Julie Lee

Equity Bottom-Up

Luxury brand companies raised price by 2~4% again in January again after raising price by 10~15% in 2020.  Luxury fashion industry is one of a few industries which has shown strong pricing power even during the pandemic.  The core personal luxury goods market is expected to be contracted for the first time since 2009, falling by 23 percent to hit EUR217 billion, according to Bain&amp;Company.  But it has been showing strong recovery since 2H20. Even though the prolonged pandemic and lock-down can still weigh on the luxury industry, it will continue to show resilience given increasing disposable incomes of high-end consumers thanks to wealth effect and lack of spending on travels.  <a href="https://www.smartkarma.com/entities/prada-s-p-a" target="_blank" data-smartkarma-citation="entities:889:1" rel="noopener">Prada S.P.A. (1913 HK)</a>  is one of a few luxury brands which has been improving its brand equity by appointing the new co-creative director, Raf Simons, enhancing its online marketing and changing its distribution model.We will review details of Prada's strategies and its long term growth potentials in the below section.

Luxury brand companies raised price by 2~4% again in January again after raising price by 10~15% in 2020.  Luxury fashion industry is one of a few industries which has shown strong pricing power even during the pandemic.  The core personal luxury goods market is expected to be contracted for the first time since 2009, falling by 23 percent to hit EUR217 billion, according to Bain&amp;Company.  But it has been showing strong recovery since 2H20. Even though the prolonged pandemic and lock-down can still weigh on the luxury industry, it will continue to show resilience given increasing disposable incomes of high-end consumers thanks to wealth effect and lack of spending on travels.  Prada S.P.A. (1913 HK)  is one of a few luxury brands which has been improving its brand equity by appointing the new co-creative director, Raf Simons, enhancing its online marketing and changing its distribution model.We will review details of Prada's strategies and its long term growth potentials in the below section.  

PRADA (1913. HK): Improving Brand Equity to Fuel Its Long Term Growth

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

<ul>
<li>Despite the elevated valuation, family-controlled Hermes demonstrates its superior quality from a business-owner perspective, and hence, is worth following among patient investors;</li>
<li>At the same time, we find that the French heritage name has been increasingly APAC-driven in recent years and can very likely continue to benefit from rising emerging Asia in the foreseeable future.</li>
</ul>


Despite the elevated valuation, family-controlled Hermes demonstrates its superior quality from a business-owner perspective, and hence, is worth following among patient investors;
At the same time, we find that the French heritage name has been increasingly APAC-driven in recent years and can very likely continue to benefit from rising emerging Asia in the foreseeable future.


Hermes: An Increasingly APAC-Driven Story

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Quantitative Analysis

In light of recent LVMH/Tiffany headlines, we went back to TMI's Luxury Goods Sentiment Indicator and app analytics for a quick update on the state of luxury via alt-data.  TMI's Luxury Goods Sentiment Indicator has been consistently in positive territory since May, having been boosted by somewhat controversial notions of "revenge spending" popularized earlier in the pandemic with mostly anecdotal evidence.  We have also aggregated App Store data for key luxury shopping apps in key jurisdictions to find that overall App performance has been robust, aided by a recent surge in US downloads and continued growth in China, while HK and Singapore recently lag.

In light of recent LVMH/Tiffany headlines, we went back to TMI's Luxury Goods Sentiment Indicator and app analytics for a quick update on the state of luxury via alt-data.  TMI's Luxury Goods Sentiment Indicator has been consistently in positive territory since May, having been boosted by somewhat controversial notions of "revenge spending" popularized earlier in the pandemic with mostly anecdotal evidence.  We have also aggregated App Store data for key luxury shopping apps in key jurisdictions to find that overall App performance has been robust, aided by a recent surge in US downloads and continued growth in China, while HK and Singapore recently lag.

TMI Snapshot:  Luxury Goods Sentiment Steadily Positive, As App Analytics Show Ongoing Recovery

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Bernard Arnault, <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vuitton-se-unsp-adr" target="_blank" data-smartkarma-citation="entities:28477:1" rel="noopener">LVMH Moet Hennessy Louis Vuitton SE-UNSP ADR (LVMUY US)</a>'s Chairman/CEO, must rue the day his company pitched an Offer for <a href="https://www.smartkarma.com/entities/tiffany-co" target="_blank" data-smartkarma-citation="entities:14729:1" rel="noopener">Tiffany &amp; Co (TIF US)</a>, a little under two months before COVID-19 first hit the news. 
LVMH and Tiffany reached a definite agreement on the <a href="https://investor.tiffany.com/static-files/9a8842f4-4f7b-438f-a6c6-4d768c2d6546" target="_blank" rel="noopener">25 November 2019</a>, wherein LVMH would acquire Tiffany for $135/share (7.7% premium to last close) in a US$16.2bn transaction. Tiffany shareholders approved the merger on the <a href="https://investor.tiffany.com/node/22081/pdf" target="_blank" rel="noopener">4 February</a>.
The two parties had initially set August 24 as the first deadline for completing the transaction,  with the possibility of extending the deadline to November 24 at the latest (see <a href="https://www.sec.gov/Archives/edgar/data/98246/000119312519299997/d840067dex21.htm" target="_blank" rel="noopener">page 62</a> of the Merger Agreement lodged with the SEC) - one year from the initial agreement<a href="https://www.sec.gov/" target="_blank" rel="noopener">.</a> This "Outside Date" was extended to the 24 November after the merger failed to close on the 24 August.
In a very brief <a href="https://r.lvmh-static.com/uploads/2020/09/lvmh_press-release-9-september-2020.pdf" target="_blank" rel="noopener">press release</a> yesterday, LVMH said it will not be able to complete the Tiffany acquisition, in compliance with a directive from the French European and Foreign Affairs Minister to defer the merger. LVMH also said Tiffany had undergone a Material Adverse Affect (MAE).
In a strongly-worded, detailed response, Tiffany said it has no choice but to file a lawsuit to <a href="https://investor.tiffany.com/node/22406/pdf" target="_blank" rel="noopener">enforce the Merger</a>.
LVMH seeking non-compliance with its contractual obligation on account of a MAE, takes a leaf out of EQT's gameplay for <a href="https://www.smartkarma.com/entities/metlifecare-ltd" target="_blank" data-smartkarma-citation="entities:19219:1" rel="noopener">Metlifecare Ltd (MET NZ)</a>. And as in MET's case (<a href="https://skr.ma/8sLe8" target="_blank" rel="noopener">Metlifecare/EQT: The Retirement Solution</a>), LVMH may find itself having to reconsider a new Offer.
More comment below the fold.

Bernard Arnault, LVMH Moet Hennessy Louis Vuitton SE-UNSP ADR (LVMUY US)'s Chairman/CEO, must rue the day his company pitched an Offer for Tiffany &amp; Co (TIF US), a little under two months before COVID-19 first hit the news. 
LVMH and Tiffany reached a definite agreement on the 25 November 2019, wherein LVMH would acquire Tiffany for $135/share (7.7% premium to last close) in a US$16.2bn transaction. Tiffany shareholders approved the merger on the 4 February.
The two parties had initially set August 24 as the first deadline for completing the transaction,  with the possibility of extending the deadline to November 24 at the latest (see page 62 of the Merger Agreement lodged with the SEC) - one year from the initial agreement. This "Outside Date" was extended to the 24 November after the merger failed to close on the 24 August.
In a very brief press release yesterday, LVMH said it will not be able to complete the Tiffany acquisition, in compliance with a directive from the French European and Foreign Affairs Minister to defer the merger. LVMH also said Tiffany had undergone a Material Adverse Affect (MAE).
In a strongly-worded, detailed response, Tiffany said it has no choice but to file a lawsuit to enforce the Merger.
LVMH seeking non-compliance with its contractual obligation on account of a MAE, takes a leaf out of EQT's gameplay for Metlifecare Ltd (MET NZ). And as in MET's case (Metlifecare/EQT: The Retirement Solution), LVMH may find itself having to reconsider a new Offer.
More comment below the fold.

LVMH/Tiffany: In The Rough. Acts of God and Legal Restraint

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

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

Oriental Watch is a play on Rolex demand in China and HK. As recently highlighted by fellow insight provider <a href="https://www.smartkarma.com/profiles/sameer-taneja-a0539e0c-84dd-4e66-9c40-6e598edfb4c5" target="_blank" data-smartkarma-citation="accounts:352" rel="noopener">Sameer Taneja </a>the revenue contribution of mainland China has steadily grown from just 19% in FY18 to over 40% in FY20. With Chinese consumers unable to travel to HK the company is naturally hedged. Price differentials have narrowed so more Chinese consumers are happy to buy Rolex, and other luxury watches, in their native cities. In Hong Kong the government is unleashing a 71 billion HKD stimulus package directly to its residents. Some of this cash could be spent on watches.FY20 revenues were down slightly (-3.4%) and profits were over 25% weaker but this was an impressive performance for a company that depends on luxury products sold in HK (mass protests and disruption between June 2019 to November 2019) closely followed by a pandemic in China/HK between January and March this year.Business from April to June 2020 has been steadily improving in mainland China while HK remains weak and Macau has fallen off a cliff as footfall to the island has collapsed. Fortunately, the company only operates one store in Macau.Oriental Watch remains a dividend aristocrat. The company will pay its final dividend by September and its interim dividend late December. Patient shareholders should collect at least 12%, and potentially much more, as the massive cash balance gets returned to shareholders.Risk/Reward in Oriental Watch remains favorable and our Fair Value estimate remains unchanged at 3.5 HKD (77% upside).

Oriental Watch is a play on Rolex demand in China and HK. As recently highlighted by fellow insight provider Sameer Taneja the revenue contribution of mainland China has steadily grown from just 19% in FY18 to over 40% in FY20. With Chinese consumers unable to travel to HK the company is naturally hedged. Price differentials have narrowed so more Chinese consumers are happy to buy Rolex, and other luxury watches, in their native cities. In Hong Kong the government is unleashing a 71 billion HKD stimulus package directly to its residents. Some of this cash could be spent on watches.FY20 revenues were down slightly (-3.4%) and profits were over 25% weaker but this was an impressive performance for a company that depends on luxury products sold in HK (mass protests and disruption between June 2019 to November 2019) closely followed by a pandemic in China/HK between January and March this year.Business from April to June 2020 has been steadily improving in mainland China while HK remains weak and Macau has fallen off a cliff as footfall to the island has collapsed. Fortunately, the company only operates one store in Macau.Oriental Watch remains a dividend aristocrat. The company will pay its final dividend by September and its interim dividend late December. Patient shareholders should collect at least 12%, and potentially much more, as the massive cash balance gets returned to shareholders.Risk/Reward in Oriental Watch remains favorable and our Fair Value estimate remains unchanged at 3.5 HKD (77% upside).

Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting

France

Kering SA designs, manufactures and markets luxury and sport & lifestyle goods. The Company's brands include Gucci, Bottega Veneta, Alexander McQueen, Puma and Volcom. Kering operates globally and is headquartered in Paris, France.

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Kering (KER FP)

PRADA (1913. HK): Improving Brand Equity to Fuel Its Long Term Growth

Luxury industry stays resilient given increasing disposable incomes of high-end consumers. We review Prada's strategies and its long term growth...

Julie Lee

Hermes: An Increasingly APAC-Driven Story

The French heritage story has been increasingly APAC-driven in recent years and can very likely continue to benefit from rising emerging Asia in...

Steven Chen

TMI Snapshot: Luxury Goods Sentiment Steadily Positive, As App Analytics Show Ongoing Recovery

In light of recent LVMH/TIF headlines

Elan Gore

LVMH/Tiffany: In The Rough. Acts of God and Legal Restraint

Taking a leaf out of the EQT's gamplay for Metlifecare Ltd (MET NZ)

David Blennerhassett

Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting

Oriental Watch is a play on Rolex demand in China and HK. As recently highlighted by fellow insight provider Sameer Taneja the revenue contribution...

Nicolas Van Broekhoven

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52-week Range

Market Cap (USDm)

P/E

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