Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

Our negative view on <a href="https://www.smartkarma.com/entities/24184" target="_blank" data-smartkarma-citation="entities:24184:1">Baozun Inc. (BZUN US)</a> stems from the company’s declining profit margin due to eroding pricing power to key customers, and chronic negative cash flow despite robust GMV growth.  The root cause of the problem is the strengthening of bargaining power from its key existing clients, as they demand fixed fees, rather than GMV based commission fees as online sales increases.  Many service contracts are renewable each year, and we see a weakening pricing trend as well as a bloated balance sheet as its distribution business re-accelerates growth.  An increasing distribution business sales mix implies rising inventory, which adds strain to working capital.   Unsurprisingly, on April 4th Baozun announced a convertible debt offering of $225M due in 2024, to primarily fund its working capital.

Our negative view on Baozun Inc. (BZUN US) stems from the company’s declining profit margin due to eroding pricing power to key customers, and chronic negative cash flow despite robust GMV growth.  The root cause of the problem is the strengthening of bargaining power from its key existing clients, as they demand fixed fees, rather than GMV based commission fees as online sales increases.  Many service contracts are renewable each year, and we see a weakening pricing trend as well as a bloated balance sheet as its distribution business re-accelerates growth.  An increasing distribution business sales mix implies rising inventory, which adds strain to working capital.   Unsurprisingly, on April 4th Baozun announced a convertible debt offering of $225M due in 2024, to primarily fund its working capital.

BZUN Q1 Preview: Eroding GMV Quality, Margin Squeeze by Top Customers

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

The Best Ideas list is a compilation of stock ideas sourced from Morningstar’s global equity research team. With more than 100 analysts covering nearly 1,500 companies, we’re able to provide a wide variety of what we believe are attractively priced securities looking across sectors, industries, and geographies. Best Ideas are nominated by analysts and approved by managers in addition to the normal due diligence processes that precede our published research and ratings.The list may include a broad mix of quality and risk characteristics to meet varying investor needs, including no-, narrow-, and wide-moat companies as well as the full spectrum of uncertainty ratings from low to very high. Most or all of the highlighted stocks will be trading at a discount to our estimate of intrinsic value, indicating improved odds of capital appreciation.

The Best Ideas list is a compilation of stock ideas sourced from Morningstar’s global equity research team. With more than 100 analysts covering nearly 1,500 companies, we’re able to provide a wide variety of what we believe are attractively priced securities looking across sectors, industries, and geographies. Best Ideas are nominated by analysts and approved by managers in addition to the normal due diligence processes that precede our published research and ratings.The list may include a broad mix of quality and risk characteristics to meet varying investor needs, including no-, narrow-, and wide-moat companies as well as the full spectrum of uncertainty ratings from low to very high. Most or all of the highlighted stocks will be trading at a discount to our estimate of intrinsic value, indicating improved odds of capital appreciation.

Making sense of the Global Market, Euromonitor International Ltd.

Yu Mitsuhashi

Making sense of the Global Market

Euromonitor International Ltd.

We are a global market research company focused on industries, countries, economies and consumers worldwide. Our cross-country comparable research helps your organisation identify opportunities and develop growth strategies in countries and regions across the globe. With offices around the world, 1,200 analysts in 100 countries and market research on every key trend and driver, we give you powerful access to the real story behind consumer change.

<ul><li>Retail current value sales increased by 7% in 2017 to reach CNY74.4 billion.</li><li>Traditional toys and games with intelligence explorer functions win over consumers.</li><li>LEGO Trading (Beijing) led a highly fragmented competitive landscape in 2017.</li><li>Internet retailing led distribution in 2017.</li><li>A 4% retail value CAGR at constant 2017 prices is expected over the forecast period to reach CNY92.5 billion in 2022.</li></ul>

Retail current value sales increased by 7% in 2017 to reach CNY74.4 billion.Traditional toys and games with intelligence explorer functions win over consumers.LEGO Trading (Beijing) led a highly fragmented competitive landscape in 2017.Internet retailing led distribution in 2017.A 4% retail value CAGR at constant 2017 prices is expected over the forecast period to reach CNY92.5 billion in 2022.

Sector Capsule: Traditional Toys and Games in China

<h2>Headlines</h2><ul><li>Traditional toys and games in India grows by 6% to reach INR32 billion in 2016</li><li>High imports from China along with high levels of counterfeiting are major challenges for the growth of organised retailing</li><li>Funskool (India) Ltd leads traditional toys and games with an 11% share in 2016</li><li>Traditional toys and games stores continue to be dominant channel for sales with an 87% share in 2016</li><li>Traditional toys and games in India is expected to grow by a value CAGR of 3% at constant 2016 prices over the forecast period to reach INR38 billion in 2021</li></ul>

HeadlinesTraditional toys and games in India grows by 6% to reach INR32 billion in 2016High imports from China along with high levels of counterfeiting are major challenges for the growth of organised retailingFunskool (India) Ltd leads traditional toys and games with an 11% share in 2016Traditional toys and games stores continue to be dominant channel for sales with an 87% share in 2016Traditional toys and games in India is expected to grow by a value CAGR of 3% at constant 2016 prices over the forecast period to reach INR38 billion in 2021

Sector Capsule: Traditional Toys and Games in India

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

On October 10th, <a href="https://www.smartkarma.com/entities/2911" target="_blank" data-smartkarma-citation="entities:2911:1">Mattel Inc (MAT US)</a>, one of the largest toy makers in the world, agreed to acquire a major stake in <a href="https://www.smartkarma.com/entities/14657" target="_blank" data-smartkarma-citation="entities:14657:1">Sonokong Co Ltd (066910 KS)</a>, one of the most popular toy makers in Korea. Mattel acquired a 12% stake in Sonokong (from its Chairman Sin-Gyu Choi) for 13.97 billion won (US$12.6 million), valuing the company at 116 billion won. This acquisition makes Mattel the largest stakeholder in Sonokong. The deal also included a two-year agreement for exclusive rights for sale, marketing…

On October 10th, Mattel Inc (MAT US), one of the largest toy makers in the world, agreed to acquire a major stake in Sonokong Co Ltd (066910 KS), one of the most popular toy makers in Korea. Mattel acquired a 12% stake in Sonokong (from its Chairman Sin-Gyu Choi) for 13.97 billion won (US$12.6 million), valuing the company at 116 billion won. This acquisition makes Mattel the largest stakeholder in Sonokong. The deal also included a two-year agreement for exclusive rights for sale, marketing…

Korea M&A Spotlight: Mattel Acquires a Major Stake in Sonokong, A Toy Maker in Korea

United States

Mattel, Inc. designs, manufactures, and markets a broad variety of children's toy products on a worldwide basis.  The Company sells its products to retailers and directly to consumers.  Mattel's products include branded fashion dolls, infant and preschool products, toy cars, and electrical vehicles, among others.

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Mattel Inc (MAT US)

BZUN Q1 Preview: Eroding GMV Quality, Margin Squeeze by Top Customers

Our negative view on Baozun Inc. (BZUN US) stems from the company’s declining profit margin due to eroding pricing power to key customers, and...

JL Warren Capital

Best Ideas List for January 2019

The Best Ideas list is a compilation of stock ideas sourced from Morningstar’s global equity research team. With more than 100 analysts covering...

Morningstar, Inc.

Sector Capsule: Traditional Toys and Games in China

Retail current value sales increased by 7% in 2017 to reach CNY74.4 billion. Traditional toys and games with intelligence explorer functions win...

Euromonitor International Ltd.

Sector Capsule: Traditional Toys and Games in India

Headlines Traditional toys and games in India grows by 6% to reach INR32 billion in 2016 High imports from China along with high levels of...

Euromonitor International Ltd.

Korea M&A Spotlight: Mattel Acquires a Major Stake in Sonokong, A Toy Maker in Korea

On October 10th, Mattel Inc (MAT US), one of the largest toy makers in the world, agreed to acquire a major stake in Sonokong Co Ltd (066910 KS),...

Douglas Kim

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