Consumer

• REPT BATTERO Energy (1998104D CH), a leading EV battery manufacturer, has launched an HKEx IPO to raise up to US$306 million. Pricing is on 14 December.   
• In Rept Battero IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on market share losses, high related party revenue, weak outlook, EV battery weak performance, FCF burn, high impairments and receivable financing. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, Sino-Synergy Hydrogen Energy Technology (9663 HK) and Dekon Food didn’t do much even as other are lining up to try their luck.
• On the placements front, Japan and India flows continue like there is no tomorrow.

• REPT BATTERO Energy is looking to raise around US$300m in its Hong Kong IPO.
• REPT BATTERO Energy (REPT) is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs.
• We have looked at the company’s past performance in our previous notes. In this note, we talk about valuations.

• India is top global sugar producer & exporter. India ordered mills to halt ethanol blending on domestic shortage concerns in addition to export restrictions imposed earlier this year.
• Sugar prices soared to a 12 year high in late Oct. Despite India’s order on blending, global sugar prices have tanked 13% since start of Dec.
• Brazil’s bumper sugar crop will depress near term prices. However, intensifying effects of El Niño could send sugar prices soaring during later part of next year.

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in March 2024.
• Based on the current data, I see only one low-conviction ADD and one low-conviction DEL.

• Electric-vehicle (EV) startup Nio Inc. looks set to begin building its cars independently, announcing plans to acquire two manufacturing assets shortly after a subsidiary was added to a government database for companies approved to produce vehicles.
• Nio on Tuesday entered into “definitive agreements” to buy equipment and assets from two “advanced manufacturing” bases from state-owned automaker Anhui Jianghuai Automobile Group Corp. Ltd. (JAC) (600418.SH +1.67%) for approximately 3.16 billion yuan ($443 million), excluding tax, according to a Hong Kong Stock Exchange filing accompanying its third quarter results the same day.
• JAC has been producing all of Nio’s cars on a contract basis since 2018.

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• In this insight, we take a look at the rankings of potential ADDs and potential DELs for the March 2024 index rebalance.
• Based on the current numbers, our estimate shows there could be one ADD and one DEL but there are some question marks due to the past index review outcomes.

• Buoyed by strong post-pandemic domestic consumption and the return of inbound visitors to Japan, Sapporo Holdings (2501 JP) has been firing on all cylinders in recent quarters.
• Business fundamentals for next year look strong, with the company positioned to benefit the most from Japan’s liquor tax revisions.
• Additionally, activist investor 3D Investment Partners could successfully advance their proposals to divest the Real Estate business.

• Softbank Group (9984 JP) is looking to raise US$135m from selling its remaining stake in Zomato (ZOMATO IN).
• Since receiving shares from Zomato’s acquisition of 91% of Blinkit’s outstanding shares, Softbank has been busy trimming its stake in Zomato. The stake sale now will be a cleanup one.
• Representing just 1.2 days of Zomato’s three month ADV, the deal here would be easily digested by the firm.

• By canceling the IPO of Rakuten Securities, it is assumed that Rakuten Group wanted to generate cash on schedule even if it was 10 billion yen less than originally planned.
• Although Rakuten Group could generate cash in the predetermined time. it remains unclear whether the company has secured a path to improve cash flow in the pending cell phone business.
• If Rakuten Securities went to public, another parent-subsidiary listing would have been created, so the cancellation of the IPO can be evaluated as positive for the quality of the market.

The Europe HY Trade Book for December 2023 includes current trade recommendations drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

Deliveroo’s (ROO’s) November capital markets day (CMD) saw its leadership team present initiatives aimed at progressing the customer value proposition (CVP) to drive revenue growth and improve profitability. ROO’s strategy is to unlock growth through greater market penetration and by growing customer loyalty via a hyperlocal approach, hosting both national and local brands on its platform. The shares are down 65% since the IPO in 2021, with trading affected by the weaker consumer environment amongst other factors. ROO trades at a discount to its peers, although delivery on financial targets and the tailwind of an improving consumer environment could enable the discount to narrow.

While we believe H223 represents a pause in growth at paragon’s ongoing automotive operations, we are cutting our near-term EBITDA margin contribution from the Electronics segment. As a result, we lower our FY23e and FY24e sales estimates by 2% and 3% and EBITDA by 25% and 17% respectively, reducing our DCF valuation to €9.4/share.

Games Workshop Group’s (GAW’s) H124 trading update indicated a robust start to the year in line with management’s expectations. The launch of the new edition of Warhammer 40k in Q1 helped to boost core year-on-year revenue growth in the first half by an expected 11% to no less than £235m (H123: £212.3m). Licensing revenue is expected at £12m (H123: £14.3m), taking total group revenue to c £247m (H123: £227m). There was an implied slowdown in core revenue growth in Q2 versus Q1, although this is expected following a new edition of Warhammer 40k. PBT is expected to grow 12% to ‘not less than’ £94m (H123: £83.6m). We have left our estimates unchanged, anticipating broadly a 50:50 H1:H2 split for both revenue and profit. The H124 results are scheduled for 9 January 2024.

• China NEV market grew by 35% YoY in first ten months and by 39% YoY in October 2023.
• BYD’s production is significantly larger than other NEV producers in China.
• We believe the stock has an upside of 80% and a price target of HKD387. Buy.

• REPT BATTERO Energy (1998104D CH), a leading EV battery manufacturer, is premarketing a US$300 million HKEx IPO, according to press reports.  
• According to Frost & Sullivan, in 1H23, Rept was the tenth-largest lithium-ion battery manufacturer globally for annual installations for new energy applications. 
• The bull case rests on rapid ESS revenue growth, reducing customer concentration risks, ambitious capacity expansion plans, promising margin trajectory and improving cash collection cycle. 

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Allwyn’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”. 
• Allwyn (formerly Sazka) is one of the largest pan-European lottery operators, and is active in all major EU countries where lotteries have been privatised (Czech Republic, Cyprus, Austria, Greece and Italy).

• On 28th Nov 2023, Toyota (7203 JP) announced that it would sell around 9.4% of Denso (6902 JP) in order to reduce its cross-shareholding. 
• Since then the shares haven’t corrected by much, as compared to prior large secondary deals.
• We have covered the deal background in our earlier notes. In this note, we talk about deal dynamics, as compared to prior deals.

• MNSO management hosted a conference call today which reiterated normal operation of business, guided C4Q23 revenue above consensus, gross margin up QoQ, and non-GAAP net profit margin stable;
• MNSO management refuted short seller’s thesis, commented distributor inventory levels at healthy levels and provided backgrounds on disclosed insider share sales;
• We welcome MNSO management’s timely communication and believe its business model to be solid. We reiterate BUY and TP.

• REPT BATTERO Energy (1998104D CH)  is a lithium-ion battery manufacturer focusing EV and ESS battery products. The company’s application for a HKEx IPO has been approved.
• Though the company had reported strong growth in revenue over the last 3-4 years, the company has been struggling to make profits.
• Rept Battero has started to generate GPM, however, our analysis suggests that there is very little room for GPM to improve.

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
• Our top picks: Perfect Medical Health (1830 HK) , Water Oasis (1161 HK) , Taste Gourmet (8371 HK) , Uchi Technologies (UCHI MK) , and The Keepers Holdings (KEEPR PM) .
• We have included Sitoy Group Holdings (1023 HK) in our library. Given the low ROIC nature of the business, it’s more of a value trade with dividends. 

• The review period for the Nikkei 225 (NKY INDEX) March rebalance ends end January. There could be three changes at the rebalance with sector balance in focus.
• Depending on the changes, passives trackers will need to buy 2.4-22.5x ADV (10-24% of real float) on the inclusions and sell between 3.5-42.5x ADV on the deletions.
• Fast Retailing (9983 JP) capping, Nitori Holdings (9843 JP) increase in PAF, a big funding trade, and potentially new stocks being added in two-steps. 

• In our view, China growth equity faces high geopolitical uncertainty in C3Q24 ahead of the US election, but can experience a relief rally in C1Q24.
• We prepared high beta and low risk recommendations for 2024
• For low-risk, we recommend JD/JDL/JDH, Tencent and Luckin. For high beta, we recommend BEKE, LI Auto and Kuaishou.

• With the price almost 10% above ₩20,000, it’s practically fair to regard MBK’s tender offer as effectively canceled, raising the question of the proxy battle’s potential continuation.
• There is a significant likelihood that MBK has prepared a next-phase plan involving an upward adjustment of the offering price, considering the tight situation of successfully securing the target volume.
• Essentially, there’s a high likelihood that the situation will resemble the earlier battle between HYBE and Kakao Corp over S.M. Entertainment Co at the start of this year.

• Several catalysts on the horizon support the case for a re-rating of Eicher Motors (EIM IN). 
• The recent launch of the 450cc platform is positioned as a significant launch pad, propelling EIM’s aspirations to establish global leadership in the middleweight segment.
• We anticipate EIM to deliver higher-than-anticipated revenue growth with the possibility of a multiple re-rating for the company.

• Dekon Food and Agriculture Group (DFAG CH) raised around US$128m in its Hong Kong IPO. 
• Dekon Food and Agriculture Group (DFAG) is a vertically integrated livestock farming enterprise in China.
• We have covered various aspects of the deal in our previous note. In this note, we will talk about the demand and trading dynamics.

• Culp, Inc. issued results for its 2QFY24 on Monday, December 4 after market close.
• Revenue and operating profit were better for the just-reported quarter than those posted in 2QFY23 and our estimates, bolstering management’s contention that it would deliver—and investors would witness—sequential quarterly improvements in operating profitability for the balance of FY24.
• Management also noted its belief of posting positive consolidated operating profitability by 4QFY24.

• Weiqiao Textile Co (2698 HK) announced a pre-conditional privatisation offer from Weiqiao Chuangye at HK$3.50 per H Share, a 104.7% premium to the undisturbed price.
• The pre-condition of regulatory approvals from the NDRC, MOC and SAFE. The key condition is approval by at least 75% independent H Shareholders (<10% of all independent H Shareholders rejection). 
• The offer price is final. Despite the premium, the offer is struck materially below net cash. Nevertheless, the irrevocable from the largest H Shareholder should help the offer get up.

• The New and Better (17 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• Hs with H/A pairs under-perform their As on average by 220+bp. Liquid HK H/A Pairs saw H/As -244bp. H/A Pair intracorrelation is up and A premia continue to trend better.
• SOUTHBOUND and NORTHBOUND were net buys overall but Hs had a VERY BAD WEEK vs their A-Shares where pairs were concerned.

• According to China state media reports, a record number of more than 3 million people attended China’s annual civil service exam last weekend, up from 2.6 million last year. 
• A civil servant job is viewed in China as highly stable.  In the current weak macro environment where youth unemployment is high, job security is increasingly vital.
• The company now trades at 18x forward earnings, with around 30% expected earnings growth. 

• After shares were suspended on the 27 November, Weiqiao Textile Co (2698 HK) has now announced a pre-conditional privatisation at HK$3.50 per H-share.
• This Offer, from its parent, is by way of a Merger by Absorption, which incorporates a Scheme-like vote. There is no tendering condition.
• The Offer Price is a premium to last close is a hefty 104.68%. and around a six-year high. This is done. 

• SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week saw reversion.
• SOUTHBOUND saw net buys of HK$3.5bn this week, breaking a nascent sell streak. Meituan dip-buying Wednesday to Friday was worth the entire net buy.
• High-Div SOEs remain mixed. CNOOC (883) saw decent net buying, and China Mobile saw decent net selling. Again.

• Stock price starting to recognise the increase in  Chinese demand for Gold.
• Helped by a bottoming and a revival in Hong Kong retail sales and tourist arrivals.
• SPDR Gold Shares (GLD US) close to a new all time high

• PDD’s market cap has exceeded Alibaba’s due to PDD’s overseas performance and price sensitive consumers.
• Great Wall Motor plans to enter eight countries in Europe to bypass the investigation on Chinese export subsidies.
• ByteDance plans to close its game subsidy and, 2,000 employees may lose their jobs.

• Seven & I Holdings (3382 JP) announced last week that it had agreed to buy the 7-Eleven convenience store chain in Australia for A$1.71bn ($1.1bn).
• The acquisition may not immediately impact Seven & I’s stock price like Speedway did, given its smaller scale, lack of synergies, and less favorable macroeconomic conditions.
• The main positive takeaway from this news is that the acquisition price for 7-Eleven Australia is not as extravagant as the amount Seven & I paid for the Speedway acquisition.

• Naspers and Prosus reported H1 FY24 results last week Wednesday before the open.
• No major surprises, all three discounts closed slightly lower. We see room for further narrowing as the consolidated ecommerce businesses approach profitability ahead of the initial target.
• Prosus is still trading below the value of its Tencent stake.

• REPT BATTERO Energy (REPT HK) is now looking to raise around US$300m in its upcoming Hong Kong IPO, down from the US$1bn it was aiming for earlier.
• REPT BATTERO Energy (REPT) is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs.
• We have looked at the company’s past performance in our previous note. In this note, we talk about its PHIP updates.

• Minimal changes in the rankings since last time. Socionext (6526), Disco (6146), and a Consumer Goods stock (Zozo (3092) top-ranked, Ryohin Keikaku (7453) a better choice) are ADDs.
• The DELETEs are still Takara Holdings (2531), Pacific Metals (5541), Sumitomo Osaka Cement (5232) with a dark horse candidate in Hitachi Zosen (7004) to replace Takara.
• There is the upweight to Nitori (9843) AND funkiness with Fast Retailing (9983) to consider. We are right on the threshold. The question is whether it gets “help” in January.

• There are 5 adds and 4 deletes to the Yuanta/​P-Shares Taiwan Dividend Plus ETF in December with implementation taking place from 15-21 December.
• The constituent changes and capping changes result in an estimated one-way turnover of 16.1% resulting in a one-way trade of US$1.26bn.
• There will be positioning in a lot of the adds/deletes and the real action could be in the other stocks with capping and/or funding flows.

• The Samsung KODEX Fn Top10 Equal Weight ETF (395170 KS) tracks the FnGuide Top 10 Index and has an AUM of US$264m.
• We expect Kia Corp (000270 KS) to replace Posco Future M (003670 KS) in the index at the December rebalance.
• There will be 0.4x ADV to buy in Kia Corp (000270 KS) while passives will need to sell 0.1x ADV of Posco Future M (003670 KS). 

• Want Want (151 HK) and China Mengniu Dairy Co (2319 HK) are both fairly liquid names in the China consumer staples sector. 
• Both companies trade at virtually the same forward PE of 14x.  However, I expect Want Want’s near term sales growth to be lower than market expectations.  
• The upside risk for Want Want could be its overseas expansion efforts, as overseas sales now account for mid to high-single-digit of sales and grew high-teens yoy in FY1H24. 

• The high growth in 23H1 is unsustainable. 23H2 YoY revenue growth would be single-digit. Due to 23H1’s high base, we cannot rule out the possibility of negative growth in 24H1.
• In the case of lower-than-expected external M&A activities, Fu Shou Yuan has accumulated a large amount of cash, which would drag down ROE. So, current dividend policy still needs improvement. 
• Fu Shou Yuan’s expansion would be relatively moderate. Double-digit revenue growth can still be expected in the long term. The market value of above RMB15 billion is more reasonable. 

• H World Group (1179 HK) has been over-penalised by market weakness as its share price was off 16.8% YTD. It turned around in 3Q23 and guidance for 4Q23 is solid.
• Surge in operating and adjusted EBITDA margins indicated high operating leverage. Occupancy has not returned to 2019 level, but there will be more margin expansion when this happens.
• 55% of rooms in China are of economy type, and 82% are in tier-2 and below cities. Such characteristics allow it to benefit from the prevailing consumption downgrade. 

• The discounts to NAV of covered holdcos have all tightened during November. Discounts to NAV: C.F.Alba, 47.1% (vs. 47.8%); GBL, 34.9% (vs. 35.5%); Heineken Holding, 14.5% (vs. 14.9%);
• Industrivärden C, 4.9% (vs. 6%); Investor B, 14.6% (vs. 16.5%); Porsche Automobile Holding, 39.9% (vs. 40.9%). The spread of Rio DLC tightened to 17.2% (vs. 21%).
• What seems interesting: holding trades, Heineken Holding vs. Heineken, Porsche SE/vs. listed assets and the Rio DLC: long RIO LN/short RIO AU.

• China stock market despair has brought down  China Tourism Group Duty Free Corp Ltd (601888 CH) to its lowest forward valuation in the past ten years   
• Poised for long-term growth, Chinese are buying albeit more prudently, government supportive on promoting domestic consumption, efficiency enhancements will lower cost and boost margins 
• Using the company’s lowest recorded PE ratio in the past 10 years of 23.2x into FY24, we derive a target price of CNY106 (+21% UPSIDE)  

• Meituan reported C3Q23 top line (1.0%)/0.6% vs. our estimate/consensus, non-GAAP net income (9.7%)/8.3% vs our estimate/consensus. Subsidies and investment in in-store business is the main reason for bottom-line miss.
• Meituan in-store GTV increased 90% YoY in 3Q23, effectively counteracted Douyin’s attack and maintained size ratio at 3:1 vs. Douyin in-store, which scarified profit.
• Meituan OPM lowered 2.5ppt QoQ to 4.4% in 3Q23, and we expect it decline to 2.4% in 4Q23.

• A holistic view of the three different documents here suggests the Denso Corp (6902 JP) buyback, indeed, “It was a trap”.
• 3D Investment Partners raised its stake in Sapporo Holdings (2501 JP),  suggesting the activist investor is optimistic about successfully advancing their proposals.
• A firm merger proposal is expected for Hollysys Automation Technologies (HOLI US) in the next couple of weeks. Time to buy.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Denso Corp (6902 JP)‘s US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback.  
• Event-Driven developments – CIMC Vehicle Group Co Ltd (1839 HK), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Hollysys Automation Technologies (HOLI US), Boustead Plantations (BPLANT MK). 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, Tata Technologies and IREDA continued the India IPO juggernaut. 
• On the placements front, there seems to be no stopping Japan flows.

• PDD reported C3Q23 top-line, non-GAAP EBIT, and GAAP net profit 9%, (4%) and in-line vs. our estimate, and 28%, 29%, and 42%, vs. consensus respectively.
• We estimate that Temu reached positive gross profit for the first time in 3Q, one quarter ahead of our prior estimate.
• We believe increased prices on its US platform was the main driver, while it was able to maintain supply prices.

• Many LGBTQ have been harassed during their job search, and while hiring managers are under-prepared, Monogatari Corporation is one of the few companies that is committed to LGBTQ human rights.
• Monogatari Corporation believes that the diversity of individuals is the foundation for creating value, and that a series of individual differentiation enhances the company’s competitive advantage as a major differentiation.
• Monogatari Corporation’s high profit margins and sustained growth give hope that the hypothesis that “companies that care about sexual minorities are more profitable” may be supported.

• The trend of governance reform in Japan continues with Toyota, Toyota Industries and Aisin selling shares of Denso. 
• Denso is buffering some of the flow impact by repurchasing roughly half of the shares to be sold. 
• While the size of these moves is relatively large we believe their impact could be disproportionately large for the market as a whole.

• This is always a tough subject, but every now and then I throw myself on the mercy of the ho-humming crowd and write about the Ito En Prefs (25935 JP).
• No strong catalyst. Limited capacity for strongly better governance. Even less apparent corporate interest in good governance. 
• But we have a mini-catalyst, and it has been a while, and I think there IS a good way to think about this stock, so here’s another crack at it.

• Last week, activist investor 3D Investment Partners raised its stake in Sapporo Holdings (2501 JP) by an additional 13%, cementing its position as the majority shareholder in the business.
• This suggests the activist investor is optimistic about successfully advancing their proposals.
• If investment properties are sold or spun off, and Alcoholic Beverages and Food & Soft Drinks undergo the suggested turnaround, we anticipate an additional 80-100% upside in the near term.

• We recently visited a BYD (1211 HK)  showroom in Ahmedabad, with the objective of understanding the preference for Electric Vehicles in India.
• Pitched as the “Tata” of China, BYD offers 2 models ATTO 3 and e6 in India. 
• Considering Tesla Motors (TSLA US) India interest, and Mahindra & Mahindra (MM IN) big bet on EV, BYD’s current operations in India seem to be minuscule and may find little success.

• The stock has been declining for about three years and plummeted after the 3Q23 results.
• However, we believe MT and its corporate clients have been recovering and MT’s profits will rise by 129% in 2024.
• We set an upside of 132% and a price target of HK$209 for 2024. Buy.

• Stock rally on strong revenue growth suggests TEMU will be at center stage of the investment thesis for PDD down the road. 
• Besides soaring GMV, TEMU achieved blowout performance likely due to much higher-than-expected take-rate and disciplined marketing, resulting in narrower-than-expected losses.
• We expect the company’s growth will even accelerate in 4Q23 and generate adjusted net profit of US$12 bn for FY24, with a target market cap of US$240 bn (20xPE).

• CyberAgent Inc (4751 JP) (CA) is a Japan-based media and entertainment company offering media, internet advertising, smart games and investment development businesses in Japan.
• The gaming business of the company has collapsed with the slowdown of hit title UMA MUSUME while titles released after UMA MUSUME have failed to perform satisfactorily.
• Profitability of Internet advertising and media are expected recover and seems that worst is over for the games business as several titles are slated for release in the near future.

• Indofood CBP Sukses (ICBP IJ) has weathered the worst of higher raw material prices and is now seeing the benefits of lower input costs, benefiting margins.
• The company is a core beneficiary of pre-election spending as its products are often given as gifts during campaigning. ICBP is also seeing strong performance in its export markets.
• ICBP should increasingly be seen as an emerging market staples player, with globally recognised brands such as Indomie and Chitato. Valuations do not reflect this.

• Kobayashi Pharmaceutical Co (4967 JP) witnessed business revival in Q3, especially in the domestic household and the U.S. business. In Q3, revenue increased 6% YoY and 13% QoQ to ¥45.4B.
• Kobayashi has reiterated FY24 guidance. The company has guided for FY24 revenue of ¥172.0B (+4% YoY), operating income of ¥25.5B (-4% YoY), and net profit of ¥20.2B (-1% YoY).
• By establishing the supplement business in North America and further expanding OTC medicines, the company aims to achieve sales of ¥34B in the U.S. in 2030, including ¥16B from healthcare.

• We are reiterating our Buy rating and $32.50 price target for Guess?, after the company reported mixed 3QFY24 (October) results, with EBITDA handily beating Street consensus, but EPS a miss, driven by a higher than expected tax rate and slightly weaker top line results, as Europe saw slowing traffic and the domestic stores remain negative.
• Jeans), the recapture of the company’s license for domestic outerwear and a normalization of the expense base.
• As such, we are reiterating our Buy rating and $32.50 price target on GES, which now translates to 6.5X our new FY25 EBITDA.