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?

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Pop Mart International Group L / Equity Bottom-Up

<ul>
<li><strong>Bearish sentiment in Hong Kong declined during the carry trade sell off.</strong></li>
<li><strong>Low Volatility, High Dividend and Value factors have continue to be profitable strategies in Hong Kong.</strong></li>
<li>
<a href="https://www.smartkarma.com/entities/pop-mart-international-group-l" target="_blank" data-smartkarma-citation="entities:29016:1" rel="noopener"><strong>Pop Mart International Group L (9992 HK)</strong></a><strong> , <a href="https://www.smartkarma.com/entities/techtronic-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:4561:1" rel="noopener">Techtronic Industries (669 HK)</a> and <a href="https://www.smartkarma.com/entities/giant-biogene-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:35950:1" rel="noopener">Giant Biogene (2367 HK)</a> all reported solid operating and financial news leading to BUY recommendations.</strong>
</li>
</ul>


Bearish sentiment in Hong Kong declined during the carry trade sell off.
Low Volatility, High Dividend and Value factors have continue to be profitable strategies in Hong Kong.

Pop Mart International Group L (9992 HK) , Techtronic Industries (669 HK) and Giant Biogene (2367 HK) all reported solid operating and financial news leading to BUY recommendations.



BUY/SELL/HOLD: Hong Kong Stock Updates (August 12)

Hong Kong

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

BUY/SELL/HOLD: Hong Kong Stock Updates (August 12)

Hong Kong markets were resilient during the carry trade global sell off losing less than 2%. Pop Mart and Techtronic posted good results for 1H...

David Mudd

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

BUY/SELL/HOLD: Hong Kong Stock Updates (August 12)

Hong Kong markets were resilient during the carry trade global sell off losing less than 2%. Pop Mart and Techtronic posted good results for 1H...

David Mudd

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