Consumer

• LG Chem Ltd (051910 KS) aims to raise around US$2bn via offering 2028 and 2030 puttable USD exchangeable bonds for LG Energy Solution (373220 KS) shares.
• LG Chem (LGC) had been rumoured to sell down some of its stake in LG Energy Solutions (LGES), hence, this deal will remove the overhang on LGES.
• In this note, we have a quick look at the deal and provide our thoughts on the structure.

• The exchange prices are ₩687,500 and ₩715,000 at a premium of 25-30% to the closing price of LG Energy Solution today.
• The commencement date for both the 5-year and 7-year bonds’ exchange is August 28th.
• We should design a strategic setup that targets a band play within the current price range and the low ₩700,000 range.

• Plus Alpha Consulting (4071 JP) listed on TSE Growth at end-June 2021 at ¥2300/share, which was 90x the trailing fiscal year’s earnings. but only about 65x then-current year earnings.
• The stock popped 20+% on Day 1 to close ¥2803. Last Friday, two years and 13% higher at ¥3185/share, the company announced a Secondary Offering and move to TSE Prime.
• It’s a big offering. It’s a smaller TOPIX inclusion event. Next spring we’ll see more upweights.  

• Three weeks ahead of the global launch of TMNT Mutant Mayhem momentum is building
• Google Trends searches reveal rising interest in both movies and toys
• Risk/Reward is still highly attractive, last time a TMNT movie was a success stock hit 4 HKD

• Nusantara Sejahtera Raya (Cinema XXI) aims to raise up to US$160m in its Indonesia IPO.
• Cinema XXI is a premium theatrical exhibition, F&B and experience company. It is the largest cinema chain operator in Indonesia.
• In this note, we talk about the positive aspects of the deal.

• Gasoline retail prices have caught up with declining wholesale prices, and it should lead to around 16-20% QoQ decrease in retail fuel margin to ¥35-37 cents per gallon.
• US gas station merchandise sales exhibited weak performance this year, experiencing YoY growth rates of 5%, -2%, -15%, -17%, and -22% during the first five months.
• We anticipate around 25% downside for Seven & I Holdings (3382 JP) after earnings, as it may face challenges in achieving its FY24 guidance.

• Cinema XXI (CINEMA IJ) aims to raise up to US$160m in its Indonesia IPO.
• Cinema XXI is a premium theatrical exhibition, F&B and experience company. It is the largest cinema chain operator in Indonesia.
• In this note, we talk about the not-so-positive aspects of the deal.

• McCormick managed to exceed the revenue expectations as well as the earnings expectations of Wall Street.
• The company’s sales performance reflects the strength of its diverse worldwide portfolio as well as the successful implementation of its strategy.
• Additionally, McCormick is extending into the quickly developing Mexican aisle with Cholula’s true Mexican flavor in new formats.

• Sonos delivered a positive result and managed an all-around beat in the last quarter.
• The reported revenues were slightly ahead of expectations, although there was a decrease compared to the previous year.
• Sonos observed softening demand in the home theater category due to macroeconomic factors and increased competition but managed to gain market share.

• WD-40 Company (WDFC) reported fiscal third quarter (May) results benefiting from already announced price increases while unit volume declined in Europe and Americas regions
• Unlike prior quarterly results where there was a clear negative in the business, this time WDFC benefited from order timing that is not likely to repeat in the fourth quarte
• The price increases WDFC implemented were to help push gross margin back towards the 55 percent level. This has not been the case as demand has waned

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• Anycolor (5032 JP) and Lifedrink (2585 JP) have already confirmed their moves to the Prime Market and are expected to have TOPIX Inclusion Events at the end of July 2023.
• More recently, Plus Alpha Consulting (4071 JP) announced their move to the Prime Market and are likely to have a TOPIX Inclusion Event at the end of August 2023.

• Back in October 2022, Costa Group (CGC AU), one of Australia’s largest fresh fruit and vegetable producers, was understood to have been approached by its former major shareholder, Paine Schwartz.
• This was discussed in Costa Group’s Low-Hanging Fruit: Paine Schwartz Renews Interest. At the time, media reports speculated Paine Schwartz had no current intention of making a takeover bid.
• Last week, Paine Schwartz made an A$3.50/share NBIO by way of a Scheme. Paine Schwartz currently holds 14.84%.

• It attracts investors when a company’s 15-year ROCE averages over 25% (and has never gone below 20%). Sheng Siong (SSG SP) is one of those companies.
• With 13% of the market capitalization in net cash (283 mn SGD) and a payout ratio averaging 70%, the stock trades at a yield of almost 4%.
• We believe the store expansion of 3-4 stores/year ( on a base of 67) in Singapore is possible, given the pipeline of HDB tenders.

• Last week, Hyundai Dept Store Group announced that it will establish a single holding company structure with Hyundai G.F. Holdings controlling all of the group affiliates.
• Hyundai G.F. Holdings plans to make an in-kind investment in Hyundai Department Store (HDS) to make Hyundai Green Food and Hyundai Department Store as subsidiaries.
• This in-kind investment in HDS and Hyundai Green Food by Hyundai G.F. Holdings is not a deal that adds clear-cut value to Hyundai G.F. Holdings’ shareholders. 

• Kraft Heinz delivered a positive result and managed an all-around beat in the last quarter.
• In the quarter, the company introduced It Has to be HEINZ, a new worldwide campaign that represents the brand’s first unification under a single creative approach.
• We give The Kraft Heinz Company a ‘Hold’ rating with a revised target price.

• PDD delivered an all-around beat in the previous quarter and the company saw clear recovery trends.
• Revenue increased in the quarter and contributed to a total of RMB37.6 billion.
• PDD has also launched its electronic shopping season and invested millions of RMB for promoting universal and high-quality access to reading.

• Honda Motor’s results were a major disappointment as the company failed to meet the revenue expectations as well as the earnings expectations of Wall Street. but, their efforts in cost reduction and improved pricing strategies helped maintain an operating profit margin above 5%.
• Additionally, they aim to provide attractive dividends to shareholders, with a significant increase per share and a share buyback program.

• Interpublic Group of Companies managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company’s organic revenue before billable expenses was down 20 basis points compared to last year’s extremely high first-quarter organic increase of 11.5%.
• We give the Interpublic Group of Companies a ‘Hold’ rating with a revised target price.

• China’s regulators on Friday imposed Ant Financial Services Group (6688 HK) with a fine of RMB 7.12bn. A day later, Ant Group unveiled a share buyback program worth $6bn.
• The last time media created a positive narrative around Ant Group was in January 2023 when Jack Ma relinquished control of the company.
• However, the media excitement was short-lived as Alibaba Group Holding (9988 HK)‘s share price quickly resumed a downward trend after rising by around 22%.

• CDF’s 1H23 preliminary results suggest that business recovery remains on track. Voices of bottom-fishing are getting louder as free fall in its share price already erased 50% market cap YTD.
• We believe the dynamics have fundamentally changed compared to three years ago when CDF was the stock market darling. Investors need be aware of the anchoring effect in making decisions.
• Moderate growth, pressured margin and contracted valuation multiple will be the new reality facing investors of the stock in our view. Wait for better entry point.

• Three shareholders of Plus Alpha Consulting (4071 JP) (PAC) aim to raise around US$230m via selling over 26% of the company.
• PAC was listed in 2021 and after a somewhat tepid initial performance it has been doing well over the past year.
• In this note, we talk about the deal dynamics and run the deal through our ECM framework

• Companies that accept reductions in policy shareholdings tend to repurchase their own shares. Pressure to reduce policy shareholdings will increase further this year when share prices are rising.
• In order to verify whether institutional investors’ voting criteria and voting behavior are consistent, the reasons for supporting/opposing individual proposals should be disclosed in more detail.
• Investors are expected to base decisions on performance, as voting advisers returned to policy of recommending voting against top management in companies with lower-than-standard ROEs due to recovery from COVID-19.

• Delta Djakarta (DLTA IJ) is a cheaper small-cap option to play the recovery of tourism in Indonesia instead of Multi Bintang Indonesia (MLBI IJ) 
• It’s 5Yr/10Yr average ROCE is 22%/29% lower than MLBI IJ due to the high net cash on the balance sheet, ~25% of the market capitalization.
• Trading at 11x PE and 10% dividend yield on normalized earnings (Assuming a 110% payout ratio since the 5 Yr average is 120%), the stock is super cheap.

• The company’s international sales growth is somewhat of a hidden asset, as the arena is underserved.
• Lululemon’s regional brand exposure is expanding with new store openings.
• The stock is theoretically undervalued, which is why the stock is undervalued.

• It remains to be seen whether domestic institutional investors will support shareholder proposals on shareholder returns, which had low approval rate among domestic institutional investors at the previous year’s AGM.
• If domestic institutional investors are voting in favor of shareholder proposals, it wouldn’t be surprising if more companies passed them. It’s doubtful that passive funds have the same voting practices.
• There is concern about critical tone regarding the legally binding nature of the resolution of AGMs, which appears to come from companies feeling threatened by declining shareholdings by banks/business partners.

• Yesterday, Rakuten Group (4755 JP) announced that its consolidated subsidiary, Rakuten Securities, has applied for a listing on the Tokyo Stock Exchange.
• Rakuten Securities has long-term growth potential through leveraging Rakuten’s ecosystem for steady securities account growth and exploring cross-selling opportunities for related services.
• While the business seems promising, there may be concerns regarding its valuation, given its previous high trailing PE of 43.0x.

• Hyundai G.F. Holdings will conduct a tender offer to Hyundai Green Food and Hyundai Dept Store shareholders. The tendering period is August 11-September 1.
• The target volume is 10,125,700 (Hyundai Green Food) and 4,669,556 (Hyundai Dept Store), corresponding to 29.89% and 19.95% of the outstanding shares, respectively.
• We should approach this event trading with caution, taking into account the risk of an unhedged setup while monitoring the potential widening of the spread opening during the tendering period.

• Multi Bintang Indonesia (MLBI IJ) is Indonesia’s leading beer company, with a marketshare of 50% by volume. The company is 89% owned by Heineken. 
• The company has maintained an average 5 Yr/10 Yr ROCE of over 72%/82% and paid out 80-100% of its profits as dividends.  It is also net cash.
• The stock boasts a 6.5%-7% dividend yield and trades at 14-15x PE if profits normalize due to increased tourism in Indonesia, where we believe most of the demand is. 

• China accounts for over half of the automaker’s global sales.
• There is also potential for Chinese brands to encroach on European markets.
• Tesla’s valuation could be impacted by protectionism and nationalism, with questions over how China will tolerate overseas competitors in its electric vehicle market.

• The stock has surged by more than 60% since the turn of the year.
• The company’s acquisition strategy has resulted in significant market share and an ever-improving profit & loss statement.
• The stock’s PEG ratio of 0.26 speaks volumes.

• Every now and then, you get a tender offer proposal which is truly offensive. This is one. 
• Yes, existing ICE-related autoparts makers are under the cosh as they face down obsolesence induced by competition from EVs. Fuel tank makers like Yachiyo are at risk. 
• But this bid started at <0.3x book, and ended at <0.5x book, despite significant net financial assets and lots of unrecognised DTAs. 

• Hero Motocorp (HMCL IN)  & Harley Davidson (HOG US) launched their collaborative creation, the Harley-Davidson X440, in India.
• While this is a step in the right and anticipated direction, there are potentially grave mistakes that need to be corrected.
• For HOG, there is more to lose than to gain from this development. Additionally, Eicher Motors (EIM IN) moat around the brand and a strong riding culture is likely underrated.

• Q2 deliveries were solidly higher versus expectations, thanks to Tesla’s 11th hour fire sales on top of fire sales to move sluggish inventory. 
• The trouble is, this likely slashed already shrinking profitability while excess inventory continued to grow.
• Margins & profits probably can’t recover as more aggressive measures already are needed in Q3 just to sustain sales.

• We are bullish on Lawson and see fair value at Y7,500 per share based on 3% FY2/25 DPS of Y225/share
• The domestic convenience store business is recovering post pandemic leading to a possible earnings beat
• The market remains sceptical of mid-term growth drivers like Seijo Ishii and China expansion plans

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Natura’s ESG as “Strong”, in line with its “Strong” Environmental and Social scores. The company has an “Adequate” score for the Governance pillar. Controversies are “Immaterial” and Disclosure is “Strong”. 

• Sido Muncul (SIDO IJ) performance during COVID was stellar and posted record high revenues and earnings without sacrificing margins. 
• FY 22’s result was the first time in many years that both revenue and net income decelerated. 
• Current valuations at 19x PER and 7x PBR are not cheap, historically or relative to their peers. 

• Although more companies have recently started to use their cash for shareholder returns, this is still not enough in terms of the dividend payout ratio.
• Both sales and profits of companies haven’t increased by that amount for past 10 years. The question for the future is whether the cash on hand can be used effectively.
• It is hoped that the quality of listed companies on prime market will improve as a result of M&As involving industry restructuring, the dissolution of parent-subsidiary listings and going private.

• 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 and peer comparison in our earlier notes. In this note we will talk about valuations.

• We finally got to 80 Hang Seng Index constituents in June. Now comes the next step of moving up to 100 index constituents though there is no timeline for completion.
• The conclusions of the market consultation on the inclusion of foreign stocks in the Hang Seng Index should be announced soon though implementation could start only in December.
• We highlight 10 potential inclusions to the index with passive trading impact varying from 1.5-5.6 days of ADV. There are large shorts on some of the stocks.

• Costa Group Holdings (CGC AU) listed in 2015 when Paine & Partners sold 40% of its stake in the company.
• Paine Schwartz Partners bought a 13.84% stake last year, increased it in March, and has now made an offer to buy out the remaining shares at A$3.5/share in cash.
• Short interest was over nearly 11 days of ADV to cover and short covering could take the stock higher sooner. This is a buy here.

• We spoke with the management of Perfect Medical Health (1830 HK). The key highlight is a steady recovery for FY24e and an overall expansion of 60% in three years. 
• Expansion plans in HK (75% of revenue) have commenced, with ten centers opening over the year, adding to the existing 22 HK centers (one already opened in June 2023).
• They also highlighted an aggressive long-term goal of making one bn HKD of profit by FY26 (Mkt cap: 4.8 bn HKD) and short-term guidance of 30-40% profit growth for FY24e. 

• Kao has the lonest period of consecutive earnings growth in the Nikkei’s new “Consecutive Dividend Growth Stock Index”
• With a 2.8% yield and a long history of raising its dividend, Kao should definitely be on the income investor’s radar screen
• Despite the recent underperformance of the stock (-4% ytd), Kao does not represent compelling valuations

• Rakuten Group (4755 JP), having experienced an 80% decline in value over the last 8 years, now emerges as an enticing prospect for value investors.
• The combined fair value of Rakuten’s Cards, Bank, and Mobile businesses now surpasses 100% of the company’s market capitalization.
• Rakuten Ichiba, valued at ¥600bn, appears significantly undervalued when compared to ZOZO Inc (3092 JP) and MonotaRO Co Ltd (3064 JP), which hold approximately 2.0x Rakuten Ichiba’s valuation.

• Yachiyo Industry (7298 JP) has recommended Honda Motor (7267 JP)’s pre-conditional tender offer of JPY1,390 per share, a 17.5% premium to the undisturbed price.
• Post-Completion, Honda will transfer a 81% stake to Samvardhana Motherson Automotive Systems Group BV. The pre-conditions relate to various country approvals (China, the US, Brazil, and India).
• The offer is expected to open in October. Achieving the 66.67% minimum ownership ratio requires a 32.6% minority acceptance rate which is doable as the offer is reasonable.   

• Costa Group Holdings (CGC AU)  has disclosed an indicative non-binding proposal from Paine Schwartz Partners at A$3.50 per share (A$3.54 including potential interim dividend).
• The Board has granted eight weeks of non-exclusive due diligence. The due diligence, which started on 6 June, ends on 1 August.
• The offer price is attractive compared to peer multiples and historical trading ranges. At the current price of A$3.35, the gross spread is 4.5% (5.7% including dividend).

• Key customers & their retail partners battling excess inventory, waning consumer demand, and market share losses in certain geographies
• Plans for capacity expansion amid demand uncertainties and alt data and macro picture may prove aggressive and along with risks of reshoring/nearshoring & friend-shoring may prove margin dilutive
• Consensus expectations for 2H23 and 2024 appear overly optimistic and valuation is not cheap given the growth profile

• Fenbi Ltd (2469 HK) is a newly listed China edtech company that focuses on tutoring for China civil servant exams.  
• The company’s share price was caught by a perfect storm in June, dropping by as much as 70% during the month.
• Very interesting opportunity to have exposure to a quality company in a sector that is very different from K12 tutoring.  

• We expect PDD to report 1Q23’s revenue and non-GAAP net income (5.4%) and (5.6%) vs. consensus, respectively.
• Taobao/Tmall and JD launched more subsidy campaigns in 2Q23 to strengthen their low-cost mindsets among customers, while PDD remains to be more restrained, which might lead to decelerating top-line growth.
• We cut PDD’s FY23 EPS by 3.7% and TP to US$ 88 on slower 2Q23 top-line growth and increasing Temu costs, but maintain its BUY rating.

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety. 
• Post the interim results, we provide short updates on each company and links to our latest work on them. 
• Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).

• Alibaba’s new chairman decides to provide logistics service to outside customers.
• We believe Alibaba is following JD Logistics, as both companies have large retailer bases.
• We suggest buying JD Logistics the role model instead of Alibaba the follower.

• Back on the 28 March, United Malt Group Ltd (UMG AU) entered into a NBIO with Malteries Soufflet at an Offer Price of $5.00/share, a 45.3% premium to undisturbed.
• After a lengthy due diligence process, the two companies have now entered into a binding agreement of A$5.00/share, by way of a Scheme. UMG’s board has unanimously recommended the bid.
• The Offer is subject to FIRB and other regulatory approvals. Malteries Soufflet and UMG are the second and fourth-largest maltsters in the world.

• Senco Gold (0655443D IN) ‘s long awaited IPO is scheduled to open this week.
• The company is the largest organized retail jewellery player in the East and has a pan India presence. 
• A look at its IPO filing and current financials reveal several key takeaways, including ongoing litigations, inability to generate cash and register key trademarks, etc.

• Great Wall Motor Co. Ltd. (601633.SH +2.50%) said on Wednesday that it will enter the Vietnamese market in August with its Haval H6 hybrid model, while a broader plan to build an assembly plant for new-energy vehicles in the country is set for 2025.
• The Haval H6s will initially be exported to Vietnam from its manufacturing facility in Rayong, Thailand, the Hebei-based carmaker said earlier.
• Vietnam is the fourth-largest auto market in the Association of Southeast Asian Nations (ASEAN) region after Indonesia, Thailand and Malaysia, according to 2022 passenger car sales figures released by the ASEAN Automotive Federation.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Faurecia’s ESG as “Strong”, in line with the Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.

• Given the history of changes in the external environment that have changed managers’ mindsets all at once, inflation and rising foreign shareholdings are likely to be the catalysts for change.
• Given that some companies still do not show capital efficiency as a KPI, it is dangerous to expect much from individual companies’ efforts to improve capital efficiency.
• Whether or not to engage in management improvement is a matter for managers, but the catalyst is often an increase in foreign shareholdings. Changes are taking place in some companies.

• There could be 25 inclusions, including many new listings, to the Hang Seng Composite Index (HSCI) in September. Another 6 stocks are close adds on liquidity and market cap.
• We see 19 potential deletes and 2 close deletes on market cap, 5 potential deletes on prolonged trading suspension, and 2 close deletes on liquidity.
• There are 8 potential deletions where holdings via Stock Connect are more than 20% of shares outstanding. There could be some unwinding of positions over the next couple of months.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 111 Inc (YI US), United Malt Group Ltd (UMG AU), Chindata Group (CD US), ENM Holdings (128 HK), Tesserent Ltd (TNT AU), Poly Culture. 
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Toyo Construction (1890 JP), Musgrave Minerals (MGV AU), Metro Pacific Investments Co (MPI PM), Kenedix Residential Investment (3278 JP).

• The AFR reports that United Malt Group Ltd (UMG AU) has received a binding offer from Malteries Soufflet at A$5.00 per share, a 13.6% premium to the last close price.
• The high spread reflected the risk of a no-deal or price cut due to the weak 1HFY23 results and lack of updates since the end of the 10-week due diligence.
• The offer is conditional on shareholders and FIRB approval. Shareholders will be supportive and breathe a sigh of relief at receiving a binding offer with unchanged terms. 

• While having a slow FY23, Bosideng International Holdings (3998 HK) is well-positioned to capture the rebound in down apparel sales growth as pent-up demand is released.  
• We also expect a recovery in margin, further improvement in channel efficiency and operating leverage from cost control will add to earnings momentum. 
• Management expects revenue growth will at least sustain at the rate in the last 5 years. The stock’s valuations are cheap when compared with growth outlook and global peers. 

• General Mills has just reported its full fiscal year results and investors are not impressed.
• Expectations of lower organic revenue growth and uncertainties around profitability would likely continue to weigh on the share price.
• Long-term investors, however, could take advantage of this near-term dynamic while enjoying the higher dividend.

• Ace Hardware Indonesia is starting to see the seeds of recovery come through in SSSG through April and May and should get a further boost from its BOOM sale.
• The company has resumed its store opening with plans for 13 new stores this year and a new store concept being rolled out across existing stores providing a potential boost. 
• Ace Hardware Indonesia has a more cohesive digital strategy and has taken on its first brand ambassadors to boost millennial demand. Valuations remain attractive. 

• We are more positive on G6’s potential due to attractive pricing and higher conversion rate brought by nationwide availability of display vehicles. 
• The success of G6 will add visibility of its growth due to the shared architecture.  We reiterate a rebound of sales momentum starting from 2Q23, driven by: 
• 1) increased order intake of P7i and G6; 2) faster channel expansion than its peers. We raise our TP to US$ 13.7. Our TP implies 2.5x PS.

• 8 years after the introduction of Corporate Governance Code and “Ito Report,” which showed the relationship between P/B and ROE as the cornerstone of management, few companies improved their management.
• Companies with sustained share price growth were executing excellent growth policies and IR disclosures that were likely learned from their engagement with overseas investors.
• It takes a certain period of time for a company to learn through engagement, for the results to show up in improved management, and for other investors to notice it.