ASEAN (Indo) & China-focused. Ex-Deputy HoR UBS.

Johannes Salim, CFA

Equity Bottom-Up

<ul><li><a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a>'s acquisition of <a href="https://www.smartkarma.com/entities/12490" target="_blank" data-smartkarma-citation="entities:12490:1">Whole Foods Market Inc (WFM US)</a> is a game changer to the grocery industry.</li><li>What this necessarily means is 1) grocery industry disruption 2) grocery as the next big battlefield 3) necessity of multi-channels 4) competition heating up and 5) lower consumer price points.</li><li>Stock opportunities are 1) Whole Foods (possible buyout bidding war), 2) <a href="https://www.smartkarma.com/entities/20824" target="_blank" data-smartkarma-citation="entities:20824:1">Kroger Co (KR US)</a> (industry survivor trading at 10.8x PE), and 3) <a href="https://www.smartkarma.com/entities/17622" target="_blank" data-smartkarma-citation="entities:17622:1">Sprouts Farmers Market Inc (SFM US)</a> (another potential M&amp;A target).</li></ul>

Amazon.com Inc (AMZN US)'s acquisition of Whole Foods Market Inc (WFM US) is a game changer to the grocery industry.What this necessarily means is 1) grocery industry disruption 2) grocery as the next big battlefield 3) necessity of multi-channels 4) competition heating up and 5) lower consumer price points.Stock opportunities are 1) Whole Foods (possible buyout bidding war), 2) Kroger Co (KR US) (industry survivor trading at 10.8x PE), and 3) Sprouts Farmers Market Inc (SFM US) (another potential M&amp;A target).

Amazon's Acquisition of Whole Foods: What Does This Mean? (Including Stock Opportunities)

HK/China small/mid-caps specialist

Pep So, CFA, CPA

<a href="https://www.smartkarma.com/entities/470" target="_blank" data-smartkarma-citation="entities:470:1">Golden Eagle Retail Group (3308 HK)</a> (“GE”) is a regional Chinese department store operator with heavy exposure to Jiangsu Province. GE, like many other Chinese department stores, is facing a challenging operating environment and deteriorating fundamentals: <ul><li>Industry challenges: Despite rising overall retail consumption in China, department stores are losing shares to e-commerce and other retail outlets. Competition is keen and there is little product differentiation among peers, resulting in declining profitability across the industry.</li><li>Deteriorating fundamentals: GE reported declining profits since 2014 and its operating metrics are falling sharply, despite its continuous effort to increase its retail space. However, GE remains committed to its ambitious expansion plan and such should further weaken its cash flows and balance sheet. Also, GE’s strategic transformation initiatives to tackle the challenging environment have not shown many positive signs.</li><li>Weak earnings outlook: On top of negative SSSG, declining sales/sqm and lackluster customer loyalty, GE’s depreciation and finance expenses have started to eat into profits amid its asset-heavy business model and aggressive expansion.</li><li>Stretched balance sheet: GE’s balance sheet has weakened significantly because it had to increase borrowings to mainly finance its expansion. Given the heavy capex spending ahead, GE should continue to report negative free cash flows in the coming years. The company is becoming more financially constrained and therefore, it is unlikely to buy back shares as actively as it did. It may also issue new shares or cut dividend if its balance sheet further weakens.</li></ul>GE trades at a rich valuation and also a premium over its peers. Despite its currently higher-than-average margins and return profile, its superior earning power is unlikely to be sustainable. Worse off, street estimates on its future earnings are grossly over-optimistic. As a result of its non-existent moat, fragile fundamentals, unrealistic expansion plan, weak balance sheet and rich valuation, GE should experience a long period of derating and significant multiple contraction in the years ahead. Finally, in light of Intime's recent privatization, GE is unlikely to be privatized given Chairman Wang's history of selling his personal low quality assets to GE.

Golden Eagle Retail Group (3308 HK) (“GE”) is a regional Chinese department store operator with heavy exposure to Jiangsu Province. GE, like many other Chinese department stores, is facing a challenging operating environment and deteriorating fundamentals: Industry challenges: Despite rising overall retail consumption in China, department stores are losing shares to e-commerce and other retail outlets. Competition is keen and there is little product differentiation among peers, resulting in declining profitability across the industry.Deteriorating fundamentals: GE reported declining profits since 2014 and its operating metrics are falling sharply, despite its continuous effort to increase its retail space. However, GE remains committed to its ambitious expansion plan and such should further weaken its cash flows and balance sheet. Also, GE’s strategic transformation initiatives to tackle the challenging environment have not shown many positive signs.Weak earnings outlook: On top of negative SSSG, declining sales/sqm and lackluster customer loyalty, GE’s depreciation and finance expenses have started to eat into profits amid its asset-heavy business model and aggressive expansion.Stretched balance sheet: GE’s balance sheet has weakened significantly because it had to increase borrowings to mainly finance its expansion. Given the heavy capex spending ahead, GE should continue to report negative free cash flows in the coming years. The company is becoming more financially constrained and therefore, it is unlikely to buy back shares as actively as it did. It may also issue new shares or cut dividend if its balance sheet further weakens.GE trades at a rich valuation and also a premium over its peers. Despite its currently higher-than-average margins and return profile, its superior earning power is unlikely to be sustainable. Worse off, street estimates on its future earnings are grossly over-optimistic. As a result of its non-existent moat, fragile fundamentals, unrealistic expansion plan, weak balance sheet and rich valuation, GE should experience a long period of derating and significant multiple contraction in the years ahead. Finally, in light of Intime's recent privatization, GE is unlikely to be privatized given Chairman Wang's history of selling his personal low quality assets to GE. 

Golden Eagle (3308 HK): Deteriorating Fundamentals with Years of Derating Ahead - SELL

United States

J.C. Penney Company, Inc., through a subsidiary, operates department stores in the United States and Puerto Rico.  The Company provides merchandise and services to consumers through department stores, catalog departments, and the Internet.  JCPenney markets primarily family apparel, jewelry, shoes, accessories, and home furnishings.

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J.C. Penney Co (JCP US)

Amazon's Acquisition of Whole Foods: What Does This Mean? (Including Stock Opportunities)

Amazon.com Inc (AMZN US)'s acquisition of Whole Foods Market Inc (WFM US) is a game changer to the grocery industry. What this necessarily means...

Johannes Salim, CFA

Golden Eagle (3308 HK): Deteriorating Fundamentals with Years of Derating Ahead - SELL

Golden Eagle Retail Group (3308 HK) (“GE”) is a regional Chinese department store operator with heavy exposure to Jiangsu Province. GE, like many...

Pep So, CFA, CPA

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