Equity Long/Short Analyst. Ex-China Property IR

Viki W.K. Li

Equity Bottom-Up

Dairy Farm International Holdings / Equity Bottom-Up

<div class="content-highlight">Complacency makes Dairy Farm a perfect short</div><a href="https://www.smartkarma.com/entities/7427" target="_blank" data-smartkarma-citation="entities:7427:1">Dairy Farm Intl Hldgs Ltd (DFI SP)</a> has enjoyed being an oligopoly in Hong Kong and Singapore’s supermarket/hypermarket and personal health/beauty product industries for years. Complacency led to a slow reaction to consumer behaviour changes and loss of market share to local competitors in the past few years. Now, that complacency will show them unprepared for Amazon and Alibaba's arrival!Dairy Farm’s Hong Kong and Singapore businesses are about to see impending e-commerce disruption that will cause sales declines and margin erosion for years to come.Separately, on 23 June, the Company announced the change of Group Chief Executive.

Complacency makes Dairy Farm a perfect shortDairy Farm Intl Hldgs Ltd (DFI SP) has enjoyed being an oligopoly in Hong Kong and Singapore’s supermarket/hypermarket and personal health/beauty product industries for years. Complacency led to a slow reaction to consumer behaviour changes and loss of market share to local competitors in the past few years. Now, that complacency will show them unprepared for Amazon and Alibaba's arrival!Dairy Farm’s Hong Kong and Singapore businesses are about to see impending e-commerce disruption that will cause sales declines and margin erosion for years to come.Separately, on 23 June, the Company announced the change of Group Chief Executive.

Dairy Farm International: Who Moved My Cheese?

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

Eighteen sales and marketing executives at Crown Resorts were reported as being detained in China, likely due to illegally soliciting Chinese to gamble in overseas casinos. Our contacts in the industry have already seen immediate termination of marketing efforts in mainland China by Macau casinos, which imply lower near-term gaming revenue in our view. A loss of higher-margin direct VIP business could also mean lower overall VIP margin for the Macau casinos, as junket VIP margins are one to two percentage points lower compared with direct VIP margins. Near-term sentiment will be unfavorable for the Macau gaming stocks. However, we gauge that marketing activities in mainland China will resurface as the dust settles, though casinos will take a lower-profile approach.To reflect the short-term impact, if we reduced 2016 full-year VIP, mass and slot revenue by 7.5% for our Macau gaming coverage, there would still be no impact on fair value estimates. Therefore, we maintain our long-term forecast and long-term-based, DCF-generated fair value estimates. Our narrow moat ratings also remain unchanged.Analyst: Chelsey Tam

Eighteen sales and marketing executives at Crown Resorts were reported as being detained in China, likely due to illegally soliciting Chinese to gamble in overseas casinos. Our contacts in the industry have already seen immediate termination of marketing efforts in mainland China by Macau casinos, which imply lower near-term gaming revenue in our view. A loss of higher-margin direct VIP business could also mean lower overall VIP margin for the Macau casinos, as junket VIP margins are one to two percentage points lower compared with direct VIP margins. Near-term sentiment will be unfavorable for the Macau gaming stocks. However, we gauge that marketing activities in mainland China will resurface as the dust settles, though casinos will take a lower-profile approach.To reflect the short-term impact, if we reduced 2016 full-year VIP, mass and slot revenue by 7.5% for our Macau gaming coverage, there would still be no impact on fair value estimates. Therefore, we maintain our long-term forecast and long-term-based, DCF-generated fair value estimates. Our narrow moat ratings also remain unchanged.Analyst: Chelsey Tam

Negative Near-Term Read-Throughs from the Detainment of Crown Resorts' Marketing Executives in China

Hong Kong

Dickson Concepts (International) Limited, through its subsidiaries, sells watches and fashion products.  The Company also trades luxury goods, and provides management and technical services.

Symphony Holdings Limited, through its subsidiaries, manufactures and trades footwear products.  The Company also invests in properties.

Giordano International Limited, through its subsidiaries, retails and distributes casual apparel and accessories under theGiordano, Giordano Ladies, Giordano Junior, BSX and Concepts One brands.

Glorious Sun Enterprises Limited, through its subsidiaries, retails and exports casual wear apparel.  The Company also manufactures casual wear products and trades fabric.

Pou Sheng International (Holdings) Limited retails and wholesales sportswear, including sports footwear, apparel and accessories.

Oriental Watch Holdings Limited, through its subsidiaries, trades watches and invests in properties.

Goldlion Holdings Limited, through its subsidiaries, distributes and manufactures garments and accessories.  The Company also invests in properties and operates a commercial center with restaurants and a business center.

Emperor Watch & Jewellery Ltd retails luxurious branded watches, and offers design and sales of jewellery products.

Mulsanne Group Holding Limited offers omni channel branding and marketing services. The Company offers online advertising, social media campaign, and other services. Mulsanne Group Holding provides its services throughout China.

Auto Italia Holdings Limited distributes brand-name products including motor vehicles. The Company serves customers in Hong Kong, Macau, mainland China, and elsewhere in Asia.

Beijing Bashi Media Co., Ltd. provides urban bus transportation and advertising services.  The Company also provides taxi, inter-provincial transportation, car rental, and other transportation related services.

HONEYS. CO., LTD. plans, manufactures, and retails ladies' casual clothing and accessories.  The Company operates stores throughout Japan.

Kolao Holdings retails new and used cars, and provided repairs and maintenance services in Laos.  The company also retails motorcycles and automobile parts.

The Tile Shop Holdings, Inc. operates as a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories. The Company offers porcelain, glass, ceramic, travertine, and other natural stones. Tile Shop Holdings serves customers in the United States.

PT Indomobil Sukses Internasional Tbk assembles, and distributes automobiles, buses, trucks, motorcycles, and their related parts. The Company provides automotive maintenance, financing, and rental services.  Indomobil also trades used cars.

The Aaron's Company, Inc. retails and leases consumer products. The Company offers furniture, electronics, appliances, computers, fitness, tools, and outdoor products. Aaron's serves customers in the United States and Canada.

Komehyo Co., Ltd. operates discount and recycle retail stores.  The Company sells jewelry, precious metal, watch, bag, Kimono, home appliances and musical instrument.

PT Mitra Pinasthika Mustika Tbk is an automotive company which provides distribution & retail for Honda motorcycles, manufacturing and distribution of auto parts such as lubricant oil, auto services such as car rental and auto-related financial services such as consumer financing and insurance.

XEBIO Holdings CO., LTD. engages in operating retail stores in Japan. Its stores offer sports equipment, including ski and snowboard wear, baseball, soccer, and golf equipment; and apparel, such as men's and women's casuals, house ware, children's clothing, knick-knacks, and accessories, as well as tailoring services.

Global Top E-Commerce Co.,Ltd. is in the businesses of cross-border E-commerce and the design, production and marketing of trouseres for men and women.

Global Top E-Commerce Co., Ltd. A (002640 CH)

Sa Sa International Holdings Limited, through its subsidiaries, retails and wholesales cosmetics. The Company also provides beauty and health club services to members.

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Sa Sa International Hldgs (178 HK)

Dairy Farm International: Who Moved My Cheese?

Complacency makes Dairy Farm a perfect shortDairy Farm Intl Hldgs Ltd (DFI SP) has enjoyed being an oligopoly in Hong Kong and Singapore’s...

Viki W.K. Li

Negative Near-Term Read-Throughs from the Detainment of Crown Resorts' Marketing Executives in China

Eighteen sales and marketing executives at Crown Resorts were reported as being detained in China, likely due to illegally soliciting Chinese to...

Morningstar, Inc.

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