Consumer

• With no stocks in inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in December.
• Capping changes will result in a one-way turnover of 2.16% and that will result in a round-trip trade of US$556m.
• The impact of capping changes has doubled over the last month and there will be more changes from now till the official capping is done on 28 November.

• In June quarter Starbucks comparable store sales increased 46% YoY and reached to 80% of the level in the same period of 2021.
• China revenue increase purely came from transaction, but not average ticket.
• We believe Starbucks China data can be a good monitor of Chinese economy.

• China Tourism Group Duty Free (1880 HK) announced preliminary results for 3Q23 which came in below market expectations.
• Compared to the previous quarter 2Q23, sales declined by 1% q-o-q, while net profit margin declined from 10.4% in 2Q23 to 8.9% in 3Q23. 
• The company (H-share) is trading at 26x 2023E PE and 23x 2024E PE, still expensive as visibility is low and derating continues. 

• Devyani International (DEVYANI IN) is one of the largest franchisee of Yum! Brands Inc (YUM US)  in India and operates brands like KFC, Pizza Hut and Costa Coffee, etc.
• After a turbulent pandemic, the company has reported growth in topline and robust profitability in F22 and F23. But, these have been boosted by several one-off items.
• The company also faces difficulty in generating positive FCFs while we also remain caution about the Nigerian Operations and the associated forex losses.

• Lalatech has refiled for HKEx IPO and the company plans to raise around US$1bn through the IPO. This insight focuses on latest data points from the company’s new filing.
• The company has disclosed results for 1H2023 which point to notable improvement in the company’s financials including an operating profit margin of around 21% for 1H2023.
• There has been significant reduction in the company’s operating costs, merchant discounts and carrier incentives in particular, which have helped significant improve the company’s margins.

• With rising urbanization and increased social media exposure to global beauty trends, India’s beauty and personal care market is now set to hit US$38 billion in value by 2028.
• A big part of that growth has come from direct-to-consumer brands: in the past four to five years, over 80 of them have emerged, accompanied by a wave of investments.
• One of these D2C players is Pilgrim, which recently raised US$20 million in a series B funding round led by Vertex Ventures Southeast Asia and India. 

• Genuine Parts Company delivered mixed results for the previous quarter, with revenues below the analyst consensus.
• The company reported total sales of $2.3 billion for the quarter, marking an impressive increase of $125 million.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Guoquan’s model is easy to replicate.The so-called “moat” is all based on scale effects, without which Guoquan would lose competitiveness.This is why Guoquan has been striving to expand franchised stores.
• With the increasing frequency of people dining out after China reopens, the high-speed expansion in 2020 seems unsustainable. To B model has less growth space/potential than To C model.
• In such a fiercely competitive market, Guoquan’s long-term development logic is not solid. The current temporary improvement in financial performance is likely to be a flash in the pan.

• CarMax, Inc. delivered a mixed result in the recent quarter, with revenues above market expectations but failed to surpass the analyst consensus regarding earnings.
• Despite ongoing challenges in the market, the company’s strategic actions have yielded positive outcomes and positioned it for future success.
• In the quarter, CarMax’s diversified business model generated total sales of $7.1 billion, attributed to lower retail and wholesale volume and prices.

• Interpublic Group of Companies delivered a mixed set of results for the previous quarter with revenues below the analyst consensus.
• The company reported a 1.7% decrease in organic revenue before billable expenses in the second quarter of the year, compared to the 7.9% organic growth in the same quarter of the previous year.
• Despite these challenges, Interpublic Group of Companies observed growth in areas such as media offerings, healthcare, public relations, and experiential offerings.

• Posco DX’s KOSPI 200 fast entry effective date will likely coincide with the December regular rebalancing date.
• We should focus on the ad-hoc change deletion as we can expect more pronounced price impact near the effective date due to lower chances of premature exposure than regular reviews.
• The following three candidates are screened: K Car, Daesang Corporation, and Shinsegae International. They are all likely to exhibit a significant passive impact (x ADTV).

• Our dealer checks across a couple of Eicher Motors (EIM IN) and Bajaj Auto Ltd (BJAUT IN) dealerships indicate a strengthening competitive position for Royal Enfield. 
• After the initial hype, customers are now shifting back to Royal Enfield. 
• As competition ramps up production, we continue to believe that the market will expand, and there will be no fight for market share.

• US users of the popular SHEIN and Temu shopping apps tend to be relatively young
• Compared to older Americans, younger Americans (18-34) tend to have less political clout
• What does this mean for SHEIN and Temu, and how will they respond to political challenges?

• Lalatech Holdings Co Ltd (LALA HK) is looking to raise about US$1bn in its upcoming HK IPO.
• Lalatech operates via a marketplace model serving merchants and carriers. Its platform facilitates closed-loop transactions from online shipping order booking to intelligent order matching, and automated dispatching to after-sale services.
• We have looked at the company’s past performance in our earlier notes. In this note we will talk about the updates from its refiling.

• The index seems to be finding support at 19,500 for the second consecutive week. Bullish momentum could resume when we close above 19,800 on the NIFTY Index (NIFTY INDEX) .
• Names discussed include Titan Co Ltd (TTAN IN), Maruti Suzuki India (MSIL IN) and Metro Brands (METROBRA IN).  
• We also introduce the Earnings Diary which will be part of the publication, tracking estimates and narratives around over coverage. 

• Nike Inc. delivered a mixed set of results for the previous quarter, with revenues below the analyst consensus.
• The company managed a decent growth amidst various challenges over recent years, including societal, geopolitical, global health issues, and supply chain disruptions.
• With revenues increasing from $39 billion in fiscal 2019 to over $50 billion, Nike’s growth rate surpasses the overall industry.

• Walgreens Boots Alliance, Inc. delivered mixed results for the previous quarter, with revenues above analyst expectations but below-par earnings.
• Walgreens’s quarter was marked by solid sales growth and a return to adjusted earnings growth.
• The main part of this plan is the launch of “Walgreens Health,” a technology-enabled care model that will give people in local communities more personalized health care.

• Darden Restaurants, Inc. delivered a mixed set of results in its most recent results, with revenues falling short of Wall Street expectations but above-par earnings.
• This growth highlights the company’s ability to drive profitable sales through a solid business model and unwavering strategy.
• To fortify its brands, Darden Restaurants highlights its unique qualities through marketing initiatives that elevate brand equity, prioritize simplicity in execution, and maintain profitability.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We view InRetail Consumer’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Our assessments are based on the sustainability report by parent InRetail Peru Corp, which discloses ESG-related information on a consolidated basis, with some details for its bond-issuing credit pools InRetail Consumer and InRetail RE.

• Outbound daily traffic during the long holiday down -15% vs 2019, and short of expectations
• Total domestic trips up 4% vs 2019, but average daily trips -9% & average daily spending -4%
• Ten months in, the pace of China’s 2023 tourism recovery remains disappointingly sluggish

• The Philippines Stock Exchange PSEi Index (PCOMP INDEX) rebalance was implemented last week and there were interesting moves at the close on implementation day.
• The focus this week will be on pre-positioning for a global index rebalance where the review period commences next week.
• Units outstanding on iShares Emerging Markets (EMXC US) are at a new high while there continue to be redemptions in iShares Emerging Markets (EEM US). 

• In this insight, we take a look at a group of names with reasonably high likelihood of being involved in index changes for the Hang Seng Index in September 2023.
• The index changes for the December 2023 rebalance will be announced in mid-November (17 Nov) and implemented in early-December (with effect from 4 Dec).
• Although the Hang Seng index has a highly subjective constituent selection process and index changes are somewhat unpredictable, we will continue sharing our thoughts for each quarterly review.

• Aeon Co Ltd (8267 JP) and Inageya Co Ltd (8182 JP) agreed in late April to prepare a plan so Aeon would buy 51% this year.
• They would combine Inageya with 53+%-owned United Super Markets (3222 JP) aiming for a ¥1trln sales supermarket chain in Kanto. That is due end- calendar 2024.
• There is a partial offer to buy 33+% of Inageya at a small premium, and inadequate price before merging next year. Cross-holders determine pro-ration.

• In this insight, we provide the major changes in NPS’ stakes in 25 Korean companies in 3Q 2023.
• In 3Q 2023, NPS reduced its stakes in the IT, construction, and contents related stocks. On the other hand, NPS increased its stakes in China’s re-opening and cosmetics related stocks.
• Five Korean cosmetics stocks that NPS net purchased in 3Q 2023 are up on average 12.8% from end of June 2023 to as of 6 October 2023. 

• Aeon Co Ltd (8267 JP) has announced a partial tender offer for Inageya Co Ltd (8182 JP) to make it a consolidated subsidiary. Aeon flagged this intention on 25 April.
• The tender offer is for a maximum of 15.7 million shares (33.78% ownership ratio) at JPY1,610, a 23.2% premium to the undisturbed price. There is no minimum acceptance condition. 
• The offer price is reasonable. Longer-term, Aeon aims to make Inageya a wholly-owned subsidiary of United Super Markets (3222 JP) by November 2024.

• Selamat Sempurna remains one of the most interesting industrial players in Indonesia, as an auto and heavy equipment components manufacturer, leading the replacement filter market, and exporting to 100 countries. 
• The company booked growth in sales in 1H2023, despite coming from a high post-COVID base, with margins improving due to lower raw material input prices, without any price rises.
• Selamat Sempurna (SMSM IJ) remains confident in the outlook for the rest of the year and expects sales growth to pick up in 2024 to around +15%. Valuations are attractive.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. AAC Technologies Holdings
2. Vedanta Resources
3. China Vanke
4. JSW Infrastructure
5. Medco Energi

and more…

• During the recent quarter, McCormick showcased mediocre performance with below-par revenues and on-par earnings.
• In terms of highlights, the company reported constant currency sales growth and noted an improvement in volume performance, excluding China, throughout the year.
• In the Flavor Solutions segment, McCormick continued its exceptional growth momentum, with the third quarter marking its tenth consecutive quarter of double-digit constant currency sales growth.

• Wayfair Inc. exceeded analyst expectations in terms of revenue as well as earnings.
• With net revenue down 3% year-over-year in Q2 compared to a category that continues to be down 10% to 20% for widely-tracked estimates like credit card and email receipt data, Wayfair significantly outperformed the competition.
• Total adjusted EBITDA for the quarter was $128 million due to the revenue strength and significant expense reductions they have made across their entire P&L.

• Fast Retail Full-Year Expectations: Anticipate strong FY results, but potential FY8/24 guidance headwinds include weather impacts and yen weakness.
• Management Guidance Risks: The key risk would seem to be China outlook; Japan/Europe’s heatwave impact on fall season; potential for gross margin pressures.
• Valuation: Despite growth prospects, concerns over cyclicality and valuation relative to peers persist.

• Xinyi Glass Holdings (868 HK)‘s stable auto glass business is often overlooked, making up 39% of the company’s gross profit in 1H23.
• Given the current valuation of 7x 2023E PE and 1.3x 2023E PB, the risk reward is skewed to the upside, and downside is protected with the stable auto glass business. 
• The company’s management has been aggressively increasing stake in the company in the last 2 months, gobbling up 11 million shares.

• Boustead Plantations (BPLANT MK) shares have been on a rollercoaster ride. As Kuala Lumpur Kepong (KLK MK) pulls its offer, LTAT has emerged as an unlikely white knight. 
• LTAT aims to launch a general offer at RM1.55 per share, in line with KLK’s aborted MGO price. The government will backstop LTAT’s funding for the offer. 
• LTAT is vague on approvals and timing. Regulatory approvals should be a formality as LTAT is the Armed Forces pension fund. At the last close, the gross spread was 10.7%. 

• Factory shutdowns for “updates” doesn’t explain Tesla’s huge Q3 miss on deliveries.
• Why? Because bloated excess inventory was enough to cover the 20k “miss” some 3-5x. 
• A better explanation: Tesla’s accelerating demand erosion, which I have been tracking since last year in every major market.

Smiths News’ recent trading update highlights continued growth in adjusted operating profit, which is anticipated to be at least in line with market expectations of £38.3m (Edison: £38.1m). This represents a marginal increase of 0.5% year-on-year, despite the substantial inflationary impacts seen in the past two years. We expect additional publisher contract renewals to be secured in the next year, which should further bolster the company’s cash-generative business model and underpin the sustainability of the business in the long term. Our forecasts are unchanged, as is our valuation of 89p/share, which represents substantial upside.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• AAC Technologies Holdings
• Tata Motors ADR

• What you need to know: • Organto announced that it has expanded into Asia with an international retailer and plans to grow this market over the coming years • OGO also announced that it plans to expand into North America in late 2023 (initially with the U.S. ).
• This includes its plans to expand into North America, expansion into Asia, increasing its debt facilities, and consolidating its common shares.
• North America Expansion This morning, Organto announced that it plans to expand its platform into North America, initially the U.S. market.

• ADEA revised its full year outlook after electing to sue long-time customer Shaw Communications for breach of contract
• Shaw was acquired by Rogers Communications (RCI). ADEA claims Shaw is no longer paying ADEA even though the two companies had signed a license renewal in 2019
• We are reducing our 2023 revenue forecast to approximately $387.7 million with operating income of $250.8 million

• CJ Corp’s share price declined sharply by 10.7% to reach 80,200 won on 4 October. CJ Olive Young is the number one health & beauty store chain in Korea. 
• According to local media, CJ Olive Young is in danger of being fined large amounts of money by the Fair Trade Commission (FTC).
• It appears likely that CJ Corp’s share price could fall further close to the five year low end of the trading range (60,000 won) in the next several weeks.

• Rakuten Group (4755 JP)‘s shares plummeted 80% in 8 years, reaching ¥500 in June 2023 due to ¥1.3 trillion mobile business losses.
• Expecting a positive shift as Rakuten Mobile approaches platinum band access and subscribers poised for exponential growth following the KDDI agreement.
• We are expecting Rakuten Mobile to turn profitable next year, while the consensus is projecting an operating loss of around ¥200bn for the business.

• The game is on with the sweetened offer from Lithia, valued at 35.4p/share (24.5p divi + stake in Pinewood). Pendragon PLC (PDG LN)‘s shares are trading just below, at 35.2p.
• It is now the turn of either Hedin or AutoNation to raise their offers. 32p/share seems a fair value for the standalone business. Synergies could be worth up to 10.54p/share.
• Assuming a bidder distributes 60% of synergies to Pendragon shareholders, a potential offer price of 38.3p/share, in cash, 8% above Lithia’s offer, could still be value enhancing.

• Soybeans are crushed into soy oil and soymeal. The crush represents the Gross Processing Margin of Soybean.
• The crush has been increasingly affected by the price of soy oil compared to soymeal. Ample meal supply suppresses its prices.
• Meanwhile, soy oil prices are buoyed by supply concerns in the US as it is increasingly used to produce biodiesel.

• AutoZone delivered an all-around beat in the most recent quarterly result.
• The company achieved a total sales growth of 7.4% for the fiscal year, accompanied by a 12.9% increase in earnings per share.
• Additionally, the company has introduced new reporting metrics to provide enhanced visibility, including same-store sales results for domestic, international, and total company operations.

• CALB Group (3931 HK) raised around US$1.2bn in its Hong Kong IPO in Oct 2022. The lockup on its pre-IPO shareholders will expire tomorrow.
• CALB undertakes design, R&D, production and sales of EV batteries and Energy Storage Systems (ESS) products in China.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

Greggs continues to generate premium sales growth through a combination of volume, including market share gains as distribution increases, and price growth. The strength of underlying trading in Q323 is highlighted by management’s confirmation of consensus FY23 PBT expectations despite the addition of new costs for expanding the company’s delivery offer to a second platform and a slight delay in some store openings from the end of the year into FY24.

• Ralph Lauren managed an all-around beat in the last quarter delivering a strong performance that highlights the resilience of its strategy and the adaptability of its teams in a dynamic global environment.
• The quarter witnessed positive revenue growth that surpassed guidance, marking a return to gross margin expansion while effectively managing peak raw material costs.
• The company’s commitment to cost discipline enabled a 100 basis point expansion in adjusted operating margin, reaching 13.7%, resulting in a 9% increase in operating profit.

• Columbia Sportswear Company delivered an all-around beat in the most recent quarterly result.
• Columbia Sportswear’s expectations were essentially met as the gross margin increased by 140 basis points.
• In the quarter, net sales for the Columbia brand grew 11%.

• We believe the undertone in the market is bullish, Large Caps are “out of flavour” and hence an L/S (Long/Short) strategy with INDA/SMIN could be an interesting pair to track. 
• We visited a BYD (1211 HK) showroom in Western India gathering hints of the defensive strategy in India. 
• Other names discussed include Asian Paints (APNT IN), CE Info Systems (MapmyIndia) (1052633Z IN) and Ebix (EBIX US).  

• Topsports International Holdin (6110 HK) is a pure-play on Nike and Adidas retail sales in China, as it is a leading retail partner of Nike and Adidas in China.
• Nike’s Greater China sales grew 12% yoy during the most recent quarter.  During the earnings call, Nike management was bullish on the prospects of the China business.
• The company currently trades at 13x forward PE, with a forward dividend yielf of 7%. 

• In the first table, we provide a list of 56 stocks (2.2% of total) which have dividend yields of 7% or more. 
• The second table is a list of stocks with dividend yields of 7% or more and they are ranked in terms of market cap. 
• These 25 stocks have an average dividend yield of 9.1%. The second table has 12 financials related stocks, representing 48% of total. 

• Doosan Robotics has the potential to rise up to ₩104,000 on the listing date. The market cap would reach ₩6.74T, which fulfills the criteria for KOSPI 200 fast entry
• Based on this calculation, Zinus had the lowest average daily market cap during the previous rebalancing screening period. Therefore, Zinus will be excluded due to the inclusion of Doosan Robotics.
• KOSPI 200 passive trackers will need to conduct rebalancing trading reflecting this ad-hoc change on the closing price of November 9th.

• Beijing UBOX Online Technology (1741985D CH) is looking to raise up to US$500m in its upcoming Hong Kong IPO. 
• Beijing UBOX Online Technology (UBOX) is an unmanned retail operator (vending machine) in China.
• We had looked at its past performance earlier. In this note, we look at the updates from its recently filed PHIP. 

• As discussed in last week’s Compass (9/26/23), we continue to believe the odds of a deeper pullback to SPX 4165-4200/the 200-day MA have increased 
• Our reasoning continues to be due to the major breakouts in the U.S. dollar (DXY) and Treasury yields (10- and 30-year), coupled with a handful of Sectors/indexes breaking below supports.
• We are also monitoring 1-year uptrends on the S&P 500 and Russell 2000 (IWM), currently at 4240 and $173. Flirting with breakdowns below these levels today. Buys in retail/energy shippers

• After going ex-dividend in June, Water Oasis (1161 HK) corrected and has remained rangebound at the 1.35-1.45 HKD/levels due to negative sentiment on HK/China.
• We expect FY23 results to be reported in late November/early December. We expect an increase of 19%/85%  in Revenue/PAT with a 16-cent dividend for FY23 (11.4% dividend yield).
• Stock trades at 7.6x/6.2x PE FY23e/24e, a dividend yield of 11.4%/14% FY23e/24e with 25% of the market capitalization in cash. 

• Costco delivered an all-around beat in the most recent quarterly result.
• The company reported net income for the 17-week fourth quarter came in at $2.16 billion or $4.86 per diluted share compared to $1.868 billion or $4.20 per diluted share in the 16-week fourth quarter last year.
• In terms of sales, net sales for the 17-week fourth quarter were $77.43 billion, an increase of 9.4% from $70.76 billion in the 16-week fourth quarter last year.

• Luyuan Group, a pioneer in the e-bike industry in China, set terms for an upcoming IPO. The company offers ~106.7M shares at the expected price range of HK$6.00 to HK$8.00.
• The IPO price range implies a market cap of roughly HK$3B at the midpoint. Cornerstone investors have agreed to subscribe and purchase ~71% of the Offer Shares.
• Shares will begin trading on the HKSE next week. I believe the IPO will be priced at the low end of the range as e-bikes sales have slowed in Asia. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• China Vanke
• JSW Infrastructure
• NagaCorp Ltd
• Vedanta Resources

• On the 24 August, Kuala Lumpur Kepong (KLK MK) entered an agreement with Boustead Holdings (BHB), Boustead Plantations (BPLANT MK)‘s largest shareholder, to acquire a 33% plus 1 share stake.
• Upon the completion of the agreement, KLK – together with BHB and LTAT – would make a Mandatory Offer for BPlant. The Offer Price would be RM1.55/share, a lifetime high
• It all looked pretty straightforward. However the BHB/LTAT agreement has twice been delayed. This may still get done. But there remain a number of political kinks to be ironed out. 

• Boustead Plantations (BPLANT MK) shares are down 16%, resulting in proprietary day trading and intraday short selling being suspended. The transaction is mired in political debate. 
• The bull case is that Kuala Lumpur Kepong (KLK MK) continues on-market purchases and the opposition will compromise, paving the way for deal completion. Timing is the key risk. 
• The bear case is a deal break. The downside is limited as the government will need another buyer, the shares trade below the undisturbed price, and the undemanding valuation. 

• In this insight, we discuss the alpha generation through companies that announced share buybacks in Korea in August and September 2023.
• We provide a list of 18 stocks in the Korean stock market that have announced share buyback programs in August and September 2023.
• The top three market cap stocks that have announced share repurchases include Celltrion Inc (068270 KS), Celltrion Healthcare (091990 KS), and KT&G Corporation (033780 KS). 

• GTX is scheduled to report third quarter results on October 24, 2023, as the Company continues to make strides in expanding its product offering
• The third quarter results should serve as a catalyst since the Company was expected to repurchase shares and reduce its debt balance during the period
• The impact from the ongoing strike in North America is likely to have minimal impact to GTX if it were to continue for an extended period of time

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Medco Energi
• Tata Motors ADR

• This is the brand spanking new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
• The data on liquid names is presented for 5 days and four weeks and anything seen can be ranked in tables or selected and charted (names, sectors, outperformance, etc).
• Please play with nifty interactive tables+charts. We welcome feedback. This 4-day week saw RMB 17.5bn+ of net selling. Back to the trenches!

• Market consensus estimates for Q3 deliveries have been falling so hard and fast they now approach my formerly well below market estimate. 
• Sentiment, however, remains largely optimistic as analysts attribute the weakness to factory shutdowns for “updates”. We’ll see.
• Tesla is expected to report results before the market opens on Monday.

• Pal Group posted record sales in FY2022 partly because fashion retail recovered but mostly because of it has a huge hit on its hands: variety store 3Coins.
• Cheap variety stores have always been popular and are becoming even more so as prices rise and people spend more on the home.
• 3Coins has doubled sales in 2 years but expects continued strong growth going forward. With fashion sales also improving, Pal Group is one of few solid bets in lifestyle retailing.

• We reviewed our PDD investment thesis trying to incorporate and make sense of various channel checks and sell-side’s research which are often inconsistent and even conflicting.
• While there are many unknowns and ambiguities, we are convinced the street still significantly underestimates PDD’s growth outlook for 2H23, and fails to see a slowdown in FY24.
• Our price target remain unchanged as lower target P/E multiple (to reflect slowdown prospect) is offset by higher FY23 earnings which flow to outer years.