Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

The disposition of <a href="https://www.smartkarma.com/entities/mcdonald-s-corp" target="_blank" data-smartkarma-citation="entities:1425:1" rel="noopener">McDonald's Corp (MCD US)</a>'s ownership in <a href="https://www.smartkarma.com/entities/mcdonald-s-holdings-co-japan" target="_blank" data-smartkarma-citation="entities:985:1" rel="noopener">McDonald's Holdings Co Japan (2702 JP)</a> has been a widely discussed topic in the past several years. However, in July 2020, <a href="https://www.smartkarma.com/entities/mcdonald-s-corp" target="_blank" data-smartkarma-citation="entities:1425:1" rel="noopener">Mcdonald's Corp (MCD US)</a> confirmed in its 2020 FQ2 earnings call that they were planning to sell part of their stake. 
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<blockquote>
Consistent with enhancing financial flexibility and our franchising strategy, we're planning to divest a portion of our stake in McDonald's Japan. As a result of the strong performance of the McDonald's Japan business over the past few years and our confidence in the local management team, we believe it's the right time to gradually reduce our ownership stake in the market. This will take some time because of the low trading volume of McDonald's Japan shares. As a reminder, we currently own about 49% of the business, and we will retain at least 35% ownership. This decision provides us with additional financial flexibility to execute our capital allocation strategy while also demonstrating our commitment to our Japanese business.
</blockquote>
According to Capital IQ - and the last filing on the parent currently holds around 43.8% which means <a href="https://www.smartkarma.com/entities/mcdonald-s-corp" target="_blank" data-smartkarma-citation="entities:1425:1" rel="noopener">Mcdonald's Corp (MCD US)</a> has sold around 6.1% of the planned total of ~14%. 
To get to 35% from the current level, they would have to sell another ~11mn shares (~8.2% of total shares) and there is more than one way they could go about that. 
That is where things get interesting. 
More below the fold. 
</div>

The disposition of McDonald's Corp (MCD US)'s ownership in McDonald's Holdings Co Japan (2702 JP) has been a widely discussed topic in the past several years. However, in July 2020, Mcdonald's Corp (MCD US) confirmed in its 2020 FQ2 earnings call that they were planning to sell part of their stake. 


Consistent with enhancing financial flexibility and our franchising strategy, we're planning to divest a portion of our stake in McDonald's Japan. As a result of the strong performance of the McDonald's Japan business over the past few years and our confidence in the local management team, we believe it's the right time to gradually reduce our ownership stake in the market. This will take some time because of the low trading volume of McDonald's Japan shares. As a reminder, we currently own about 49% of the business, and we will retain at least 35% ownership. This decision provides us with additional financial flexibility to execute our capital allocation strategy while also demonstrating our commitment to our Japanese business.

According to Capital IQ - and the last filing on the parent currently holds around 43.8% which means Mcdonald's Corp (MCD US) has sold around 6.1% of the planned total of ~14%. 
To get to 35% from the current level, they would have to sell another ~11mn shares (~8.2% of total shares) and there is more than one way they could go about that. 
That is where things get interesting. 
More below the fold. 


2021 High Conviction: McDonald's Japan -  A TOPIX Inclusion BIG Bet

Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

ASA Capital Management

ASA Capital Management is a boutique Research and Investment Advisory firm focusing on primary research in India. ASA provides bespoke research services to Institutional Clients with a focus on due diligence backed with primary research, Field Trips & Channel Checks.

Equity Bottom-Up

Restaurant Brands Asia / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/burger-king-india" target="_blank" data-smartkarma-citation="entities:28445:1" rel="noopener">Burger King India (BKI IN)</a> is the second most sought after IPO of 2020. The IPO specifics are well covered by <a href="https://www.smartkarma.com/profiles/sumeet-singh" target="_blank" data-smartkarma-citation="accounts:4" rel="noopener">Sumeet Singh</a> in this insight <a href="https://www.smartkarma.com/insights/burger-king-india-ipo-can-still-grow-fast" target="_blank" data-smartkarma-citation="insights:45890" rel="noopener">Burger King India IPO - Can Still Grow Fast</a> and by <a href="https://www.smartkarma.com/profiles/oshadhi-kumarasiri" target="_blank" data-smartkarma-citation="accounts:3584" rel="noopener">Oshadhi Kumarasiri</a> in his insight <a href="https://www.smartkarma.com/insights/burger-king-india-ipo-valuation-offered-at-a-discount-to-peers-but-not-cheap-on-absolute-value" target="_blank" data-smartkarma-citation="insights:45883" rel="noopener">Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value</a>.
This Insight, provides our preliminary takeaways from interactions with restaurant managers located in the northern part of India. The objective of this insight is to provide a preliminary on-ground narrative when it comes to growth.

Burger King India (BKI IN) is the second most sought after IPO of 2020. The IPO specifics are well covered by Sumeet Singh in this insight Burger King India IPO - Can Still Grow Fast and by Oshadhi Kumarasiri in his insight Burger King India IPO Valuation: Offered at a Discount to Peers, But Not Cheap on Absolute Value.
This Insight, provides our preliminary takeaways from interactions with restaurant managers located in the northern part of India. The objective of this insight is to provide a preliminary on-ground narrative when it comes to growth. 

Burger King India (BKI IN) | Preliminary Channel Checks Confirm Growth Potential

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, 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

Restaurant Brands Asia / Equity Capital Markets

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Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. 
BKI is the national master franchisee of the Burger King brand in India. As of Sep 2020, it operated 261 restaurants, including 8 sub-franchised restaurants, across 57 cities in India. 
BKI’s no. of restaurants have increased by 2.95x over FY17-20, while its revenue has grown even faster at 54% CAGR over FY17-20. Although BKI hasn’t managed to break-even, with the COVID induced lockdown pushing it back into losses.
As compared to its two main listed peers, BKI appears to lie in between on most measures, although its cost structure leaves much to be desired, as of now.
I’ve covered various aspects of the deal in my earlier notes:
<ul>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/burger-king-india-pre-ipo-has-been-growing-fast-and-plans-to-grow-even-faster" target="_blank" rel="noopener">Burger King India Pre-IPO - Has been growing fast and plans to grow even faster</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/burger-king-india-pre-ipo-peer-comparison-yields-interesting-nuggets-on-profitability-and-capex" target="_blank" rel="noopener">Burger King India Pre-IPO - Peer comparison yields interesting nuggets on profitability and capex</a></li>
</ul>
In this note, I’ll cover the updates in the company’s latest filings and run the deal through our ECM framework
</div>


Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. 
BKI is the national master franchisee of the Burger King brand in India. As of Sep 2020, it operated 261 restaurants, including 8 sub-franchised restaurants, across 57 cities in India. 
BKI’s no. of restaurants have increased by 2.95x over FY17-20, while its revenue has grown even faster at 54% CAGR over FY17-20. Although BKI hasn’t managed to break-even, with the COVID induced lockdown pushing it back into losses.
As compared to its two main listed peers, BKI appears to lie in between on most measures, although its cost structure leaves much to be desired, as of now.
I’ve covered various aspects of the deal in my earlier notes:

Burger King India Pre-IPO - Has been growing fast and plans to grow even faster
Burger King India Pre-IPO - Peer comparison yields interesting nuggets on profitability and capex

In this note, I’ll cover the updates in the company’s latest filings and run the deal through our ECM framework


Burger King India IPO - Can Still Grow Fast

Investment Research - Asia Consumer Sector, Investory

Devi Subhakesan

Investment Research - Asia Consumer Sector

ASIA CONSUMER: INSIGHTS AND INVESTMENT IDEAS

Investory

Investory is a Singapore-based boutique independent equity research firm founded in January 2017 with a primary focus on consumption themes across Asia-Pacific.

We aim to generate investible ideas based on consumption trends and outlook. We screen our ideas on several parameters - product potential, long-term growth and management commitment being the most critical.  We follow a fundamental analysis approach in our stock selection process and are not restricted by market cap.

We aspire to grow into a leading source of unbiased research, free of conflict of interest, for investors yearning for independent and disciplined analysis. 

We also undertake bespoke research mandates to support our Institutional clients’ investment needs.

Our team comprises of professionals with extensive experience in the Asian equity markets, in areas ranging from research, servicing institutional clients and investment management.

<a href="https://www.smartkarma.com/entities/mcdonald-s-corp" target="_blank" data-smartkarma-citation="entities:1425:1" rel="noopener">Mcdonald's Corp (MCD US)</a> finally announced its plans to launch plant-based products starting next year under the brand McPlant. It clarified that McPlant is crafted exclusively for McDonald's by McDonald's, ending speculation that it might source products from leading plant-based meat (PBM) players <a href="https://www.smartkarma.com/entities/beyond-meat-inc" target="_blank" data-smartkarma-citation="entities:28065:1" rel="noopener">Beyond Meat (BYND US)</a> or <a href="https://www.smartkarma.com/entities/impossible-foods-inc" target="_blank" data-smartkarma-citation="entities:28361:1" rel="noopener">Impossible Foods Inc (1249597D US)</a>.  This, together with <a href="https://www.smartkarma.com/entities/beyond-meat-inc" target="_blank" data-smartkarma-citation="entities:28065:1" rel="noopener">Beyond Meat (BYND US)</a> 's weaker than expected Q3 sales, could weaken the share price further. However, we note that the wider acceptance and preference for plant-based meat products since the pandemic is a long term positive for established players like <a href="https://www.smartkarma.com/entities/beyond-meat-inc" target="_blank" data-smartkarma-citation="entities:28065:1" rel="noopener">Beyond Meat (BYND US)</a>. In the note below, we discuss (1) why we think Beyond Meat has an advantage in the burgeoning PBM segment, even as its near term share price outlook could be weak. (2) stock's investment outlook (3) its Q3 results.

Mcdonald's Corp (MCD US) finally announced its plans to launch plant-based products starting next year under the brand McPlant. It clarified that McPlant is crafted exclusively for McDonald's by McDonald's, ending speculation that it might source products from leading plant-based meat (PBM) players Beyond Meat (BYND US) or Impossible Foods Inc (1249597D US).  This, together with Beyond Meat (BYND US) 's weaker than expected Q3 sales, could weaken the share price further. However, we note that the wider acceptance and preference for plant-based meat products since the pandemic is a long term positive for established players like Beyond Meat (BYND US). In the note below, we discuss (1) why we think Beyond Meat has an advantage in the burgeoning PBM segment, even as its near term share price outlook could be weak. (2) stock's investment outlook (3) its Q3 results.

McDonald's Plans to Launch McPlant. What Does It Mean for Beyond Meat (BYND US)?

Yum China Holdings  / Equity Capital Markets

<a href="https://www.bloomberg.com/news/articles/2020-09-03/yum-china-said-to-guide-hong-kong-listing-price-at-hk-412-each?sref=SVEekGzB" target="_blank" rel="noopener">Bloomberg reported</a> that <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China </a>has indicated a price of HK$412 per share for its secondary listing in Hong Kong implying a 5% discount to yesterday's closing price at NYSE of USD 55.9. An issue price of HKD412 implies an enterprise-to-sales value of 2X and EV/EBITDA of 12.9x based on 2021 consensus estimates (source: CapitalIQ), at a discount to industry peers (See Valuation comparison below). We believe Yum China is well-positioned to recover from the ongoing industry disruptions and would see valuation rerating as the market has better visibility and conviction in its earnings recovery. This suggests a meaningful room for upside for the stock from the reported issue price of HKD412.   In the brief note below, we update sector valuations to see how Yum China's reported offer price of HKD412 places it vs peers and discuss the steep valuation gap and potential for stock upside.

Bloomberg reported that Yum China has indicated a price of HK$412 per share for its secondary listing in Hong Kong implying a 5% discount to yesterday's closing price at NYSE of USD 55.9. An issue price of HKD412 implies an enterprise-to-sales value of 2X and EV/EBITDA of 12.9x based on 2021 consensus estimates (source: CapitalIQ), at a discount to industry peers (See Valuation comparison below). We believe Yum China is well-positioned to recover from the ongoing industry disruptions and would see valuation rerating as the market has better visibility and conviction in its earnings recovery. This suggests a meaningful room for upside for the stock from the reported issue price of HKD412.   In the brief note below, we update sector valuations to see how Yum China's reported offer price of HKD412 places it vs peers and discuss the steep valuation gap and potential for stock upside.

Yum China: Reported HK Offer Price at 5% Discount to NY Closing. Room for Upside.

United States

McDonald's Corporation franchises and operates fast-food restaurants in the global restaurant industry. The Company's restaurants serve a variety of value-priced menu products in countries around the world.

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Mcdonald's Corp (MCD US)

2021 High Conviction: McDonald's Japan - A TOPIX Inclusion BIG Bet

Parent McDonald's Corp announced in July it would sell down its stake in McDonald's Japan from 49% to 35+%. It has sold about 40% of that so far....

Janaghan Jeyakumar, CFA

Burger King India (BKI IN) | Preliminary Channel Checks Confirm Growth Potential

In this channel check we present, our takeaways based on interactions with a couple of BKI's restaurant managers in order to understand the growth...

Pranav Bhavsar

Burger King India IPO - Can Still Grow Fast

Burger King India (BKI) aims to raise around US$110m via a mix of selling primary and secondary shares in India. BKI is the national master...

Sumeet Singh

McDonald's Plans to Launch McPlant. What Does It Mean for Beyond Meat (BYND US)?

Mcdonald's plans to launch its own plant-based products raising investor concerns about the exclusivity of players like Beyond Meat. We attempt to...

Devi Subhakesan

Yum China: Reported HK Offer Price at 5% Discount to NY Closing. Room for Upside.

Reportedly, $Yum Chi

Devi Subhakesan

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