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.

Equity Bottom-Up

In this insight, we discuss the investment view on <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc-0533692c-6dae-4014-baa1-ed0b050638f2" target="_blank" data-smartkarma-citation="entities:29259:1" rel="noopener">Yum China Holdings Inc (9987 HK)</a> for the long and short term, based on analysis of its valuations, operational and financial outlook and Management commentary following the Q42020 results.<a href="https://www.smartkarma.com/entities/yum-china-holdings-inc-0533692c-6dae-4014-baa1-ed0b050638f2" target="_blank" data-smartkarma-citation="entities:29259:1" rel="noopener">Yum China Holdings Inc (9987 HK)</a> has rewarded investors with an 18% return in the past 6 months, almost in line with the index, and a 16% return from its HK secondary (Sep. 2020) listing price. The steady stock performance was backed by a stable recovery in operations and financials; it reported an 11 % growth in Q4 revenues and robust growth in operating and net income compared to 2019. The contrast with market-favourite in the segment, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a> is notably stark. In the same time period (past 6 months), Haidilao stock price had a rollercoaster ride - buoyed up by index inclusion; and now back to Sep 2020 levels, underperforming the index by a wide margin.

In this insight, we discuss the investment view on Yum China Holdings Inc (9987 HK) for the long and short term, based on analysis of its valuations, operational and financial outlook and Management commentary following the Q42020 results.Yum China Holdings Inc (9987 HK) has rewarded investors with an 18% return in the past 6 months, almost in line with the index, and a 16% return from its HK secondary (Sep. 2020) listing price. The steady stock performance was backed by a stable recovery in operations and financials; it reported an 11 % growth in Q4 revenues and robust growth in operating and net income compared to 2019. The contrast with market-favourite in the segment, Haidilao (6862 HK) is notably stark. In the same time period (past 6 months), Haidilao stock price had a rollercoaster ride - buoyed up by index inclusion; and now back to Sep 2020 levels, underperforming the index by a wide margin. 

Yum China (9987 HK): Simple Fare Trumps the Special Treat (6862 HK). What Now?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In the 2020FQ2 earnings call for <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> held in late July, CFO Kevin Ozan brought up the subject of <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> a bit over 22 minutes into the call. <div><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></div><div>
The conclusion was that MCD would sell 14% of McD Japan in the market. But 14% was 18.6mm shares, which on an ex-ante basis was 56 days worth of average daily volume over the previous three years and over a year's worth of volume if trading at 20% of volume every single day.
It was a near 30% increase in the float and not quite US$1bn in value.
On 20 August, MCD <a href="https://disclosure.edinet-fsa.go.jp/E01EW/download?uji.verb=W0EZA104CXP001003Action&amp;uji.bean=ee.bean.parent.EECommonSearchBean&amp;PID=W1E63011&amp;SESSIONKEY=1597918899762&amp;lgKbn=2&amp;pkbn=0&amp;skbn=1&amp;dskb=&amp;askb=&amp;dflg=0&amp;iflg=&amp;preId=1&amp;mul=2702&amp;lpr=on&amp;cal=1&amp;era=R&amp;yer=&amp;mon=&amp;pfs=4&amp;row=100&amp;idx=0&amp;str=&amp;kbn=1&amp;flg=&amp;syoruiKanriNo=&amp;s=S100JKOI" target="_blank" rel="noopener">announced</a> that it had sold a bit over 3% of McD J, selling 4.2mm shares at ¥5340/share on 19 August 2020. On 20 November 2020, they <a href="https://disclosure.edinet-fsa.go.jp/E01EW/download?uji.verb=W0EZA104CXP001003Action&amp;uji.bean=ee.bean.parent.EECommonSearchBean&amp;PID=W1E63011&amp;SESSIONKEY=1614669632749&amp;lgKbn=2&amp;pkbn=0&amp;skbn=1&amp;dskb=&amp;askb=&amp;dflg=0&amp;iflg=&amp;preId=1&amp;mul=2702&amp;lpr=on&amp;cal=1&amp;era=R&amp;yer=&amp;mon=&amp;pfs=4&amp;row=100&amp;idx=0&amp;str=&amp;kbn=1&amp;flg=&amp;syoruiKanriNo=&amp;s=S100K899" target="_blank" rel="noopener">announced</a> they had sold another 4,000,000 shares at ¥5370/share on 19 November.
Yesterday, another tranche of 4,000,000 shares was transacted at ¥5280/share. It is likely McDs US selling down more. That would leave McDs with 40.82%, which is more done than not.
And it leaves the setup to be quite favorable to an application to move from JASDAQ to TSE1. 
This was originally discussed in <a href="https://www.smartkarma.com/insights/a-modest-mcdonald-s-japan-proposal" target="_blank" data-smartkarma-citation="insights:42401" rel="noopener">A Modest (McDonald's Japan) Proposal</a> last August and by <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> in <a href="https://www.smartkarma.com/insights/2021-high-conviction-mcdonald-s-japan-a-topix-inclusion-big-bet" target="_blank" data-smartkarma-citation="insights:46153" rel="noopener">2021 High Conviction: McDonald's Japan -  A TOPIX Inclusion BIG Bet</a> in December 2020.
Now we discuss the timing pattern of how this might work.
</div>

In the 2020FQ2 earnings call for Mcdonald's Corp (MCD US) held in late July, CFO Kevin Ozan brought up the subject of Mcdonald's Holdings Co Japan (2702 JP) a bit over 22 minutes into the call. 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.
The conclusion was that MCD would sell 14% of McD Japan in the market. But 14% was 18.6mm shares, which on an ex-ante basis was 56 days worth of average daily volume over the previous three years and over a year's worth of volume if trading at 20% of volume every single day.
It was a near 30% increase in the float and not quite US$1bn in value.
On 20 August, MCD announced that it had sold a bit over 3% of McD J, selling 4.2mm shares at ¥5340/share on 19 August 2020. On 20 November 2020, they announced they had sold another 4,000,000 shares at ¥5370/share on 19 November.
Yesterday, another tranche of 4,000,000 shares was transacted at ¥5280/share. It is likely McDs US selling down more. That would leave McDs with 40.82%, which is more done than not.
And it leaves the setup to be quite favorable to an application to move from JASDAQ to TSE1. 
This was originally discussed in A Modest (McDonald's Japan) Proposal last August and by Janaghan Jeyakumar, CFA in 2021 High Conviction: McDonald's Japan -  A TOPIX Inclusion BIG Bet in December 2020.
Now we discuss the timing pattern of how this might work.


McD's Japan:  Earnings? Check. Parent Selldown OK? Check. Japanese CEO? Check TSE Prime? Unknown

In this report on <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>, we discuss (1) potential near term positive stock and sector news flow (2) Beyond's strategic tie-ups with <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> and <a href="https://www.smartkarma.com/entities/yum-brands-inc" target="_blank" data-smartkarma-citation="entities:984:1" rel="noopener">Yum! Brands Inc (YUM US)</a> (3) company's 4Q2020 results and its near and long term operational outlook (4)  and our investment view on the stock.During the investor call held yesterday, Beyond's management reiterated their focus on investing for the long term both in terms of improving the product and in expanding capacity despite near term business weakness. Without giving operational details of their preferred supplier relation with Mcdonalds and Yum, Ethan Brown described the deals as 'enormous'; the impact on sales will be meaningful only from 2022.

In this report on Beyond Meat (BYND US), we discuss (1) potential near term positive stock and sector news flow (2) Beyond's strategic tie-ups with Mcdonald's Corp (MCD US) and Yum! Brands Inc (YUM US) (3) company's 4Q2020 results and its near and long term operational outlook (4)  and our investment view on the stock.During the investor call held yesterday, Beyond's management reiterated their focus on investing for the long term both in terms of improving the product and in expanding capacity despite near term business weakness. Without giving operational details of their preferred supplier relation with Mcdonalds and Yum, Ethan Brown described the deals as 'enormous'; the impact on sales will be meaningful only from 2022.

Beyond Meat: Season of News Flow Positives and Quarterly Negatives

<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> share price dropped nearly 7% on news reports that Impossible Foods would cut the prices of its patties by 20% at grocery stores in the US as they ramp up production. It had earlier announced a 30% price cut in the International markets - Canada, Singapore, and Hong Kong. In an unrelated event, Bloomberg <a href="https://www.bloomberg.com/news/articles/2021-02-01/mcdonald-s-quietly-rolls-out-mcplant-burger-in-test-markets?source=content_type%3Areact%7Cfirst_level_url%3Anews%7Csection%3Amain_content%7Cbutton%3Abody_link&amp;sref=SVEekGzB" target="_blank" rel="noopener">reported</a> that <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 begun selling the McPlant burger in Denmark and Sweden on a trial basis; the report added that McPlant, which McDonald’s reportedly co-developed with Beyond Meat is made from pea-based protein, according to McDonald’s <a href="https://www.mcdonalds.com/dk/da-dk/product/mcplant.html#collapseOne" target="_blank" rel="noopener">Danish</a> and Swedish websites. 
Beyond Meat has not provided any details of its collaboration with <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> in Europe. However, we see this as a notable positive given it highlights (1) the expanding market demand for plant-based products and (2) <a href="https://www.smartkarma.com/entities/beyond-meat-inc" target="_blank" data-smartkarma-citation="entities:28065:1" rel="noopener">Beyond Meat (BYND US)'s</a> competitive advantage over <a href="https://www.smartkarma.com/entities/impossible-foods-inc" target="_blank" data-smartkarma-citation="entities:28361:1" rel="noopener">Impossible Foods Inc</a> in international markets given its different input profile. In the note below we discuss our detailed view on these reported developments.

Beyond Meat (BYND US) share price dropped nearly 7% on news reports that Impossible Foods would cut the prices of its patties by 20% at grocery stores in the US as they ramp up production. It had earlier announced a 30% price cut in the International markets - Canada, Singapore, and Hong Kong. In an unrelated event, Bloomberg reported that Mcdonald's Corp (MCD US) has begun selling the McPlant burger in Denmark and Sweden on a trial basis; the report added that McPlant, which McDonald’s reportedly co-developed with Beyond Meat is made from pea-based protein, according to McDonald’s Danish and Swedish websites. 
Beyond Meat has not provided any details of its collaboration with Mcdonald's Corp (MCD US) in Europe. However, we see this as a notable positive given it highlights (1) the expanding market demand for plant-based products and (2) Beyond Meat (BYND US)'s competitive advantage over Impossible Foods Inc in international markets given its different input profile. In the note below we discuss our detailed view on these reported developments.

Beyond Meat: McPlant Trial in Europe Is More Important than Impossible's Price Cut

In this note, we discuss the operational and investment outlook going forward as the stock hits the lower end of historical trading range. <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 share price has been sliding since its weak 3QFY20 results and is nearly 60% below its highs of October 2020; YoY, the stock is up 6%. We also look into its upcoming quarterly results and why the share price of the leading player in Plant-based protein has slipped even as customer interest and demand for alternative protein has been higher than ever. Alternative Protein segment has gained significant traction over the last year as consumers increasingly sought out healthier eating options, including reducing consumption of animal products. However, 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> and <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>, that have meaningful exposure to Institutional sales were caught in a bind as pandemic-led restrictions hit regular operations of F&amp;B retail players. Efforts to pivot by repackaging and redirecting the products to retail at discounted prices wasn't good enough to make up for the shortfall leading to a weak third quarter. Going forward, expect sales growth to stabilise and normalise across segments.

In this note, we discuss the operational and investment outlook going forward as the stock hits the lower end of historical trading range. Beyond Meat (BYND US)'s share price has been sliding since its weak 3QFY20 results and is nearly 60% below its highs of October 2020; YoY, the stock is up 6%. We also look into its upcoming quarterly results and why the share price of the leading player in Plant-based protein has slipped even as customer interest and demand for alternative protein has been higher than ever. Alternative Protein segment has gained significant traction over the last year as consumers increasingly sought out healthier eating options, including reducing consumption of animal products. However, established players like Beyond Meat (BYND US) and Impossible Foods Inc (1249597D US), that have meaningful exposure to Institutional sales were caught in a bind as pandemic-led restrictions hit regular operations of F&amp;B retail players. Efforts to pivot by repackaging and redirecting the products to retail at discounted prices wasn't good enough to make up for the shortfall leading to a weak third quarter. Going forward, expect sales growth to stabilise and normalise across segments.

Beyond Meat (BYND US): Beaten Down Stock in an Upbeat Segment. What, Now?

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)

Yum China (9987 HK): Simple Fare Trumps the Special Treat (6862 HK). What Now?

Discuss Investment view on the stock - both long and short term - backed by analysis of valuations, operational/financial outlook and Management...

Devi Subhakesan

McD's Japan: Earnings? Check. Parent Selldown OK? Check. Japanese CEO? Check TSE Prime? Unknown

The MCD US selldown continues apace. The CEO-ship is switching to a new Japanese CEO. This company is less parent-controlled. The question on a...

Travis Lundy

Beyond Meat: Season of News Flow Positives and Quarterly Negatives

Expect positive stock and sector-related newsflow - details on strategic tie-ups and Oatly's big-ticket IPO - to keep the stock upbeat despite...

Devi Subhakesan

Beyond Meat: McPlant Trial in Europe Is More Important than Impossible's Price Cut

Beyond Meat enjoys a competitive advantage over Impossible Foods in International markets. Mcdonald's trial of McPlant in Europe is a significant...

Devi Subhakesan

Beyond Meat (BYND US): Beaten Down Stock in an Upbeat Segment. What, Now?

We discuss Investment outlook - Long and Short term - for Beyond Meat as it trades close to the lower end of the historical valuation range.

Devi Subhakesan

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