Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

Giordano International / Equity Bottom-Up

<ul>
<li>Giordano, one of the most recognizable apparel business in Asia, has been improving its operations materially with solid growth in sales and profits. </li>
<li>Giordano provides very high dividend yield and payout. The consensus expects DPS of HKD 0.28 for Giordano in 2023, which would suggest a dividend yield of 12.8%. </li>
<li>We like the company's high dividend yield, loyal customer base, and attractive valuations. It is trading at EV/EBITDA of 3.6x and P/B of 1.5x. </li>
</ul>


Giordano, one of the most recognizable apparel business in Asia, has been improving its operations materially with solid growth in sales and profits. 
Giordano provides very high dividend yield and payout. The consensus expects DPS of HKD 0.28 for Giordano in 2023, which would suggest a dividend yield of 12.8%. 
We like the company's high dividend yield, loyal customer base, and attractive valuations. It is trading at EV/EBITDA of 3.6x and P/B of 1.5x. 


Asian Dividend Gems: Giordano International

HK/China Equity Long-Short

Osbert Tang, CFA

China Tourism Group Duty Free / Equity Bottom-Up

<ul>
<li>Our earnings projections for <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corporation-limited" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (1880 HK)</a> are 14% and 18% below market consensus respectively. We think these are more realistic expectations.</li>
<li>At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.</li>
<li>Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.</li>
</ul>


Our earnings projections for China Tourism Group Duty Free Corp Ltd (1880 HK) are 14% and 18% below market consensus respectively. We think these are more realistic expectations.
At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.
Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.


CTG Duty Free (1880 HK): Our Earnings Forecasts and Views on H-Share Fair Value

Thematic (Sector/Industry)

<ul>
<li>The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. </li>
<li>The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. </li>
<li>We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> looks to be a loser.</li>
</ul>


The sharp surge in Omicron-driven local cases has driven more stringent measures by local governments. On ground in Shanghai, we see more tightened measures being implemented over the weekend. 
The measures will reduce a lot of foot traffic and lower discretionary spending appetite in Mar, and this will negatively weigh on many 1Q22 results to be announced in late-Apr. 
We advocate a long staples, short discretionary strategy in the near term. Also, travel sector will be hit, and on net-net basis, Meituan (3690 HK) looks to be a loser.


China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Forensic Analyst

Jason Yap, CFA

Luk Fook Holdings Intl / Equity Bottom-Up

<div>
<p>In this insight, we discuss a long-short pair trade idea (long <a href="https://www.smartkarma.com/entities/luk-fook-holdings-intl-ltd" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook Holdings Intl (590 HK)</a> and short <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>) amongst HK listed jewelers.  As China and HK based bitcoin holders scramble to protect their crypto assets in light of latest regulations, we build on a hypothetical premise that these investors would shift their crypto assets into an asset class that is both tactile and familiar to the <a href="https://www.kitco.com/news/2021-08-31/Chinese-gold-demand-from-millennials-picks-up.html" target="_blank" rel="noopener">Chinese</a> - that is, physical gold / jewelry. </p>
</div>
<p>There are two major reasons why we believe this is an attractive long-short pair trade: </p>
<p><strong>1) Relative Valuations </strong>- CTF has outperformed LF in the past year.  Year to date, CTF is up 56.3% while LF is up only 9.2%.  As a result, LF has become more attractive than CTF on a relative valuation basis: </p>
<div>
<div>
<ul style="list-style-type: disc;">
<li>LF trades at a forward P/E of 9.8x, which is 56% discount to CTF's  forward P/E of 22.2x. LF is also trading at EV/EBITDA of 5.3x, which is 63% discount to CTF's EV/EBITDA of 14.3x. We believe this valuation discount is too excessive for LF as compared to CTF.</li>
<li>LF trades at a discount of 3% to past 3 year historical average P/E (10.1x) whereas CTF trades at a premium of 41% to past 3 year historical average P/E (15.8x).</li>
<li>Similarly,  LF trades at a discount of 17% to past 3 year historical average P/B (1.2x) whereas CTF trades at a premium of 72% to past 3 year historical average P/B (2.9x). Hence, CTF appears overvalued relative to its historical average P/E and P/B multiples. </li>
<li>LF generates higher operating margins than CTF. LF generated operating margin of 11.5% versus 8.8% for CTF for last 12 months ended 31 March 2021.  Although, on an ROE basis, CTF beats LF (21.1% versus 9.4%) due to higher asset turnover (1.1x versus 0.6x) and higher debt leverage (43.2% versus 13.3%).  </li>
</ul>
</div>
</div>
<div>
<p><strong>2) G</strong><strong>radual improvement in HK and Macau, which benefits Luk Fook more</strong></p>
</div>
<ul>
<li>Mainland China sales account for 85% of CTF's sales and 60% of LF's sales. with the balance generated mainly from HK and Macau. CTF's larger exposure to Mainland China likely explains its share price outperformance relative to LF given stable pandemic conditions in China, albeit these factors now appear fully discounted into CTF's price.</li>
<li>Since 23 September 2020, China reinstated tourist visas, through which majority of visitors enter Macau, for all provinces and which is for quarantine free travel.  Visitors from greater China make up over 90% of tourists to the former Portuguese colony of Macau.</li>
<li>On 23 September 2021, HK <a href="https://news.cgtn.com/news/2021-09-22/Hong-Kong-s-Come2hk-scheme-to-boost-cross-border-travel-13LtdBJ6zny/index.html" target="_blank" rel="noopener">announced</a> quarantine free exemptions for non-HK residents travelling from Guangdong and Macao.  Returning visitors to China and Macau after HK visits remain subject to quarantine.  Nevertheless, this signals potential further easing of travel measures among China and the 2 Chinese territories. </li>
<li>The upcoming October 2021 Golden Week would be a good barometer of visitor traffic to HK under current travel measures. If the pandemic situation remains stable after the massive passenger flows expected during this period, this could boost optimism of earlier and fuller relaxation of intra Greater China travel measures. </li>
<li>In short, as visitor traffic to HK and Macau ramps up, LF stands to benefit more due to its larger exposure to these markets, with potential upside from further easing of travel measures.</li>
</ul>


In this insight, we discuss a long-short pair trade idea (long Luk Fook Holdings Intl (590 HK) and short Chow Tai Fook Jewellery (1929 HK)) amongst HK listed jewelers.  As China and HK based bitcoin holders scramble to protect their crypto assets in light of latest regulations, we build on a hypothetical premise that these investors would shift their crypto assets into an asset class that is both tactile and familiar to the Chinese - that is, physical gold / jewelry. 

There are two major reasons why we believe this is an attractive long-short pair trade: 
1) Relative Valuations - CTF has outperformed LF in the past year.  Year to date, CTF is up 56.3% while LF is up only 9.2%.  As a result, LF has become more attractive than CTF on a relative valuation basis: 



LF trades at a forward P/E of 9.8x, which is 56% discount to CTF's  forward P/E of 22.2x. LF is also trading at EV/EBITDA of 5.3x, which is 63% discount to CTF's EV/EBITDA of 14.3x. We believe this valuation discount is too excessive for LF as compared to CTF.
LF trades at a discount of 3% to past 3 year historical average P/E (10.1x) whereas CTF trades at a premium of 41% to past 3 year historical average P/E (15.8x).
Similarly,  LF trades at a discount of 17% to past 3 year historical average P/B (1.2x) whereas CTF trades at a premium of 72% to past 3 year historical average P/B (2.9x). Hence, CTF appears overvalued relative to its historical average P/E and P/B multiples. 
LF generates higher operating margins than CTF. LF generated operating margin of 11.5% versus 8.8% for CTF for last 12 months ended 31 March 2021.  Although, on an ROE basis, CTF beats LF (21.1% versus 9.4%) due to higher asset turnover (1.1x versus 0.6x) and higher debt leverage (43.2% versus 13.3%).  




2) Gradual improvement in HK and Macau, which benefits Luk Fook more


Mainland China sales account for 85% of CTF's sales and 60% of LF's sales. with the balance generated mainly from HK and Macau. CTF's larger exposure to Mainland China likely explains its share price outperformance relative to LF given stable pandemic conditions in China, albeit these factors now appear fully discounted into CTF's price.
Since 23 September 2020, China reinstated tourist visas, through which majority of visitors enter Macau, for all provinces and which is for quarantine free travel.  Visitors from greater China make up over 90% of tourists to the former Portuguese colony of Macau.
On 23 September 2021, HK announced quarantine free exemptions for non-HK residents travelling from Guangdong and Macao.  Returning visitors to China and Macau after HK visits remain subject to quarantine.  Nevertheless, this signals potential further easing of travel measures among China and the 2 Chinese territories. 
The upcoming October 2021 Golden Week would be a good barometer of visitor traffic to HK under current travel measures. If the pandemic situation remains stable after the massive passenger flows expected during this period, this could boost optimism of earlier and fuller relaxation of intra Greater China travel measures. 
In short, as visitor traffic to HK and Macau ramps up, LF stands to benefit more due to its larger exposure to these markets, with potential upside from further easing of travel measures.


HK Jewellers Pair Trade - All That Glitters Not Crypto, But Gold?

APAC IPOs & Placements, Aequitas Research

Clarence Chu

APAC IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Zhou Liu Fu Jewellery Co., Ltd. / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zhou-liu-fu-jewellery-co-ltd" target="_blank" data-smartkarma-citation="entities:43706:1" rel="noopener">Zhou Liu Fu Jewellery Co., Ltd. (1716396D CH)</a> is looking to raise US$200m in its upcoming Hong Kong IPO. The bookrunners on the deal are CICC and China Securities.</li>
<li>Zhou Liu Fu Jewellery (ZLFJ) is a jewelry company in China with a network of offline stores and online sales channels.</li>
<li>According to F&amp;S, the firm is ranked among the five largest brands in the Chinese jewelry market between 2017 to 2023 in terms of number of stores in China.</li>
</ul>



Zhou Liu Fu Jewellery Co., Ltd. (1716396D CH) is looking to raise US$200m in its upcoming Hong Kong IPO. The bookrunners on the deal are CICC and China Securities.
Zhou Liu Fu Jewellery (ZLFJ) is a jewelry company in China with a network of offline stores and online sales channels.
According to F&amp;S, the firm is ranked among the five largest brands in the Chinese jewelry market between 2017 to 2023 in terms of number of stores in China.


Hong Kong

L'Occitane International S.A. is a global, natural and organic ingredient based cosmetics and well-being products enterprise.  The Company designs, manufactures and markets a wide range of cosmetics and well-being products based on natural and organic ingredients sourced principally from or near Provence.

Luk Fook Holdings (International) Limited retails jewellery. The Company engages in the sourcing, designing, wholesaling and retailing of a variety of platinum and gold jewellery, gold ornaments, gem-set jewellery, natural jadeites, gemstones, and other related products. Luk Fook offers its products in Hong Kong, Mainland China, Macau, Singapore, the United States and Canada.

Chow Sang Sang Holdings International Limited manufactures and retails gold and gem-set jewelry products.  The Company also retails watches, wholesales precious metals, invests in real estate, provides securities and commodity brokerage services, and trades in gold bullion.

Pou Sheng International (Holdings) Limited retails and wholesales sportswear, including sports footwear, apparel and accessories.

Symphony Holdings Limited, through its subsidiaries, manufactures and trades footwear products.  The Company also invests in properties.

Giordano International Limited, through its subsidiaries, retails and distributes casual apparel and accessories under theGiordano, Giordano Ladies, Giordano Junior, BSX and Concepts One brands.

Sa Sa International Holdings Limited, through its subsidiaries, retails and wholesales cosmetics. The Company also provides beauty and health club services to members.

Dickson Concepts (International) Limited, through its subsidiaries, sells watches and fashion products.  The Company also trades luxury goods, and provides management and technical services.

Oriental Watch Holdings Limited, through its subsidiaries, trades watches and invests in properties.

Glorious Sun Enterprises Limited, through its subsidiaries, retails and exports casual wear apparel.  The Company also manufactures casual wear products and trades fabric.

Abercrombie & Fitch Co.  a specialty retailer that operates stores and direct-to-consumer operations. Through these channels, the Company sells: casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear; personal care products; and accessories for men, women and kids.

HIKARI TSUSHIN, INC. is a mobile telecommunication service subscription agency. The Company also operates telecommunication services stores, HIT SHOP, which sell cellular telephones, and related goods.  Hikari Tsushin also sells office automation equipment and insurance.

Murphy USA Inc. produces and distributes petroleum products. The Company engages in refining, marketing, and transportation of oil and gas products. Murphy USA provides products and services worldwide.

The Gap, Inc., is an international specialty retailer operating retail and outlet stores.  The Company sells casual apparel, accessories and personal care products for men, women, and children. The Gap operates stores in the United States, Canada, the United Kingdom, France, Ireland, and Japan.

Lithia Motors, Inc. retails, finances, and services new and used vehicles. The Company also provides other related services and products, such as the sale of parts and accessories, extended service contracts, aftermarket automotive products, and collision repair services. Lithia Motors operates throughout the United States.

Hotai Motor Company Ltd. operates as an automobile dealership. The Company sells and services new and used cars and trucks in Taiwan.

GameStop Corporation operates specialty electronic game and PC entertainment software stores throughout the United States, Australia, Canada and Europe. The Company stores sell new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise.

Penske Automotive Group, Inc. operates franchised automobile dealerships. The Company's franchises are located throughout the United States, Puerto Rico and the United Kingdom.  Penske Automotive sells new and used vehicles as well as offers maintenance and repair services on all brands it represents.

AutoNation, Inc. retails, finances, and services new and used vehicles.  The Company also provides other related services and products, such as the sale of parts and accessories, extended service contracts, aftermarket automotive products, and collision repair services.  AutoNation operates throughout the United States.

CarMax, Inc. sells at retail used cars and light trucks. The Company purchases, reconditions, and sells used vehicles in its superstores and franchises throughout the United States.

Chow Tai Fook Jewellery Group Limited retails jewelry.  The Company sells rings, necklaces, earrings, pendants, bracelets, and small statues.  Chow Tai Fook Jewellery operates retail stores in China, Hong Kong, Macau, Taiwan, Malaysia, and Singapore.

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Chow Tai Fook Jewellery (1929 HK)

Asian Dividend Gems: Giordano International

Giordano, a prominent Asian apparel business, has seen significant improvements in sales and profits. It offers a high dividend yield and payout,...

Douglas Kim

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

HK Jewellers Pair Trade - All That Glitters Not Crypto, But Gold?

We discuss a long-short trade for HK jewelers (CTF and LF). As HK/China bitcoin holders scramble to protect crypto assets, such investors could...

Jason Yap, CFA

Zhou Liu Fu Jewellery Pre-IPO Tearsheet

Zhou Liu Fu Jewellery Co., Ltd. (1716396D CH) is looking to raise US$200m in its upcoming Hong Kong IPO. The bookrunners on the deal are CICC and...

Clarence Chu

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Asian Dividend Gems: Giordano International

​Giordano, a prominent Asian apparel business, has seen significant improvements in sales and profits. It offers a high dividend yield and payout,...

Douglas Kim

CTG Duty Free (1880 HK): Our Earnings Forecasts and Views on H-Share Fair Value

CDFC's H-share lPO is priced too high relative to fair value based on our earnings forecasts. There are potentially better entry levels when the...

Osbert Tang, CFA

China on the Ground: Escalating Measures to Combat Omicron and What Stocks Are Impacted?

Omicron combating measures have been stepped up over the weekend and this will make a dent on the Mar operations of many companies. This will be...

Osbert Tang, CFA

HK Jewellers Pair Trade - All That Glitters Not Crypto, But Gold?

We discuss a long-short trade for HK jewelers (CTF and LF). As HK/China bitcoin holders scramble to protect crypto assets, such investors could...

Jason Yap, CFA

Zhou Liu Fu Jewellery Pre-IPO Tearsheet

Zhou Liu Fu Jewellery Co., Ltd. (1716396D CH) is looking to raise US$200m in its upcoming Hong Kong IPO. The bookrunners on the deal are CICC and...

Clarence Chu

Giordano, a prominent Asian apparel business, has seen significant improvements in sales and profits. It offers a high dividend yield and payout,...