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

Haidilao International Holding / Equity Bottom-Up

In this insight, we discuss why we believe <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> at current prices has a higher downside risk versus upside potential given limited visibility of near term operational recovery and its premium valuation.<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> had issued a profit warning that it is expected to record a decrease of approximately 90% in net profit for the year ended Dec 2020 versus the previous year; this implies a likely recovery in earnings in 2H2020 vs 1H2020 but not significant enough to match pre-COVID levels nor street estimates. Detailed results are expected this week on March 23rd.We believe <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>'s pace of sales recovery to be slower versus QSR peers (1) in the near term from ongoing restrictions in the social and dining scene, following cluster outbreaks, and (2) in the medium term from a shift in customer preference towards off-premise dining. Unlike QSR peer, <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> that managed to recover most of the COVID-led fall in dining demand by growing off-premise dining, we believe  <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> may find it difficult to pivot given experiential fine dining was core to its appeal and value positioning. Despite a difficult operating environment, the stock is up 83% YoY; a steep upswing in February this year was led by reports of it being included in HongKong's benchmark HangSeng Index from mid-March.

In this insight, we discuss why we believe Haidilao (6862 HK) at current prices has a higher downside risk versus upside potential given limited visibility of near term operational recovery and its premium valuation.Haidilao (6862 HK) had issued a profit warning that it is expected to record a decrease of approximately 90% in net profit for the year ended Dec 2020 versus the previous year; this implies a likely recovery in earnings in 2H2020 vs 1H2020 but not significant enough to match pre-COVID levels nor street estimates. Detailed results are expected this week on March 23rd.We believe Haidilao (6862 HK)'s pace of sales recovery to be slower versus QSR peers (1) in the near term from ongoing restrictions in the social and dining scene, following cluster outbreaks, and (2) in the medium term from a shift in customer preference towards off-premise dining. Unlike QSR peer, Yum China Holdings Inc (9987 HK) that managed to recover most of the COVID-led fall in dining demand by growing off-premise dining, we believe  Haidilao (6862 HK) may find it difficult to pivot given experiential fine dining was core to its appeal and value positioning. Despite a difficult operating environment, the stock is up 83% YoY; a steep upswing in February this year was led by reports of it being included in HongKong's benchmark HangSeng Index from mid-March.

Haidilao (6862 HK): Hot Pots Don't Pivot Easily.

China and US Equity Analyst

Roger Xie

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> announced its strategic investment on <a href="https://www.smartkarma.com/entities/fujian-sunner-development-a" target="_blank" data-smartkarma-citation="entities:9168:1" rel="noopener">Fujian Sunner Development A (002299 CH)</a> and increase the equity interest to 5%. We estimate transaction price is about RMB 26.51/share for <a href="https://www.smartkarma.com/entities/fujian-sunner-development-a" target="_blank" data-smartkarma-citation="entities:9168:1" rel="noopener">Fujian Sunner Development A (002299 CH)</a> or 17x forward P/E. We believe the transaction valuation is favorable as poultry industry is facing downward pricing pressure due to the prolonged pandemic impact. </li>
<li>Founded in 1983 and headquartered in the Fujian Province, Sunner is China's largest white- feathered chicken producer. We estimate that Sunner is one of Yum China's largest poultry supplier and accounts more than half of its chicken supply. This strategic investment will enhance Yum China's supply chain security and strengthen the collaborations. We have highlighted in the investment theme: Yum China's capability to secure supply chain and distribution system make its wide moat in China restaurant industry.</li>
<li>
<a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a> finished 2020 on a high note given its resilient business model. The system sale grew 5% in Q4 2020, and it operating profit grew 78% year-over-year given its consolidation of Huang Ji Huang. We believe Yum China is well positioned to weather the uncertainty post COVID. On the M&amp;A front, Yum China is committed to open 1000 new stores in 2021 and will seek for strategic opportunities to manage cost and drive efficiency improvement. The Fujian Sunner strategic investment bodes well for this principle. We continue to believe <a href="https://www.smartkarma.com/entities/yum-china-holdings-inc" target="_blank" data-smartkarma-citation="entities:23677:1" rel="noopener">Yum China Holdings, Inc (YUMC US)</a>  offers investor better reward/risk potential. </li>
</ul>



Yum China Holdings, Inc (YUMC US) announced its strategic investment on Fujian Sunner Development A (002299 CH) and increase the equity interest to 5%. We estimate transaction price is about RMB 26.51/share for Fujian Sunner Development A (002299 CH) or 17x forward P/E. We believe the transaction valuation is favorable as poultry industry is facing downward pricing pressure due to the prolonged pandemic impact. 
Founded in 1983 and headquartered in the Fujian Province, Sunner is China's largest white- feathered chicken producer. We estimate that Sunner is one of Yum China's largest poultry supplier and accounts more than half of its chicken supply. This strategic investment will enhance Yum China's supply chain security and strengthen the collaborations. We have highlighted in the investment theme: Yum China's capability to secure supply chain and distribution system make its wide moat in China restaurant industry.

Yum China Holdings, Inc (YUMC US) finished 2020 on a high note given its resilient business model. The system sale grew 5% in Q4 2020, and it operating profit grew 78% year-over-year given its consolidation of Huang Ji Huang. We believe Yum China is well positioned to weather the uncertainty post COVID. On the M&amp;A front, Yum China is committed to open 1000 new stores in 2021 and will seek for strategic opportunities to manage cost and drive efficiency improvement. The Fujian Sunner strategic investment bodes well for this principle. We continue to believe Yum China Holdings, Inc (YUMC US)  offers investor better reward/risk potential. 


Yum China (YUMC and 9987.HK): Strategic Investment in Sunner to Strengthen Supply Chain Management

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?

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

Autohome Inc (Adr) / Equity Capital Markets

Autohome plans to raise around US$864m in its secondary listing in Hong Kong. Unlike the prior secondary listing, this one contains a sell down as well
I have covered most aspects of the deal in my earlier note, <a href="https://www.smartkarma.com/insights/autohome-secondary-listing-doesn-t-need-the-cash-at-all" target="_blank" rel="noopener">Autohome Secondary Listing - Doesn’t Need the Cash at All. </a>In this note, I'll only touch upon the updates since my last note.

Autohome plans to raise around US$864m in its secondary listing in Hong Kong. Unlike the prior secondary listing, this one contains a sell down as well
I have covered most aspects of the deal in my earlier note, Autohome Secondary Listing - Doesn’t Need the Cash at All. In this note, I'll only touch upon the updates since my last note.

Autohome Secondary Listing - Going Down a Different Route

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

Current investment levels in Macau Gaming stocks are low compared to history across all of our ownership measures.  Declines that started in 2014 were accentuated by the COVID crisis, as EM funds repositioned in to safer corners of the market.  From a positioning perspective, this leaves plenty of upside should a change in sentiment occur.  Active EM exposure is now close to a 10-year low, there are many previous investors sitting on the sidelines and current investors are far from overstretched.At present though, EM investors bullish on the fundamental case for Macau Gaming stocks should be aware that this is largely an anti-consensus view.  74% of EM active funds do not have exposure and neither does the benchmark MSCI Emerging Markets index.  If it does pays off, it will provide valuable outperformance against both the benchmark and the active peer group in the year to come.  The analysis looks at the collective allocations in Macau Gaming stocks from a pool of 243 actively managed Global Emerging Market funds, with combined AUM of $460bn,

Current investment levels in Macau Gaming stocks are low compared to history across all of our ownership measures.  Declines that started in 2014 were accentuated by the COVID crisis, as EM funds repositioned in to safer corners of the market.  From a positioning perspective, this leaves plenty of upside should a change in sentiment occur.  Active EM exposure is now close to a 10-year low, there are many previous investors sitting on the sidelines and current investors are far from overstretched.At present though, EM investors bullish on the fundamental case for Macau Gaming stocks should be aware that this is largely an anti-consensus view.  74% of EM active funds do not have exposure and neither does the benchmark MSCI Emerging Markets index.  If it does pays off, it will provide valuable outperformance against both the benchmark and the active peer group in the year to come.  The analysis looks at the collective allocations in Macau Gaming stocks from a pool of 243 actively managed Global Emerging Market funds, with combined AUM of $460bn,

Macau Gaming:  Beaten up Sector Has Potential to Reverse

China

Yum China Holdings, Inc. operates chain restaurants. The Company offers pizza, entrees, pasta, rice dishes, appetizers, soups, vegetables, beverages, and desserts. Yum China Holding conducts its business worldwide.

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Yum China Holdings (YUMC US)

Haidilao (6862 HK): Hot Pots Don't Pivot Easily.

Downside risks outweigh upside potential given the expected slower pace of sales recovery versus peers and premium valuations. Difficult to pivot...

Devi Subhakesan

Yum China (YUMC and 9987.HK): Strategic Investment in Sunner to Strengthen Supply Chain Management

Yum China announced its strategic investment on Fujian Sunner. This transaction will enhance Yum China's supply chain security and strengthen the...

Roger Xie

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

Autohome Secondary Listing - Going Down a Different Route

Autohome plans to raise around US$864m in its secondary listing in Hong Kong. Unlike the prior secondary listing, this one contains a sell down as...

Sumeet Singh

Macau Gaming: Beaten up Sector Has Potential to Reverse

As sentiment begins to turn in Macau Gaming stocks, Global EM investors are positioned at their lowest levels in a decade.

Steven Holden

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