Independent Research, US Dominant Players, Investment Talk

Investment Talk

Independent Research, US Dominant Players

Investment Talk is for readers who wish to learn about companies that are potentially outside of their own circle of research, as well as those who are longing to become part of a community of like-minded investors and learn more about investment research. I would describe myself as a long-term investor who typically takes a 3Y to 5Y outlook, before reassessing once that period matures. I follow the adage that one should research, reach a conclusion, and then verify and continue to hold so long as the thesis remains intact. My own investing style is one that seeks to find dominant players within their respective market who have shown signs of monopoly or oligopolistic behaviour, unlikely to be disrupted, in tandem with discovering market disruptors who have a high likelihood of disrupting their respective market. Equally (and weighted accordingly) I seek to discover more nuanced, misunderstood, situations with a shorter time frame.

Equity Bottom-Up

<ul><li>As it turns out, management now expects the return to LT EBIT margins to be extended out to 2024</li><li>Whilst revenue guidance ($32.5B to $33B) for 2022 has been reaffirmed, both EPS and EBIT expectations were tapered with an expected 200bps of incremental pressure headed their way</li><li>As such, we can expect EBIT to reach 16.5% in 2022 (a slight improvement on 2021), before expanding across both 2023/2024.</li></ul>

As it turns out, management now expects the return to LT EBIT margins to be extended out to 2024Whilst revenue guidance ($32.5B to $33B) for 2022 has been reaffirmed, both EPS and EBIT expectations were tapered with an expected 200bps of incremental pressure headed their wayAs such, we can expect EBIT to reach 16.5% in 2022 (a slight improvement on 2021), before expanding across both 2023/2024.

Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

Equity Capital Markets

<ul><li>Starbucks has witnessed a strong correction off-late after the increasing spread of the Omicron variant and the increasing stringency of rules in its key markets, especially China.</li><li>The company reported a strong fourth-quarter result with revenue increasing by 22% and a staggering 168& increase in earnings per share.</li><li>The company’s reflective pricing actions could help accelerate comps growth as the management works to offset the effects of inflation throughout their supply chain.</li></ul>

Starbucks has witnessed a strong correction off-late after the increasing spread of the Omicron variant and the increasing stringency of rules in its key markets, especially China.The company reported a strong fourth-quarter result with revenue increasing by 22% and a staggering 168& increase in earnings per share.The company’s reflective pricing actions could help accelerate comps growth as the management works to offset the effects of inflation throughout their supply chain.

Starbucks Corporation: The Omicron Uncertainty Could Be A Cause Of Concern (12/2021)

<ul><li>Starbucks had a phenomenal quarter on the revenue front as the company gained powerful momentum with a staggering 73% jump in comparable-store sales.</li><li>There was a 75% increase in the total transactions at Starbucks outlets across the globe but the management did carry out a marginal drop in average pricing.</li><li>Inflationary pressure associated with raw material prices and logistics costs did weigh on Starbucks’ margins and the company also faces high labor costs which could be a red flag.</li></ul>

Starbucks had a phenomenal quarter on the revenue front as the company gained powerful momentum with a staggering 73% jump in comparable-store sales.There was a 75% increase in the total transactions at Starbucks outlets across the globe but the management did carry out a marginal drop in average pricing.Inflationary pressure associated with raw material prices and logistics costs did weigh on Starbucks’ margins and the company also faces high labor costs which could be a red flag.

Starbucks Corporation - Investment Thesis

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<p>On 27 July, <a href="https://www.smartkarma.com/entities/e-mart-inc" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS)</a> announced that it will take over the control of Starbucks Korea. Prior to this announcement, Emart and <a href="https://www.smartkarma.com/entities/starbucks-corp" target="_blank" data-smartkarma-citation="entities:7641:1" rel="noopener">Starbucks Corp (SBUX US)</a> owned 50% of Starbucks Korea, respectively. In this transaction, Emart will purchase an additional 17.5% stake in Starbucks Korea for 474.3 billion won (US$421 million) and GIC (Singapore) will purchase the remaining 32.5% stake in Starbucks Korea.</p><div class="content-highlight">
<p>The implied valuation of 2.7 trillion won for Starbucks Korea in the acquisition of the additional 17.5% stake from <a href="https://www.smartkarma.com/entities/starbucks-corp" target="_blank" data-smartkarma-citation="entities:7641:1" rel="noopener">Starbucks Corp (SBUX US)</a> by Emart suggests a P/E of 23.5x, using the average annual net profit of Starbucks Korea in the past three years. Hence, this M&amp;A deal for Starbucks Korea was completed at nearly 50% discount to the valuation of <a href="https://www.smartkarma.com/entities/starbucks-corp" target="_blank" data-smartkarma-citation="entities:7641:1" rel="noopener">Starbucks Corp (SBUX US)</a>.</p>
<p><strong>IPO of Starbucks Korea &amp; SSG.com/Ebay Korea in the Next 3 Years - </strong>In the next three years, Emart is likely to IPO its key affiliates including Starbucks Korea (67.5% ownership) and SSG.com/Ebay Korea. Emart has agreed to acquire an 80% in Ebay Korea. We believe that these IPOs are likely to have a positive impact on the Emart shares as more investors try to value them on their potential market values, rather than book values. </p>
</div>

On 27 July, E Mart Inc (139480 KS) announced that it will take over the control of Starbucks Korea. Prior to this announcement, Emart and Starbucks Corp (SBUX US) owned 50% of Starbucks Korea, respectively. In this transaction, Emart will purchase an additional 17.5% stake in Starbucks Korea for 474.3 billion won (US$421 million) and GIC (Singapore) will purchase the remaining 32.5% stake in Starbucks Korea.
The implied valuation of 2.7 trillion won for Starbucks Korea in the acquisition of the additional 17.5% stake from Starbucks Corp (SBUX US) by Emart suggests a P/E of 23.5x, using the average annual net profit of Starbucks Korea in the past three years. Hence, this M&amp;A deal for Starbucks Korea was completed at nearly 50% discount to the valuation of Starbucks Corp (SBUX US).
IPO of Starbucks Korea &amp; SSG.com/Ebay Korea in the Next 3 Years - In the next three years, Emart is likely to IPO its key affiliates including Starbucks Korea (67.5% ownership) and SSG.com/Ebay Korea. Emart has agreed to acquire an 80% in Ebay Korea. We believe that these IPOs are likely to have a positive impact on the Emart shares as more investors try to value them on their potential market values, rather than book values. 


Starbucks Korea - Emart Takes Ownership Control & Prepares for an IPO

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<p>Historically, tea dominated the Asian beverages market, but over the last few years we are seeing a renewed interest in coffee and coffee-based beverages among Asians. Meanwhile, the tea industry is focusing on new products/trends such as bubble tea and fruit-infused tea to counter the threat posed by coffee as well as to provide a growth driver to counteract stagnant demand.</p><p>The younger generation favors the bubble tea and fruit tea trends, meaning that teahouses have been a tremendous success over the last four to five years. However, we think bubble tea and fruit tea lack the ability to encourage consumers to make regular purchases, affecting the long-term foot traffic of teahouses. Meanwhile, tea is generally less profitable than coffee. On the other hand, the coffee trend is more long-lasting. It also has the potential to generate superior returns/profitability over the medium/long term.</p><p>Nevertheless, there are both good apples and bad apples in both camps (coffee and tea). In this insight, we take a look at a few coffee and tea chains in China, Japan, and South Korea, assessing the long-term investment and business cases for our top picks in those markets.</p><h2>What’s Original?</h2><p>In this original, we discuss the value chain, costs of production and global demand and supply conditions in the tea and coffee markets. Additionally, we look at the emerging trends and the unit cost dynamics within tea/coffee chains in Asia, focusing on the three biggest tea/coffee markets in the region (China, Japan and South Korea). Furthermore, we briefly talk about popular tea/coffee chains and highlight the long-term investment and business cases for our top picks in the above markets.</p>

Historically, tea dominated the Asian beverages market, but over the last few years we are seeing a renewed interest in coffee and coffee-based beverages among Asians. Meanwhile, the tea industry is focusing on new products/trends such as bubble tea and fruit-infused tea to counter the threat posed by coffee as well as to provide a growth driver to counteract stagnant demand.The younger generation favors the bubble tea and fruit tea trends, meaning that teahouses have been a tremendous success over the last four to five years. However, we think bubble tea and fruit tea lack the ability to encourage consumers to make regular purchases, affecting the long-term foot traffic of teahouses. Meanwhile, tea is generally less profitable than coffee. On the other hand, the coffee trend is more long-lasting. It also has the potential to generate superior returns/profitability over the medium/long term.Nevertheless, there are both good apples and bad apples in both camps (coffee and tea). In this insight, we take a look at a few coffee and tea chains in China, Japan, and South Korea, assessing the long-term investment and business cases for our top picks in those markets.What’s Original?In this original, we discuss the value chain, costs of production and global demand and supply conditions in the tea and coffee markets. Additionally, we look at the emerging trends and the unit cost dynamics within tea/coffee chains in Asia, focusing on the three biggest tea/coffee markets in the region (China, Japan and South Korea). Furthermore, we briefly talk about popular tea/coffee chains and highlight the long-term investment and business cases for our top picks in the above markets.

Tea/Coffee Chains: As Asians Acquire a Taste for Coffee, Novelty Seems Like the Way Forward for Tea

United States

Las Vegas Sands Corp. owns and operates casino resorts and convention centers. The Company operates in the United States, Macau and Singapore. Las Vegas Sand Corp's casinos offer a wide range of gaming activities and entertainment as well as overnight accommodations, while its expo centers host a wide range of entertainment shows, expositions, and other activities.

Yum! Brands, Inc, owns and franchises quick-service restaurants worldwide.  The Company develops, operates, franchises and licenses a worldwide system of restaurants which prepare, package and sell a menu of food items.

Royal Caribbean Cruises Ltd. is a global cruise company operating a fleet of vessels in the cruise vacation industry. The Company operates through brands which primarily serve the contemporary, premium and deluxe segments of the cruise vacation industry, which also includes the budget and luxury segments.

Hyatt Hotels Corp. is a global hospitality company. The Company manages, franchises, owns, and develops branded hotels, resorts and residential and vacation ownership properties around the world.

Chipotle Mexican Grill, Inc. owns and operates quick serve Mexican restaurants. The Company manages restaurants throughout the United States.

Marriott International Inc. is a worldwide operator and franchisor of hotels. The Company franchises lodging facilities and vacation timesharing resorts under various brand names. Marriott also provides services to home and condominium owner associations for projects associated with several of its brands.

Wingstop Inc. owns and operates restaurants. The Company specializes in cooked-to-order, hand-sauced, and tossed chicken wings. Wingstop serves customers worldwide.

Domino's Pizza, Inc. operates a network of Company-owned and franchise Domino's Pizza stores, located throughout the United States and in other countries.  The Company also operates regional dough manufacturing and distribution centers in the contiguous United States and outside the United States.

Carnival Corporation owns and operates cruise ships offering cruises to all major vacation destinations including North America, the United Kingdom, Germany, Southern  Europe, South America and Asia/Pacific. The Company, through a subsidiary also owns and operates hotels and lodges.  Dually-listed company with CCL LN.

Hilton Worldwide Holdings Inc. operates as a holding company. The Company, through its subsidiaries, provides hospitality services. Hilton Worldwide Holdings owns and manages hotels, resorts, and time share properties worldwide.

Sands China Ltd. develops, owns, and operates integrated resorts, retail malls, and casinos. The Company also manages convention and exhibition halls in Macau.

Galaxy Entertainment Group Limited, through its subsidiary, operates casino, hotel and other entertainment facilities in Macau. The company also manufactures sells and distributes construction materials.

Aristocrat Leisure Limited manufactures and sells gaming machines in Australia and internationally.  The Company also supplies gaming systems, software, table gaming equipment and other gaming related products and services to casinos, clubs and hotels.

China Tourism Group Duty Free Corporation Limited engages in sales of duty free goods and tax goods. The Company sells tobacco, wine and spirits, perfume, cosmetics, fashion and accessories, watches, jewelry, food, luggage products,and other products. China Tourism Group Duty Free also engages in investment and development of tourism destination commercial complexes.

China Tourism Group Duty Free Corp Ltd (601888 CH)

ORIENTAL LAND CO., LTD. operates Tokyo Disney Resort.  The Company also operates restaurants within the complex and sells Disney merchandise.

Sodexo SA designs, manages and delivers comprehensive on-site service solutions for its clients.  The Company offers food, construction management, reception, technical maintenance and housekeeping services; maintains scanners and laboratory equipment; and operates river and harbor cruises and correctional facilities.  Sodexo also designs employee benefit and incentive programs.

InterContinental Hotels Group PLC owns and operates a portfolio of hotel businesses. The Company manages hotel loyalty and priority club rewards programs. InterContinental Hotels Group serves customers worldwide.

Evolution AB operates as a gaming company. The Company develops, produces, markets and licenses fully integrated B2B live casino solutions to online casino operators. Evolution serves customers worldwide.

Flutter Entertainment Public Limited Company provides mobile and online gambling services.

Starbucks Corporation retails, roasts, and provides its own brand of specialty coffee. The Company operates retail locations worldwide and sells whole bean coffees through its sales group, direct response business, supermarkets, and on the World Wide Web. Starbucks also produces and sells bottled coffee drinks and a line of ice creams.

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Starbucks Corp (SBUX US)

SBUX: Union, What Union?

As it turns out, management now expects the return to LT EBIT margins to be extended out to 2024. Whilst revenue guidance ($32.5B to $33B) for 2022...

Investment Talk

Starbucks Corporation: The Omicron Uncertainty Could Be A Cause Of Concern (12/2021)

Starbucks has witnessed a strong correction off-late after the increasing spread of the Omicron variant and the increasing stringency of rules in...

Baptista Research

Starbucks Corporation - Investment Thesis

Starbucks had a phenomenal quarter on the revenue front as the company gained powerful momentum with a staggering 73% jump in comparable-store...

Baptista Research

Starbucks Korea - Emart Takes Ownership Control & Prepares for an IPO

Emart announced that it will take over the control of Starbucks Korea. In the next three years, Emart is likely to IPO its key affiliates including...

Douglas Kim

Tea/Coffee Chains: As Asians Acquire a Taste for Coffee, Novelty Seems Like the Way Forward for Tea

Historically, tea dominated the Asian beverages market, but over the last few years we are seeing a renewed interest in coffee and coffee-based...

Oshadhi Kumarasiri

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