Consumer

• Sumber Alfaria Trijaya (Alfamart) continues to book solid growth in its core mini-market business but is now pushing harder with both larger format Alfamidi and Lawson convenience stores formats.
• 89%-Owned Midi Utama Indonesia (Alfamidi) recently announced a rights issue to finance the expansion of Alfamidi and Lawson underpinning its more aggressive expansion plans. 
• Sumber Alfaria Trijaya booked solid 1Q2023 numbers for its core business and continues to grow its digital connections and collaborations as an integral offline leg of the digital economy. 

• We cautioned investors about the excessive optimism around the company’s growth potential a few months ago.
• Its growth momentum has since rapidly diminished, at a pace that also surprises us and points to a dimmer outlook.
• Despite rounds of downward earnings revision, we still see further downside risks to earnings. We expect 20-30% decline in share price by end of this year.

• The gaming equipment and systems leader offers line of new Dragon themed slot machines for upcoming Year of the Dragon as spear point of expanded Asian goals.
• Acquisition of Israel’s NeoGames at US$1b follows failed bid last year to acquire Playtech. Move will strengthen digital footprint for sports betting and iLottery.
• We have been bullish for five years on ALL as its shares have outperformed the market.

• On 27 June, Axel Johnson said it had crossed the 30% threshold and would launch a mandatory offer for all shares of Dustin Group AB (DUST SS) at SEK 28.5/share
• Axel Johnson doesn’t seem particularly interested in completing a takeover, rather being able to increase its stake after offer completion. The offer document isn’t even available in English.
• The offer represents -4.2% to 1-month VWAP,  0.31x EV/Fwd sales (vs. 0.66x average since IPO). I wouldn’t get involved unless the share price drops below SEK 28.5.

• While traditional luxury brands may encounter challenges as affluent Chinese consumers shift to local high-end brands, there are still opportunities within small niches in the luxury sector.
• Luxury travel, driven by trends like micro trips and the increasing number of High-Net-Worth Individuals, represents a potential area of growth in the luxury sector.
• The thriving luxury travel market opens up investment potential in sectors such as luxury hotels and premium cosmetics.

• Times Neighborhood (9928 HK) is a China property management company headquartered in the Big Bay Area, trading at 3x 2023 P/E and below net cash.
• China property management as a sector has lost most of its value given close relationship with China property.  However, there are still some investable property management companies.
• Upcoming catalysts include interim results in August, potential favorable policies in China property sector, and potential shareholder actions.  

• We see 7 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 9 stocks from SmallCap to MidCap, and 10 stocks from MidCap to SmallCap.
• The expected migrations from SmallCap to MidCap have outperformed the other migrations and some stocks have seen large price moves over the last couple of weeks.
• Active managers would have started realigning their portfolios and that could continue for a couple of weeks. Unwind long positions into strength.

• Prices have been slashed and slashed again, on top of expensive incentives like free charging, cheap leases, & juicy subsidies. 
• But Tesla has been unable to ease elevated inventory in key markets.
• This signals even record deliveries will produce lower quality revenue and disappointing margins & profits for the second quarter.

• Following the additional acceptance period and settlement, XXXLutz has increased its stake up to c.94.65% of Home24 (H24 GR).
• The Bidders, together with XXXLutz KG, have entered into a delisting agreement with home24, at the same time they will launching a delisting offer, at the prior offer price, €7.5/share.
• The offer price was fair in my view. Liquidity will become razor thin post offer and there will be no domination and P&L transfer agreement. Tender regardless of  acquisition price.

• The TSE is in a long-term battle to improve the quality of the prime market while maintaining lax listing standards that do not fit the prime market concept.
• If passive funds move to JPX Prime 150 Index, which would increase the divergence between stock prices of high quality and low quality companies, it might motivate the companies more.
• If there is little difference between performance of TOPIX and JPX Prime 150, the passive funds will be satisfied with this index, and the TOPIX engagement problem will be eliminated.

• After shares were suspended on the 20 June, art and culture play Poly Culture Group Corp H (3636 HK) has announced a pre-conditional privatisation at HK$8.88 per H-share.
• This Offer, from SOE Poly Group, is by way of a Merger by Absorption, which incorporates a Scheme-like vote. There is no tendering condition.
• The premium to last close is 77.6%; and a 112.5% premium to the five-day closing average. 

• Perfect Medical Health (1830 HK) reported a steady earnings growth of 3.5% YoY for FY23 despite the interruption of operations in China.
• Since its listing, the company has consistently maintained a ROCE of >25%, with FY23 being no exception. Net cash and investments at 738 mn HKD represent 18% of market capitalization. 
• The company declared a final dividend of 17 cents (Full year dividend FY23: 30 HKD cents Vs. FY22: 25 cents), representing an 8% yield with a 118% payout ratio. 

• In the past week, several leading Korean instant noodle makers including Nongshim, Samyang Foods, and Ottogi announced that they will be reducing instant noodle and snack prices starting July.
• This government pressure to lower instant noodle and snack prices are likely to negatively impact companies including Nongshim, Samyang Foods, and Ottogi Corp.
• We believe the share prices of the three major instant noodle makers including Nongshim, Samyang Foods, and Ottogi could face further underperformance relative to KOSPI in the next 3-6 months. 

• While many listed companies have already established formal standards, TSE plans to establish rules with higher hurdles to ensure the independence of listed subsidiaries and other dependent companies.
• It would make more sense for TSE to question why the parent company maintains the subsidiary’s listing, and minority shareholders of both parent and subsidiary would be more interested.
• Certainly TSE’s “independence criteria” for independent directors is loose, which has negatively impacted the operation of the Board of Directors, so it would be effective to re-establish the criteria.

• Dali Foods Group (3799 HK) disclosed a scheme privatisation offer from the founder at HK$3.75 per share, a 37.9% premium to the undisturbed price (HK$2.72 on 20 June).
• Key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). No independent shareholder holds a blocking stake. 
• The price is final. While the offer price is unattractive compared to peer multiples and historical share prices, this looks like a done deal. 

• With a couple of trading days to the end of the review period, we do not forecast any changes for the Philippines Stock Exchange PSEi Index (PCOMP INDEX) in August. 
• However, there could be an ad hoc change if Metro Pacific Investments Co (MPI PM) is delisted. The stock now trades above the tender offer price.
• Bloomberry Resorts (BLOOM PM) is the highest ranked non-constituent and the stock has started to move higher again, likely driven in part by potential index inclusion.

• Poly Culture Group Corp H (3636 HK) announced a pre-conditional privatisation offer from Poly Group at HK$8.88 per H Share, a 77.6% premium to the undisturbed price of HK$5.00.
• The pre-condition of regulatory approvals is a formality as Poly Group is an SOE. The key condition is approval by at least 75% of independent H Shareholders (<10% rejection). 
• The offer price is final. There is no minimum acceptance condition. No independent H Shareholder holds a blocking stake. The offer is attractive, waving the way to success.  

• Fast Retailing’s stock price is overvalued and faces downside risks from its Q3 results (maybe), China outlook (perhaps), and index rebalancing (most likely).
• Fast Retailing has enjoyed a premium over its global peers largely due to its higher exposure to China growth. Any wobbles here could be negative catalyst
• There is also a technical issue that will likely cap the weighting of Fast Retailing in the Nikkei 225 = index selling pressure

• Late last night (27 June), Dali Foods Group (3799 HK) a leading branded F&B play, announced a privatisation Offer by way of a Scheme from its founder/chairman/CEO Xu Shihui.
• The cancellation price, which has been declared final, is HK$3.75/share, is a respectable 37.87% premium to undisturbed, but… 
• Xu and concert parties control 88.89%, with disinterested shareholders holding 11.11%, therefore a blocking stake at the Scheme meeting is just 1.11% of shares out. 

• The few positive disclosures suggest that there are few positive companies. The question is how much progress companies will make in efforts on gender gap disparity over the next year.
• To eliminate this gap, companies need to quickly realize that human resources are valued fairly as human capital, without gender distinction, and used as a resource for growth.
• Now that stock prices have become a key measure of management, pressure from investors influencing stock prices is more effective. Deep analysis of human capital disclosures is required of investors.

• PT Surya Citra Media had strong start to the year in terms of audience share but advertising revenues were slightly disappointing with a poor showing for the overall market.
• Advertising revenues were impacted by a slowdown in e-commerce activity but overall the market adjusted downwards with 2Q expected to be slow but with a strong recovery expected in 2H2023.
• PT Surya Citra Media continues to invest in original content but less aggressively, with cashflows expected to be stronger in 2023. There are also potential catalysts ahead from listing subsidiaries. 

• Receding credit risk and a more predictable inflationary environment will likely deliver tailwinds to cyclical stocks.
• The U.S. Government is set to throw its support behind the EV industry, and Ford might be a primary beneficiary.
• However, we are giving the stock the benefit of the doubt.

• Manchester United plc blitzed past its fiscal third quarter revenue estimate.
• However, key risks have surfaced, and limited transparency exists regarding its pending takeover.
• Manchester United’s brand engagement is scaling due to its growing YouTube and Instagram exposure.

• The review period for the LQ45 Index ends on 30 June. The changes should be announced in the last week of July, becoming effective after the close on 31 July.
• Based on the index methodology, there could be up to 5 changes at the rebalance. Plus there will be capping changes for Bank Rakyat (BBRI) and Bank Central Asia (BBCA).
• The impact of passive trading will be higher on the deletions than the inclusions since lower liquidity stocks are replaced with higher liquidity stocks.

• On the 19 April, Silk Laser Australia (SLA AU), an operator of specialist clinic networks across Australia, announced a $3.15/share NBIO from Wesfarmers Ltd (WES AU)
• Ahead of the expiry of Wesfarmers’ due diligence, EC Healthcare (2138 HK) snuck in a $3.35/share NBIO. Wesfarmers opted out of its matching rights. Although due diligence remained ongoing.
• SLA has now announced a binding implementation agreement with Wesfarmers at A$3.35/share. No word, as yet, from EC Healthcare. Nor is one expected.

• Silk Laser Australia (SLA AU)‘s binding offer from Wesfarmers Ltd (WES AU) is at A$3.35 per share which is in line with EC Healthcare (2138 HK)’s non-binding proposal.
• While EC Healthcare is a relative minnow, it secured HK$1 billion (A$191 million) financing in May, which suggests a chance of returning with a higher offer. 
• If EC Healthcare deployed the HK$1.0 billion loan for the acquisition, it would imply a price of A$3.60 per share, 7.6% above Wesfarmers’ offer.  

• Yamaha Motors had blow-out 1Q results. The 20% share price rally since then suggests much of the good news is in the price
• We are concerned that deteriorating macro-economic conditions in the US due to higher interest rates could derail demand for marine engines and boats
• The stock price of US peer, Brunswick has already started to correct. Yamaha now trades at a premium valuation

• Luyuan Group (LUYUAN HK), a founder-led company and a pioneer in the e-bike industry in China, is looking to raise capital via the upcoming Hong Kong IPO. 
• Luyuan Group (LUYUAN HK) is an extremely ambitious manufacturer of electric bicycles and electric motorcycles in China. ”Luyuan” is a trusted and well-known brand in Asia and worldwide.
• I like profitable growth at scale and believe Luyuan Group IPO would be attractive to investors, given the company’s 40% y/y revenue growth and valuable brand.

• Filipino B2B e-commerce marketplace Shoppable Business has secured US$1.15 million in an oversubscribed pre-seed funding round, co-led by Foxmont Capital Partners and Seedstars International Ventures.
• An unnamed global network of angel investors also participated.
• The startup will use the funds to grow its business development team, develop more products and features, and expand into new regional markets.

• Qualitative factors and key metrics suggest that Monster Beverage Corporation presents a GARP opportunity.
• The company is growing at scale and holds down a significant part of the energy drinks market.
• The generational consumer shift into stimulated drinks lends researchers much scope to delve into the prospects of Monster Beverage Corporation (NASDAQ:MNST).

• Daniel Zhang stepped down from the Chair and CEO and moved to be the head of cloud intelligence.
• The retail focus will move from physical store and branded product to a platform for third-party retailers.
• We believe the strategy change is correct in the weak consumption market.

• Taste Gourmet (8371 HK) reported earnings of 68 mn HKD for FY23 (including impairments of 3.2 mn HKD). Adjusting for impairments, earnings were in line with our estimates.
• The company signed ten new leases in HK, which are expected to commence over the next 5-6 months taking the total restaurant count in HK to 49. 
• Trading at 5.6x PE FY24e with a dividend yield of 10.7% based on a 60 payout ratio, we see a further inflection in earnings in FY24 with new restaurant openings.

• The “appointment of one female director at prime market company,” which 80% of companies have achieved, is an easy goal, but it’s impossible to ensure board diversity with one woman.
• There is concern that this “effort target without penalty” will give companies an escape route for not promoting board diversity, even with the lax target of 30% by 2030.
• Half of companies that set goals regarding female employees, but a few companies set goals regarding the %/number of board members and disclose “diversity” in skill-matrix for appointing board members.

• Ricegrowers Limited, trading as SunRice (ASX:SGLLV), has reported its FY23 results and provided some outlook commentary for FY24.
• The FY23 result delivered adjusted revenue growth of 23%, EBITDA growth of 28%, NPAT growth of 18% and EPS growth of 14%, all above RaaS’ estimates.
• The full-year dividend was raised from $0.40/share to $0.50/share (fully franked yield of 7.3%) and we view this level as sustainable near- term given outlook comments and have increased our assumptions accordingly. 

• RMB dual counter started trading. Great Wall Motor (2333 HK)‘s A-shares trade at 3x the multiple. THAT is a big discount to harvest. 
• China Feihe (6186 HK)‘s CFO exits an indirect stake of 6.38% around Feihe’s all-time low. 
• EcoPro Co Ltd (086520 KS) has swatted aside analyst downgrades and the indictment of its chairman to touch an all-time high

• 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, Tryt Inc (9164 JP) launched its Japan IPO, while we also looked at Big C Supercenter (BIGC TB)‘s past performance. 
• On the placement front, in India the market hitting all-time highs appears to have driven a flurry of blocks.

• Over the last 5 years, share prices of major terrestrial TV broadcasters have substantially underperformed TOPIX, in large part due to the unprecedented, challenging environment as annual data by Dentsu showed total internet advertising expenditures exceeded total television media advertising expenditures in 2019 for the first time ever, and the annual MIC survey on average time spent using main media showed internet usage time exceeded TV real-time viewing in 2020.
• However, this underperformance trend has begun to change in 2023, as the stock market begins to discount the potential to commercialize the IP value of broadcaster content libraries.
• In February, USEN-NEXT HOLDINGS announced plans to acquire Premium PlatformJapan, Inc. (PPJ), the operator of “Paravi” subscription video distribution service.

• Since a few companies include ROE and ROIC as KPIs in their mid-term management plans and present compelling measures, now is the time to promote shareholder returns in short-term measures.
• Companies that expect stock price to rise should ensure that they make progress on the issues that overseas investors are focused on (improving profitability, corporate governance, capital allocation and disclosures).
• Companies with foreign ownership in 30% range are expected to work on issues of interest to overseas investors, while companies with low foreign ownership take indifferent response to shareholder proposals.

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

• Oriental Watch (398 HK) reported a steady result, with 2023 earnings <18% YoY ( adjusted for one-time gains in 2022 <5% YoY), which was broadly in line with our expectations. 
• The DPS for FY23 was 61 cents (FY22: 74 cents) lower than our expectation of 65 cents, a 100% payout ratio equating to a 14% dividend yield.
• Cash at 1.07 bn represents > 50% of market capitalization. We believe the management will dip into reserves when it requires to manage a decent payout for shareholders.

• The review period for the Nikkei 225 (NKY INDEX) September rebalance ends end July. We take another stab at identifying potential inclusions and exclusions.
• There will be a big impact on the potential index changes. Fast Retailing (9983 JP)‘s index weight could be capped and there will be a big funding trade. 
• There are many things to watch out for that could affect the impact on the inclusions, including stock splits among potential adds and stepwise inclusion of stocks in the index.

• The ES50 Index is one of the most highly-tracked indices in mainland Europe and the annual index review takes place in September.
• Historically, these Rebalance events have had significant volume and ADV impact and they generally involve large cap names. 
• In this insight, we take a look the names leading the race to become ADDs/DELs for the upcoming index review in September 2023.

• Hero Motocorp (HMCL IN)  is undergoing a course correction, acknowledging its past mistakes.
• Multiple levers on the horizon arguing for a change of stance on HMCL.
• The stock is reasonably valued, and institutional holdings are at a 12-quarter low, signaling the need for attention.

• Melco has lagged other Asian operators as Macau recovery pits up speed. Concerns over debt levels continue.
• Fair value estimated slightly above current trade largely reflecting 2022 results.Maca
• Macau and Manila tracking positive, Cyprus could provide accretive EBITDA before end of this year and beyond/

• A legal conflict over the brewing method has emerged between Seven Broi Brewery, the former manufacturer, and Daehan Flour Mills, the trademark holder.
• The court’s decision on Seven Broi Brewery’s injunction request could impact the production and sale of Gompyo Wheat Beer, with a competitor ready to enter the market.
• This incident falls under the category of ‘Anti-competitive Practices’ risks, and currently, Daehan Flour Mills’ company risk is rated at a medium level of 1.3.

• DoorDash delivered an all-around beat in the previous quarter.
• DoorDash’s expansion into new verticals, particularly the grocery delivery sector, yielded positive results, with improved product quality and a wider selection of offerings.
• The company’s focus on enhancing the customer experience, including accurate order fulfillment and convenient delivery options, contributed to the overall success.

• Over the last 5 years, share prices of major terrestrial TV broadcasters have substantially underperformed TOPIX, in large part due to the unprecedented, challenging environment as annual data by Dentsu showed total internet advertising expenditures exceeded total television media advertising expenditures in 2019 for the first time ever, and the annual MIC survey on average time spent using main media showed internet usage time exceeded TV real-time viewing in 2020.
• However, this underperformance trend has begun to change in 2023, as the stock market begins to discount the potential to commercialize the IP value of broadcaster content libraries.
• In February, USEN-NEXT HOLDINGS announced plans to acquire Premium Platform Japan, Inc. (PPJ), the operator of “Paravi” subscription video distribution service.

• Campbell Soup delivered a mixed result in the recent quarter, with revenues below market expectations but it managed to surpass the analyst consensus in terms of earnings.
• Organic net sales climbed 5% year on year in the third quarter, with favorable inflation-driven net price realisation offset in part by volume and mix decreases.
• We give Campbell Soup Company a ‘Hold’ rating with a revised target price.

• The Hong Kong Stock Exchange (HKEX) launched its new dual-currency counter Monday, and the first batch of 24 stocks had a total turnover of 163 million yuan ($22.9 million) on the first day.
• The Hong Kong Dollar-yuan dual-currency counter allows investors to trade and settle designated shares in Hong Kong or mainland China currency, offering the potential to access new liquidity.
• The model also lays the groundwork to support the next phase of development to allow investors from the Chinese mainland to trade Hong Kong-listed yuan, or renminbi, securities through the southbound Stock Connect, the HKEX said.

• 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. Or pledging. However, such disclosures are by no means an absolute.
• The key stock mentioned in this regular insight is China Feihe (6186 HK)

• Nitori, Japan’s largest furniture retailer, once again grew consolidated revenues in its extended financial year to March.
• Despite the increased costs of imports, profits also rose, although net profits saw a rare decline.
• The group still has strong growth potential: it continues to diversify, including into apparel, expand its omnichannel operations and is now building more stores overseas. 

• We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .
• Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. 
• We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.

• China Dongxiang (3818 HK) posted good FY22/23 result, supporting by sharp recovery in its investment portfolio contribution. Its apparel business also witnessed narrowing losses.
• It trades on 0.2x P/B, with most of book value being cash and investment portfolio. It is true that it deserves a discount but this is just too deep.
• Fading pandemic impact should be positive to CNDX’s apparel business – it has already witnessed a 5.6pp increase in offline sales. More brand promotion should be a positive driver.

• Long expected consolidation is arriving to UK car retailers. Alpha Auto agreed to acquire  Lookers PLC (LOOK LN) via scheme at 120p/share, c.£465.4 million, 35.3% premium, 8.4x Fwd P/E.
• The sector appears materially undervalued, with Lookers before announcement on 6.2x Fwd P/E, 4% FY23e yield (4x cover). My fair value estimate is 143p/share (multiples and DCF), 19% above offer price. 
• Spread 1.17%/4.32% (gross/annualised, assuming settlement around 1 October). Top shareholders have only signed letters of intent (40% aggregate). I’d be long in case of sweetening. VTU LN could be next.

• Xiamen Yan Palace Bioengineering (1951686D CH) is looking to raise around US$200m in its upcoming Hong Kong IPO. The deal will be run by CICC and GF Securities.
• Xiamen Yan Palace Bioengineering focuses on the development, production and marketing of high-quality modern edible bird’s nest (EBN) products.
• According to Frost & Sullivan (F&S), the firm is the largest EBN product company globally in terms of retail value between 2020-2022, with a market share of 4.1%.

So far in 2023 paragon has sold its semvox subsidiary, fully redeemed its Swiss franc (CHF) bond and is preparing for the remainder of the accelerated €25m Eurobond partial redemption, while delivering positive Q123 results. Once the Eurobond payment is complete, investors’ focus should return to the equity investment case. Risk reduction of the business model and a clear growth strategy still appear underrated by the market.

• There is concern about how well one female board director’s opinion will be respected in management discussions among the large number of male board members.
• Since the pool of female managers in companies hasn’t grown, Corporate Governance Code will remain an “effort target” rather than a specific numerical standard for the ratio of female executives.
• The government does not want to spark discussion of a “quota system” in the “political” field, so discussions of introducing a “quota system” for female board members are not realistic.

• Big C Supercenter (BIGC TB)  is looking to raise around US$1bn in its upcoming Thailand IPO. 
• Big C is engaged in modern retail business and wholesale and trade support business. As of Dec 22, it had 1,651 retail stores in Thailand
• In this note, we talk about the not-so-positive aspects of the deal.