word, simply off the table at certain times.
In addition, there are lots of ways in which companies might present themselves as attractive targets. If someone controls a company, and wants to sell it cheaply, there are lots of potential buyers who will fall all over themselves to get in line to buy it. But companies can be attractive targets because of the potential for changing profit metrics and multiples through restructuring, asset reorganisation, industry reorganisation, or simply waiting for the cycle to change. 
Using valuation metrics with a cutoff line can be challenging because common multiples such as PER, PCFR, PBR, EV/EBITDA may ignore significant value available from longer-term securities holdings, non-operating real estate assets which are not managed in optimal fashion, etc. 
In short, screening can only go so far. But we try.
At the end, we take a brief look at 10 companies from Developed Asia which show up as a result of our screening efforts. The resulting list is dominated by Japanese companies because some of the companies which show up from other countries fit the "no-go" categories above (airlines, financial companies, defence technology subject to foreign ownership limits, Chinese homebuilders subject to skepticism, etc.). Some are also clearly Emerging Asia businesses with Developed Asia listings. Screening for Emerging Asia got a few companies which are high on anyone's target list, including one which saw an unsolicited takeover approach earlier this week (end-Feb 2020), and another which has been in acquisition mode for years. 
We find the thinking process and screening technology has thrown up some previously less-than-obvious candidates which deserve further work.

China

China Dongxiang Group Co Ltd retails sportswear apparel products.

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China Dongxiang (3818 HK)

Hengan (1044) Vs Vinda (3331): Which One?

In the past 3 months, Vinda International Holdings (3331 HK) share price has outrun the Hang Seng China Enterprises Index (HSCEI INDEX) index by...

Henry Soediarko

Li Ning (2331): Still Preferred over Anta in Difficult Period

This is part three after Li Ning or Anta: Which One? ,and Anta (2020): Big Growth But... which has so far produced +15% dollar neutral and +20.55%...

Henry Soediarko

A Potential Asian LBO Screening System

With a relatively full slate of large value takeovers in Developed Asia in the past year - often by parents but also by buyout funds - and the...

Travis Lundy

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52-week Range

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