Consumer

• Daniel Zhang’s transition to a less prominent role within Alibaba’s Cloud business, after previously serving as CEO and Chairman of Alibaba Group (9988 HK), could be seen as a demotion.
• We suspect that there could be some government influence on these proposed leadership changes.
• Nonetheless, the situation is not encouraging, especially as the company enters a turbulent phase with multiple units poised to pursue IPOs in the near future.

• A capital increase event of this size allows for a classic arbitrage trading strategy involving the acquisition of subscription rights and the simultaneous sale of an equal amount of SSF.
• We can aim to profit from the price movements between warrants and SSF during the warrants trading period by getting out of the positions before the trading period ends.
• We will also likely encounter a significantly juicy price difference between warrants+subscription and SSF, given a discount rate of 25% with an enormous capital increase rate, 

• CJ CGV announced a massive capital increase plan of nearly 1 trillion won which includes a rights offering of 570 billion won and 450 billion won of in-kind investments.
• This capital increase is likely to negatively impact CJ CGV’s share price in the coming months. Through this capital raise, the existing shareholders are likely to be diluted significantly. 
• The expected rights offering price is 7,630 won, which is 47% discount to its current price.

• AliExpress has prioritized South Korea. We expect AliExpress’ South Korea GMV to increase 150%~ YoY to about US 1bn in 2023, or about 3% of Coupang’s. 
• We found that AliExpress has more overlap with CPNG’s key products rather than Naver. The average price of recommended items on AliExpress was 65%~ cheaper than CPNG in our sample; 
• We lower our CPNG GMV est. by 2%/3% in 2023/2024. We downgrade CPNG to SELL and lower its TP to US$ 15.1. 

• Initial positive study by legislative group completed in 2021. Regulatory follow up could move faster than generally believed igniting a process for market leaders in Asia.
• Initial study recommended Bangkok and 22 regional, smaller scale properties including world famous resort area Phuket.
• Baseline tourism to Thailand in 2019 rated as the 5th largest on the globe.

• Poised for Profitability rebound in FY3/25 putting Nikon on track to meet mid-term plan targets.  
• ArF Unit Expansion as Intel benefits from government fiscal incentives to build fabs in EU and US. 
• Based on the FY3/26 plan for EBIT of Y70b, the stock’s theoretical valuation would reach around Y2,200/share

• During 4QFY03/2023 results release, Nikon announced a medium-term target of revenues of ¥700bn, OPM of 10%+ and ROE of 8%+ by the end of FY2025E (FY ended 31st March 2026).
• Our analysis (with conservative assumptions) suggests that the company could easily achieve its medium-term target despite the company expecting to see its earnings declining in FY03/2024E.
• Nikon is trading at a discount to its Japanese peers Canon and Konica Minolta and we think the market is clearly undervaluing the company as a pure-play Imaging products player.

• SML Group (SMLGZ HK) is looking to raise about US$200m in its upcoming Hong Kong IPO.
• SML Group (SMLG) is a vertically integrated digital identification solutions provider. It primarily engages in developing, manufacturing and selling label and tag products with radio frequency identification (RFID).
• SMLG’s revenue growth rebounded post-COVID on the back of improved consumer sentiment. However, the firm’s profitability growth has been slowing down yet it has undertaken additional debt to payout dividends.

• Risks such as potential asset impairments, the stock’s volatility, and industry fragmentation persist.
• However, key valuation metrics coupled with our analysis leaves us with the conclusion that Tesla’s stock remains grossly undervalued.
• The company’s price cuts might be phased out by softening material costs, the company says.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess H&H International’s ESG as “Adequate”, in line with the “Adequate” Environmental, Social and Governance scores. The Social pillar has the highest weightage, given the nature of the business. Controversies are “Immaterial” and Disclosure is “Strong”.

• This issue offers two trading opportunities. The first is the passive inflow resulting from an increase in the float rate. The second is the possibility of additional stake sales.
• It will provide LG Energy with a passive inflow of 760K shares (₩426.4 billion), which is a significant passive impact at approximately 3.2x ADTV.
• There would be further stake sales of LG Chem’s shares in LG Energy. LG Chem plans to pursue additional stake sales targeting local institutional investors.

• MOG Holdings (1942 HK) has been skyrocketing in price since the start of the year. Remarkably, there is little change in the number of shares that trade daily.
• MOG Holdings (1942 HK) has a market cap of US$6.44bn and trades at a modest Price/Sales ratio of 75x and an equally modest Price to Book Value of 89.5x.
• Liquidity has improved to the point where the stock could be added to some indices. However, there is a precedent of stocks not being added following market participant feedback.

• Hotel and investment property play Amara Holdings (AMA SP) announced that its controlling shareholders are in discussions with a third party in relation to a possible transaction. 
• Shares up for grabs controlled by the Teo family are estimated to exceed 65% of shares out. 
• No price was mentioned. And there is no guarantee a firm Offer will unfold. Shares have gained 38% in the past three trading sessions. 

• Japan’s strong domestic demand and a rebound in China fuel optimistic growth outlook for Fast Retailing (9983 JP) in the short term.
• Furthermore, the markets such as Europe, North America, South East Asia, India, and Australia present promising long-term growth opportunities.
• However, Fast Retailing’s valuation is a cause for concern as it currently trades at a consensus FY27 OP of 20.0x.

• The company mainly sells its products online and spends much of its advertising budget online.
• The rice market is fragmented and there are two main competitors, Arawana and Fortune.
• We believe the company’s dry food can use the reputation of its rice to boost sales.

• Ottogi Corporation not only achieved remarkable revenue and net income growth in 2022, but also maintained an ESG rating of A for five consecutive years.
• Ottogi demonstrates strong sustainability performance, with high scores in “Environment Policy”, “Chemical Management”, and “Human Rights, Shared Growth & Community”.
• Ottogi’s 10-year dedication to environmental management is evidenced by tangible data, demonstrating remarkable achievements in the management of greenhouse gas (GHG) emissions, energy usage, water consumption, and waste recycling.

• Many companies that cannot make significant investments in growth will reduce cash from their balance sheets through shareholder returns, and ROE+DOE will continue to reach high levels in FY2023.
• A company with a P/B of less than 1x for a long time should consider the option of going private after weighing the costs and benefits of being listed.
• Although most of the shareholder proposals will be rejected unless the foreign ownership is very high, whether the voting rights of domestic institutional investors will change remains to be seen.

• 24 different HK-listed stocks will be tradable in RMB on the HKEX starting 19 June. They make up 35% of HKEX market cap, 40% of total turnover. They are fungible.
• The ultimate goal is to allow mainland investors to trade HK stocks in RMB, but we’re not there yet. Southbound has yet to be approved for the 21 SB-eligible names.
• Only five of the 24 have A-shares, and of those, three (China Mobile, CNOOC, and Great Wall Motor) have wide H-share discounts. Those should be the ones to look at.

• The Yuanta/P-shares Dividend Plus ETF (0056 TT) started to rebalance its holdings on Friday and will continue to do so for the next 4 trading days.
• Stocks with buy flows dropped 0.8% on average on Friday while the stocks with sell flows rose 0.27%. On a flow weighted basis, the numbers were -0.63% vs +1.99%.
• The stocks with outflows have outperformed stocks with inflows by a huge margin in the recent past and short interest has jumped on most stocks recently.

• We summarise the latest spreads and newsflow of merger arb situations covered by us 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), Silk Laser Australia (SLA AU), Estia Health (EHE AU), Chindata Group (CD US), ENM Holdings (128 HK).
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Musgrave Minerals (MGV AU), Toyo Construction (1890 JP), Lian Beng (LBG SP), Penguin International (PBS SP).

• Amara Holdings (AMA SP) received a written notification from Mr Albert Teo Hock Chuan (CEO) and Ms Susan Teo Geok Tin (Company Secretary) that they mulling an offer. 
• The shares entered a trading halt on 16 June as the share price increased 23.9% from S$0.355 on 14 June to S$0.440 per share on 16 June.
• Recent SGX privatisation proposals have shown that offerors tend to be miserly with their premiums. The sharp share price rally makes it challenging to launch an offer.

• There were a bunch of rebalances across different index families that were implemented at the close of trading on Friday.
• The coming week is quieter though there are a couple of ad hoc rebalances for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX). 
• Yet another week of inflows to Tracker Fund of Hong Kong Ltd (2800 HK) as the number of units outstanding is nearly the highest over the last couple of years.

• 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,  HK remained quiet with Australia seeing some more action.
• On the placement front, Bain continued to exit Axis Bank Ltd (AXSB IN) while Weilong Delicious Global (9985 HK) and Sula Vineyards had lock-up expiries.

• The essence of problem lies in the fact that even half of them believe that ROE doesn’t exceed cost of capital, yet managers haven’t taken measures to address this problem.
• In reality, management reform is still a long way off, as constructive proposals from shareholders are often not accepted until the % of foreign shareholders rises to the 30% level.
• TSE has made it possible to compare the superiority of management skills with share price. Attention will be focused on how managers will answer questions about share prices at AGMs.

• Back on the 23 February, household appliance maker JS Global Lifestyle (1691 HK) proposed spinning off SharkNinja’s ex-Asia Pac ops in the U.S.  
• This spin-off would be undertaken as a distribution in-specie, creating a parallel listing structure for SharkNinja and the remaining operations.
• Shareholders of JSG will vote on the separate listing at the EGM on the 26 June, with the last day cum-entitlement on the 27 June.

• Electric-vehicle maker Nio Inc. ended its holdout in China’s car price war and slashed base prices on all of its vehicles by 30,000 yuan ($4,200) in hopes of bolstering sales amid escalating competition in China, the world’s largest auto market.
• Nio also pulled the plug on its free battery-exchange service for car buyers and introduced a pay-as-you-go system and a 30,000 yuan lifetime swap service.
• The vehicle price cuts announced Monday will reduce the starting price of Nio’s new electric SUV ES6 to 338,000 yuan. The price of the mid-size electric sedan model ET5 will be lowered to 298,000 yuan. The changes take effect immediately, Nio said.

• Since mid-May, spreads have generally tightened across our liquid universe (13 have tightened, 6 widened).
• Recommended trades long ordinary / short preferred shares: Henkel, SSAB Svenska Stal.
• Recommended trades long preferred / short ordinary shares: Carlsberg, Media-for-Europe, Sixt, VW, Grifols, Atlas Copco.

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

• Ralph Lauren delivered an all-around beat in the previous quarter.
• In the fourth quarter, the company’s total revenues climbed 9% in constant currency, driven mostly by double-digit growth in Asia.
• Mid-single-digit revenue declines in constant currency were seen in their digital environment.

• Dollar Tree delivered a mixed set of results in its most recent result, with revenues above Wall Street expectations but below-par earnings.
• Both the Dollar Tree and Family Dollar sectors had good top-line growth.
• At Family Dollar and Dollar Tree, in-stock positions improved by 200 basis points and 400 basis points, respectively.

• Best Buy delivered a mixed set of results for the previous quarter, with revenues well below analyst expectations but managed an earnings beat.
• Despite cautious consumer behavior due to inflation and low confidence, Best Buy maintained consistent purchasing patterns and demographics.
• Customer satisfaction scores improved for in-home services, delivery, and remote support, highlighting the company’s focus on customer support.

• Kimberly-Clark’s disappointing performance in recent years is hardly a surprise and does not make the company a bargain.
• The short-term perspective on margins remains mixed, in spite of the management’s optimism.
• KMB could no longer support these activities, according to the company’s management.

• The acquisition of tooling facilities and the introduction of new engines for its Cobalt line are considered possible benefactors.
• Slower wage demand, softer material costs, and a pending interest rate pivot are all positive signs.
• However, Malibu Boats stock is theoretically undervalued and likely to experience further gains in the quarters head.

• AutoZone delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• The company produced a 17.5% increase in EPS, a 9.3% increase in EBIT, and 1.9% domestic comp growth.
• Domestic DIFM sales accounted for 31% of total domestic car part sales.

• Sula Vineyards  raised around US$117m in its India IPO in Dec 2022.
• Sula Vineyards (SV) distributes wines under a bouquet of brands. In addition to its flagship brand “Sula,” popular brands include “RASA,” “Dindori”, “The source,” “Satori”, “Madera” & “Dia”. 
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• FY 2023 was a record year for Richemont with double-digit growth, confirming the Company’s best-in-class fundamentals (pricing power and high barriers to entry), and resilience to challenging market conditions
• Coming out of the pandemic, Richemont Jewellery Maisons have been one of the clear market share winners in the sector
• The Company’s strong sales, profit and cash flows confirm the strong appeal for its Maisons and relevance for long-term growth

• Overseas investors have called for increasing the ratio of variable compensation to executive compensation. Given that foreign ownership ratios have remained high, this upward trend is expected to continue.
• Few companies use capital efficiency like ROE as KPIs for variable compensation, which is consistent with the fact that few companies set them as numerical targets in mid-term management plans.
• The role of independent directors has become more important as more companies are involving compensation committees in the compensation determination process since the 2001 amendments to the Companies Law.

Games Workshop Group’s (GAW’s) FY23 trading update indicates an improvement in underlying trading in the latter months of the period and the expected easing of cost pressures. The strength of the improvement is evident in the fact that FY23 PBT is greater than both our previous FY23 and FY24 estimates. We upgrade our FY24 PBT estimates by c 4%, which incorporates an underlying upgrade offset by a new foreign exchange headwind.

• There were five stocks in Korea that dropped limit down (30%) today. They included Pang Rim, Dongil Industries, Manho Rope & Wire, Taihan Textile, and Dongil Metal.
• The share price decline of these five stocks are similar to the crash in eight stocks in Korea in April which were related to CFD derivatives related margin call selling. 
• Domestic securities firms in Korea have been trying to significantly reduce their exposure to CFD related trading and in this process, these sharp drops could be caused by this selling.

• Japan’s inflation hit a 41-year high at 4.3% in January, but gradually slowed down in the following months, reaching 3.3%, 3.2%, and 3.5% in February, March, and April 2023, respectively.
• Although Fuel, Electricity, and Water prices declined, other items excluding fresh vegetables, maintained inflation at a similar pace, suggesting that cost-push inflation continues to impact the overall economic environment.
• This insight examines the recent quarterly performance of Yakult, Nissin, and Seven & I, our top picks in the Japan Consumer Staples Sector Smartkarma Original.

• EXO’s Chen, Baekhyun, and Xiumin filed a complaint to the Fair Trade Commission (FTC) on June 4 against SM Entertainment for “abuse of superior bargaining position.”
• SM Entertainment repeatedly faced sanctions by the FTC for disputes, including controversy and conflicts with another boy band ‘Dong Bang Shin Ki’ (TVXQ) 
• The risk to their working conditions continues to increase, with SM Entertainment’s corporate risk currently standing at 4.2, reaching an extreme level.

• Metrodata Electronics released a mixed set of 1Q2023 results, as its ICT distribution slowed as consumers held back from new purchases but this was offset by stronger Solutions&Consulting revenues.
• Solutions&Consulting saw strong growth from financial services, with the ongoing boost from BIFAST plus there was strong growth from telcos and the government segment, as it focuses on digitalisation. 
• Metrodata Electronics management remains optimistic for 2023, with an expected recovery in distribution revenues in 2H2023 with the guidance of 8% growth for both revenue and net profits for FY2023. 

• The local market believes that the FSS plans to push forward with the 10% limitation measure. Last week’s seminar served as a proactive way to inform the market about it.
• The market is paying attention to the potential emergence of stock overhang risks due to the establishment of limits on listed companies’ treasury stock holdings.
• Lotte Holdings and Doosan Corp are considered to fall into this category. They may attempt to sell treasury stock early on to meet the 10% limit.

• 1983 was the year both TMNT and Mario Bros were created by two different animation studios
• Mario Bros latest movie has now grossed $1.3 billion in box office receipts YTD, entering the all-time top-3 of animated movies 
• TNMT will see its debut in US theatres on the 2nd of August 2023. Will the turtles get the same reception as Mario Bros?

• We expect one change to the Hang Seng Tech Index (HSTECH INDEX) in September – though there could be a second change as well.
• Estimated one-way turnover is 2.13% resulting in a one-way trade of HK$2.01bn in case there are two index changes. Turnover will be lower if there is only one change.
• Short interest on some of the potential changes is over 15% of float and there could be big moves on the stocks post announcement of the changes.

• IPL 2023 concluded recently with record streaming views and TV viewership. This bodes well for the valuation of the IPL Lucknow franchise owned by RPSG Ventures Limited (RPSGVENT IN) [“RPSGV”]. 
• FMCG business is currently doing a run-rate of INR 400cr+ revenue, however, needs to scale up faster. To drive this, Too Yumm! has entered into a new category, traditional Namkeens.
• The Firstsource Solutions business seems to be bottoming out. Operating margin has stabilized in the 11.5-12% range. FY23 revenues de-grew at -1.1% YoY as guided at -1% to -2%.

• 2022 saw Light and Wonder make a major strategic pivot from legacy units to focus on three core businesses: Gaming equipment and systems, social online gaming and IGaming.
• Recent move to acquire the 17% of SciPlay social gaming platform it does not own has evoked investor interest in the sector due to a 29% premium on offer.
• After taking a big tax hit related to the sale of two of its legacy verticals the company is well positioned to compete for rising Asia-Pacific gaming equipment business.

• We think by adopting the new strategy to unbind vehicle sales with battery swapping, NIO could broaden its customer base to non-Yangtze-Delta regions and regain price competitiveness.
• We upgrade to BUY and raise TP to US$ 10.5, due to 1) recovered growth outlook brought by widened customer base, more competitive pricing and intact model cycle
• And 2) smaller-than-feared margin pressure. Our TP implies 2x PS. 

• The fact that men occupy most of the highly compensated positions has increased the wage gap between men and women, so solutions must start with correcting the male-dominated social structure.
• Not only is no acceleration seen in PM Kishida’s target for % of female executives by 2030, but it’s only goal, not commitment, as it applies only to top-tier companies.
• At this point, the only thing that can be done is for investors who have analyzed human capital disclosures in annual securities reports to persistently press companies to make improvements.

• FY2022 was the best year in a decade for Japan’s big apparel firms. Brands benefitted from the return to shops, particularly department stores.
• Some of the leaders used the pandemic to make further progress in rationalisation, diversification and omnichannel, creating solid foundations for further growth in market share.
• Sanyo Shokai finally made a profit but has stuck to what it knows, which may lead to problems once the rebound dividend wanes.

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.

• O-Net Technologies (Group)

• Trip.com (9961 HK) and Chow Tai Fook Jewellery (1929 HK) could replace Country Garden Services Holdings (6098 HK) and Zhongsheng Group (881 HK) at the upcoming rebalance in September.
• Estimated one-way turnover at the rebalance is 1.2% resulting in a one-way trade of HK$744m. The official capping will be done based on closing prices from 29 August.
• Short interest has been rising on the potential adds and short covering could take the stocks higher, especially Chow Tai Fook Jewellery (1929 HK). 

For our next Corporate Webinar, we are glad to welcome KTMG Limited’s Chief Executive Officer, Damien Lim. 

In the upcoming webinar, Damien will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. The Corporate Webinar will include a live Q&A session.

The webinar will be hosted on Tuesday, 20 June 2023, 17:00 SGT/HKT.

About KTMG Limited

KTMG Limited (“KTMG” and together with its subsidiaries, the “Group”) is an integrated textile and apparel manufacturer.

KTMG is a contract manufacturer of apparel specialising in athleisure wear, casual wear, loungewear, and pyjamas for various ages, with facilities in Malaysia and Cambodia. The Group manufactures apparel for retailers in the United Kingdom, United States, European Union, and Canada, who then sell apparel products under their own brands. The Group has a co-creation business model through which it collaborates closely with its customers during the product initiation process, thereby offering customers a one-stop value-added platform.

In 2019, KTMG expanded upstream into the knitting, dyeing, and finishing of fabric, with its very own textile manufacturing facility in Johor, Malaysia.

• Target Corporation delivered a mixed set of results for the previous quarter, with revenues well below analyst expectations but managed an earnings beat.
• Target’s focus on building trust and delivering affordable products to consumers led to three consecutive years of traffic growth, with a 0.9% increase in comparable traffic in Q1.
• We give Target Corporation a ‘Buy’ rating with a revised target price.

• Lowe’s Companies delivered a positive result and managed an all-around beat in the last quarter.
• Through its MVPs Pro Rewards Program and its expanded assortment of Pro national brands, it continues to build momentum with the Pro.
• Despite the pressures, it is seen that the comparable Pro sales are a bit positive, with broad-based strength in several categories.

• The TJX Companies delivered a mixed set of results for the previous quarter, with revenues well below analyst expectations but managed an earnings beat.
• TJX experienced an increase in pretax profit margin and earnings per share, surpassing last year’s figures.
• The company’s divisional performance also showcased positive results for Marmaxx, with sales and traffic consistency across regions.

• Weilong Delicious Global (9985 HK), a spicy snack food company in China, raised around US$130m in its Hong Kong IPO in Dec 2022.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• Oriental Watch is a prominent luxury watch retailer in the Greater China region.
• While the company offers various brands, the majority of its sales, over 80%, come from its core brands, particularly Rolex and Tudor, a sister brand of Rolex.
• Over the past two years, Oriental Watch has benefited greatly from the strong popularity of Rolex watches and has rewarded its shareholders with a dividend payout of over 100%.

• Benesse Holdings (9783 JP) share price has fallen 18% annually since 4 years ago with PER going from 55x to 14x
• The structural decline in the main business remains although the smaller business has shown some improvement.
• Japan has received a lot of investors interest recently and Benesse could pick up some investor interest too.