Consumer

• In a surprise move, Genting Bhd (GENT MK) – or Genting Malaysia (GENM MK) – has joined the six incumbents in bidding for new casino licences in Macau.
• The bidding process follows Macau’s record low monthly gaming revenue in July after casinos were closed for 12 days in response to a Covid outbreak.
• Casinos have re-opened, yet there is little to cheer about as business remains muted. The six winners are expected to be announced by the end of November or early December.

• Jubilant Foodworks (JUBI IN) is India’s largest food service company. In hindsight, CEO’s exit in March 2022 under a high inflationary environment was just “NOISE”.
• Industry drivers are favourable, JUBI’s renewed focus on growth, additional brands and a new CEO, all put JUBI back on track to deliver robust growth. 
• Currently trading at 68.5x NTM, JUBI is available at a 22% discount compared to it’s 3Y mean, considering the growth prospects discussed below, this discount is attractive.

• After the market close today, S.M.Entertainment announced that its Chairman Lee Soo Man will end the contract with Like Planning, a contents producing company owned by Lee Soo Man.
• We estimate that S.M.Entertainment has paid more than 160 billion won to Like Planning in the past 10 years.
• By ending the relationship between Chairman Lee Soo Man and Like Planning, this should have a major positive impact on S.M.Entertainment shares in the coming weeks. 

• Japan’s number one skin cleansing balm, DUO seems to be in big trouble with monthly sales volume falling by almost 40% over the last 12 months.
• However, Premier Anti-Aging (4934 JP) is making progress with the development of other brands to reduce its dependence on DUO.
• Despite the depressed margins in the near-term, we are quite positive about Premier Anti-Aging’s medium-long term outlook with new brands like CANADEL and clayance showing promising signs for the future.

• Activist Dan Loeb recently backed down from his request that Disney spin out ESPN…something we thought was foolish, and glad is off the table. 
• Disney is still trapped by the “rock and the hard place” choice of trading higher margin cable subscribers for lower margin (higher churning) streaming subs.
• Bob Chapek is a poor choice for Disney CEO…not alot of good options. This company is strategically boxed in. Parks’s overearning will dissipate, will be a good short next year. 

• While 90% of the companies listed on the prime market translate some documents into English, very few companies listed on other markets translate their disclosure documents into English.
• There is a mismatch between the documents that prime market listed companies translate into English and the documents that overseas institutional investors require to be translated into English.
• Few companies with high foreign ownerships have translated their annual securities reports, convocation notices (business reports) and corporate governance reports into English, which overseas investors need to translate into English.

• Starbucks Corp. plans to open 3,000 stores in China in the next three years, bringing the total to 9,000 locations and pushing China past the U.S. as the coffee giant’s biggest market by 2025.
• China is currently Starbucks’ second-largest market, with 16% of global stores and accounting for 7% of total revenue in the 2022 second quarter.
• The company aims to double its China revenue by 2025.

The Europe HY Trade Book for September 2022 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

• Askul Corp (2678 JP) posted the best revenue growth in six quarters as both B2B and consumer product sales accelerated
• The corresponding operating income decline of 10% is less welcome but that includes a front-loading of planned growth investments and full year guidance of 1% growth is unchanged
• We are tagging this insight as bearish as headlines of a 10% OP decline might not be as well received as the top-line story 

• Eva Precision Industrial Holdings (838 HK) is a beneficiary of EV penetration globally and in China, trading at 9.4x /5.6x FY22/23e and 3.2%/5.3% dividend yield (30% payout ratio).
• H1 2022 was groundbreaking for the company as it commenced strategic cooperation with  BYD (1211 HK) on products and bagged orders from Huwaei and Tesla, with more coming in H2.
• There is additional room for buybacks as the stock price is < 2HKD and the company only completed 3-4% of its 200 mn HKD buyback.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website. 
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute. 
• Stocks mentioned below include Smoore (6969 HK), Zhongsheng Group (881 HK), and Perennial Energy Holdings Ltd (2798 HK). These insights may also flag those companies where shares have been pledged.

• The Korea NPS released the yearly report for 2021 last week, which is attached at the bottom of this post. Yes, for this, an English version is available.
• The NPS also releases a status report every month that contains limited data. Based on the annual and monthly status reports, we can infer the allocation breakdown and flow trends.
• Through this post, let’s look at the shareholding changes and flow trends with the release of this annual report. Please note that this post does not make any investment recommendations.

• The offeror and acceptances reached 46.04%, just short of the 50% minimum acceptance condition. The offeror has decided to let the Giordano International (709 HK) offer lapse.
• The offer fell short of the 50% threshold as the Cheng family mistakenly assumed that shareholders behind Halycon’s stake were friendly shares, which would support the offer.
• The downside will be muted as the shares are trading in line with the 1-year average forward P/E, minorities thought the offer was low, and David Webb is a buyer.

• Shiseido’s acquisition of Drunk Elephant for a valuation of $845m was perceived positively, hoping that Shiseido could use Drunk Elephant’s digital marketing expertise to restructure its North America business.
• Rather than emulating Drunk Elephant like digital marketing to the company’s other brands, Shiseido has been trying to accommodate all its brands including Drunk Elephant into a hybrid marketing strategy.
• This seems to have killed Drunk Elephant’s appeal to its customers. Thus, Shiseido Company (4911 JP) could be facing a massive $845m write-off over the next few years.

• Utter carnage in arb-world this week, as Frasers Hospitality Trust (FHT SP) fails, Link Administration (LNK AU) and Ramsay Health (RHC AU) are potentially next, and now Giordano (709 HK).
• 46.04%. That’s the only number that matters, which represents the total shares owned by the Cheng family plus shares tendered. 
• The Chengs are restricted from launching another Offer for 12 months. Giordano will be sold off today, however, this is a buy if it retraces to around the undisturbed levels.

• In light of low acceptances and a cold statement from the independent bid committee, Teniralc increased the offer by 7.7% to SEK 70/share (same as IPO, 17.2x EV/EBITDA).
• The increased offer is final, represents a 72% premium and has been unanimously recommended. The acceptance period now runs until 22 September.
• As of 12 September closing share price, gross spread is 4.2%, an interesting level, in my view, considering settlement will take place “on or about 30 September”. Reiterate Long CARY SS.

• The inclusion of the requirement to use e-voting platforms in the Corporate Governance Code has led to increasing number of companies using e-voting platforms.
• The number of participating companies has increased from 1,540 in March to 1,737 in August. Of the companies participating in e-voting platform, 92% are listed companies in the prime market.
• It is only to be hoped that in the future, companies will focus on improving communication between shareholders and management at general shareholders’ meetings.

• Less than halfway through the review period, we see 6 stocks moving from MidCap to LargeCap and vice versa, and 7 stocks moving from SmallCap to MidCap and vice versa.
• There are a bunch of stocks that are close to the cutoff ranks and there will be more change as we move deeper into the review period.
• Over the last 6months, stocks expected to migrate upward have outperformed stocks that are expected to migrate downward. Given the large divergence, there will be a pullback at some point.

• Shidax Corp (4837 JP) is under offer for a partial tender by Oisix ra daichi (3182 JP). Unison Capital is expected to tender their shares.  
• Unison may not want to go against the board but a direct transfer (i.e. not tender offer) is still possible. 
• Some Independent Board Members have suggested the company buy Unison’s shares back. This might work BUT the end game is still the same. 

• The stock price of Mitsubishi Motors has been driven by exposure to the weak Japanese yen and the sharp recovery in ASEAN auto sales 
• The valuation at 1x book is now at a premium versus the sector and its historical average
• We believe that the 2H could be an uphill battle against rising petrol prices and weakening consumer confidence in the core markets

• After beating the Q4 consensus OP by more than 26%, Pan Pacific International Holdings (7532 JP)’s share price has bounced back towards the mid-point of its long-term trend channel.
• With inbound demand set to return to further boost PPIH’s profitability, we are expecting additional upside to consensus FY23 OP, which is based on conservative company guidance.
• Based on the FY+1 consensus OP to share price trend, our annual run-rate OP estimate of ¥160bn suggests that there could be an additional 50% upside to Pan Pacific International.

• The reason for this criticism is that the performance of mutual funds with ESG investing in their names have not differed from or underperformed stock market indices.
• The FSA report indicates that some investment management companies that manage mutual funds with ESG names do not have sufficient specialized ESG departments and professionals.
• Nissay Asset Management’s guidelines seem reasonable. How to reflect them in investment performance in the future is a very difficult and key issue.

We view Health and Happiness International (H&H) as “Medium Risk” on the LARA scale. The company has a sound business profile, with stable branded products in the Baby Nutrition and Care​ (BNC) and Adult Nutrition and Care (ANC) markets. The acquisition of Zesty Paws in 2021 allowed H&H to expand into the Pet Nutrition and Care ​(PNC) business. The company’s strong distribution channels support cross-border and e-commerce sales strategies. That said, the positive factors are balanced by the risk of entering new markets and selling new products, along with the fragmented and competitive Chinese market. We like H&H’s solid business fundamentals, strong market positions and healthy financial profile. In particular, it has a sound liquidity profile and steady CFO.

We note that the acquisition has impacted H&H’s financial profile and weakened its leverage metrics. That said, PNC is part of the company’s sustainable growth plan. We expect it to work on deleveraging in the near term, in order to maintain a healthy credit profile.

The USD bondholders suffer material structural subordination. The issuing entity is a Cayman Islands company with no operating assets, and the PRC operating subsidiaries do not guarantee the USD notes. The level of priority creditors is high at the Australian subsidiary. Bondholders would have very limited access to assets in a liquidation scenario.

Our Credit Bias on H&H is “Stable”, given the company’s solid business fundamentals, strong market positions and moderate financial profile. The ANC and PNC segments are expected to deliver stronger performance, while BNC should continue facing challenges. As a result, ANC and PNC will likely be H&H’s key growth segments, offsetting the competitive BNC business. The company aims to expand into other business segments and markets outside China, in order to compensate for muted growth in the country.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• TUEM disclosed a new financing round underscoring the financial distress the business has been under since reporting March quarter financials.
• TUEM is raising $35 million in convertible debt financing. The debt is convertible at a material discount to TUEM’s closing price prior to the news
• TUEM requested a financial viability exception from NASDAQ to bypass a shareholder vote asserts the turmoil the business has been under in recent months

• Compared to the tightly crowded KOSPI 200, the sector ETFs’ rebalancing flow trading appears relatively less crowded, which led to a significantly higher flow/price correlation on the rebalancing day.
• The KRX now delivers the rebalancing results of the KRX Sector & K-New Deal Indexes only to paying customers. This can increase the profit effect of acquiring prior information.
• So, safe play, which builds up a position from the time this information is acquired, rather than an aggressive preemptive position build-up, can still obtain a sufficient level of juice.

• We believe the market may have missed the important acquisition of 3D printing firm, SLM Solutions
• The 3D printing market is expected to grow rapidly driven by industrial applications that require accurate products and rapid time to market
• We believe the acquisition is a good fit for Nikon and that the realization of synergies could see SLM making a meaningful profit contribution

• There are 611 ETFs with a combined AUM of ₩76T. Korea is in the global top 7. ₩32T worth of ETFs belongs to local equity, half of which are index-trackers.
• The market began to pay attention to the less crowded areas. The result is the rise of sector ETFs. Sector-type has also grown significantly, now with an AUM of ₩8.4T.
• Lower predictability causes their rebalancings to be relatively less crowded. That is, the profit effect of acquiring prior information is much more dramatic on the day of rebalancing trading.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Leapmotor (2007699D HK), Onewo Space-Tech (ONEWO HK) and CALB (CALBLZ CH) are pre-marketing a US$1.5 billion, US$2.0 billion and US$2.0 billion HKEx IPOs, respectively.
• Event-Driven developments – DTAC/True, Giordano International (709 HK), Link Administration (LNK AU), MyDeal.com.au Ltd (MYD AU), Nitro Software Ltd (NTO AU), Resapp Health (RAP AU), Tyro Payments (TYR AU). 

• The reason why TCFD’s progress is the slowest is that prudent companies are still exploring the minimum line that should be taken by other companies to see how they’re responding.
• The lack of specific numerical targets for ensuring diversity, which are not explicitly stated in the Corporate Governance Code, is the main reason for the slow progress.
• While some formal progress has been made, such as the establishment of nominating/compensation committees, there are many challenges ahead. Scandals have occurred even in companies that have implemented formal standards.

• E: In terms of resource management, Coupang was fined the most among companies that failed to fulfill their recycling obligations, and the use of plastic packaging is increasing every year.
• S: Coupang was flagged for the largest number of disputes among online platforms. Not only conflicts with consumers and communities, but also the unfair labor practices are key risks.
• G: Bom Kim resigned as chairman after the fire at Icheon Logistics Center. These measures were suspected of being intended to avoid punishment under the Serious Accidents Punishment Act.

• We are seeing signs that suggest this pullback may have run its course, as several global market indexes and Sectors appear to be making a higher low near logical support.
• This includes the S&P 500, Russell 2000, MSCI ACWI (local currency), TOPIX/TOPIX Small/Nikkei 225, MSCI ACWI Technology (IXN-US), Consumer Discretionary (RXI-US), Financials (IXG-US), Industrials and (EXI-US) — add exposure.
• While our overall outlook remains neutral, we continue to see a plethora of attractive buying opportunities in the new leaders.

• Garrett Motion (GTX) has elected to pay its quarterly dividend on its Series A Preferred shares in cash in lieu of stock.
• We believe this is a signal to investors on how the business has performed in the Q3 after GTX affirmed its full year adjusted free cash flow guidance in August
• The use of cash removes the compounding effect through issuing more shares, which would nullify the share buyback program GTX has in place

• Ralph Lauren delivered strong results this quarter surpassing revenue expectations of Wall Street as a result of solid growth across all key regions.
• Ralph delivered solid consumer metrics, which include increased net promoter scores, purchase intent, and global brand consideration through an engaging mix of performance marketing and purpose-led investments.
• We provide the stock of Ralph Lauren with a ‘Hold’ rating and a revision in the target price.

• Shidax Corp (4837 JP) is a food service business in the midst of a so-far reasonably successful restructuring. The family had a partner in Unison and hoped to extend. 
• The founding family and Unison now have ~60% together, and they vote together. Unison wants out. The family wants Oisix ra daichi (3182 JP) in. So Oisix has tendered.
• But SHiDAX sees the conflict and minorities getting hosed. So they object. The “easy” solution is a full MBO with Oisix support. 

• TORIDOLL Holdings Corporation (3397 JP) is trading near the historical peak of ¥3,000 per share which translates to a consensus FY+2 EV/OP of 30.9x.
• We think the stock has more room to run as its OP margin is expected to reach double digits for the first time since FY13.
• Meanwhile, there could be an upside to FY23 guidance as it is currently based on an exchange rate of ¥116 per $1.0.

• Honda Motor Co. Ltd.’s Chinese unit will set up a new joint venture with two Chinese partners to procure electric vehicle batteries from battery giant Contemporary Amperex Technology Co. Ltd. (CATL)
• The joint venture will be 50% owned by Honda Motor (China) Investment Co. Ltd. and 25% each by Dongfeng Motor Corp. Ltd. and Guangzhou Automobile Group Co. Ltd. (GAC)
• Honda’s joint ventures with Dongfeng and Guangzhou Automobile already use CATL batteries in electric cars made in China

• Gokomodo, an Indonesia-based agriculture supply chain platform, said it earned US$26 million in a series A round led by East Ventures.
• Gokomodo is a B2B startup that offers digital procurement, digital commerce, and distribution services.
• Its clients also have the option of buying competitive products through the company’s ecommerce storefront.

• Coolmate says it has tripled its revenue over the past year and is on track to hit the US$19 million revenue milestone in 2022.
• As Vietnam’s e-commerce is expanding quickly and the country’s robust textile and garment industries are transforming through more consolidated value chains, Coolmate will utilise the new capital to achieve its 2022 sales target and plan for an IPO in 2025.
• Founded in early 2019, Coolmate employs the D2C e-commerce model (providing products directly through online channels) to cut the distribution costs in traditional retail.

• Summary: Resilience and Growth Through Turmoil, Asymmetric Opportunity Today
• Target TGT 4.54%↑ has been a highly controversial retailer for years.
• Recall that in 2007, Bill Ackman’s Pershing Square invested in the business, ultimately building a 10% stake and launching an activist campaign to get on the board and force a sale-leaseback of Target’s extraordinarily valuable real estate.

• The last time I penned my thoughts about Lululemon was December 2021 during a period when the core business shined and Lulu’s Mirror acquisition began to show the early signs of wilting in the face of declining demand.
• I was grateful that management’s commentary implied they would avoid throwing everything at an attempt to make Mirror, a business which comprised <3% of Lulu’s revenue at the time, work.
• They have since repurposed the business into a two-tiered subscription offering, branded under the parent’s more reputable name.

• Throughout the second quarter, Lululemon’s momentum remained strong.
• The company’s total revenue accelerated by 29% compared to last year and 28% on a 3-year CAGR basis, helping the company surpass Wall Street expectations.
• It has been benefitting heavily from this launch as hiking has become increasingly popular among visitors since the pandemic.

• Ross Stores had quite a disappointing quarter where its revenues were well below Wall Street expectations.
• Comparable store sales were low in comparison to a strong increase in the second quarter of the last year.
• We provide the stock of Ross Stores with a ‘Hold’ rating with a revision in the market price.

• Gap saw a decline in its overall revenues in the past quarter but its results were still above analyst expectations.
• The company’s overall revenues of $3.86 billion were down 8% from the prior year or 7% when measured in constant currency but it did deliver an earnings beat.
• Further, they anticipate the near-term downturn in demand at Gap outlets, which they attribute to the persistent backlash from lower-income consumers.

• Although lesser-known, this Swedish company dominates one of the most lucrative segments of the global casino industry.
• In our view, it is probably the only investable casino company, and despite its size, still has a massive growth runway ahead.
• Our DCF model implies a 15%-20% total return for the company’s long-term shareholders.

• The lackluster ESG investing trust performance is the main reason for the sharp decline in new setups, as retail investors tend to trade short term.
• The fact that Japanese companies aren’t leading the world in green practices and are reluctant to disclose their activities are the factors that prevent wash from occurring and being detected.
• While it’s difficult to evaluate ESG investing in short-term-performance, it’s important to pay attention to how management is taking measures to increase corporate value in ESG perspective in particular G.

• Volkswagen aims for an IPO of Porsche AG (operating company). 25% of preferreds will be placed and 25% of ords sold to Porsche Automobile Holding SE (combined, 25% equity capital).
• Thought a holding chain, the Pïech and Porsche families will directly control 25% of the votes of Porsche AG and 39.975% indirectly (total of 64.975%), with just a 24.275% economic interest.
• Porsche Automobile Holding SE will cover c.30% of the cost of its stake through the extraordinary dividend that Volkswagen will pay. It also gets the ords at a friendly price.

• The demand for Campbell’s portfolio of brands continued to be strong in the last quarter and it was able to match the market’s revenue expectations through its result.
• The company was able to deliver an earnings beat as it enhanced supply chain performance and put into place efficient revenue management to combat inflation.
• Their Win in Soup approach will remain strong in fiscal 2023 largely due to innovation.

• Capri has seen a decent performance across all three of its luxury residences and 2022 has been delivering better results than the management had anticipated.
• The company delivered an all-around beat with a revenue of $1.36 billion, which exceeded management and market expectations.
• Fendace combined unique features with classic silhouettes from two renowned Italian luxury brands, Fendi and Versace.

• Ulta Beauty performed well in this quarter and delivered an all-around beat.
• Based on point-of-sale statistics from the NPD Group, all key categories for the quarter exceeded its expectations, and they grew their market share in prestige beauty compared to the previous year.
• Haircare, their second-largest category, experienced double-digit growth for another quarter due to newness and excellent participation in their semi-annual Gorgeous Hair Event.

• This model finds companies facing recent sharp cuts in estimates. These shorts can have very disparate characteristics.
• The key judgement involves whether the negative revisions are temporary or if they are indications of ongoing weakness in the business. 
• Breaking Estimates stocks often continue to decline after the cuts.  This week we flag:  Upstart, Cerence, Zillow, Trex

• The Sep 2022 Nikkei 225 Annual Review has been announced. This was discussed in Nikkei 225 Review Results: Nidec, SMC, Hoya IN. 
• That means we can make early predictions for the March 2023 rebalance to be announced in six months. One way turnover would be about 1.4%. 
• The top three adds are Oriental Land, Renesas, and JAL. The top 3 sells would be Toyobo, Toho Zinc, and Nippon Sheet Glass. There are some dark horses here too.

• Porsche is getting ready for an IPO to be completed by the end of this year. However, the final decision on the IPO is still subject to market conditions.
• The expected valuation of the Porsche IPO is 60 billion to 85 billion euros ($60 billion to $85 billion).
• Qatar Investment Authority has already committed to a 4.99% stake in the Porsche IPO. 

• Discounts to NAV of covered holdcos have mainly widened or stayed at the same level during August/beginning of September, in line with the loses in the main indexes.
• Discounts to NAV (5 September): Alba, 46.1%; GBL, 34.1%; Heineken Holdings 21.3%; Industrivärden C, 10.1%; Investor B, 18.9%; Porsche Automobile Holding 29.4%. The spread of Rio Tinto DLC tightened to 14.5%.
• Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts. Recommended trades are: Industrivärden C vs. listed assets, Porsche, Rio Tinto (DLC).

• The September 2022 index changes for DAX, MDAX, SDAX, and TecDAX were announced late last night.
• There is one change for the DAX Index, four changes for the MDAX Index, seven changes for the SDAX Index, and two changes for the TecDAX Index.
• In this insight, we take a closer look at our expectations for index flows and potential trading ideas.

• The reason for high remuneration of foreign directors isn’t only that remuneration is determined based on overseas compensation levels, but also that fixed remuneration for directors in Japan is high.
• It is hoped that more companies will increase the proportion of variable compensation, and that for shareholders, performance will increase enough to significantly increase variable compensation.
• In order for directors to fulfill their responsibilities in determining important strategies, the system must be designed to be high-risk and high-return as well as individually disclosed.