Consumer

• 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. 

• The changes for the KOSPI2 INDEX, KOSDAQ150 Index, CSI300 Index, STAR50 INDEX and a bunch of other onshore China indices were implemented last week.
• The coming week has a lot of rebalance implementations on Friday with the S&P/ASX family and the MVIS family, among others.
• AUM for the Yuanta/P-shares Taiwan Top 50 ETF (0050 TT) has continued to increase with big inflows in the last week.

• Conventional corporate wisdom says market leaders have less room to grow and must concentrate on holding share. Not true.
• As Macau recovery gains steam, Galaxy is meeting challenges with its expansion likely to move its dominant market share higher as the total pie grows.
• The company’s focus is on capacity as well as diversity of offerings bolstered by a balance sheet among the healthiest in the sector.

• Home Depot delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as earnings expectations of Wall Street.
• However, despite these challenges, Home Depot observed strength in key spring-related categories, such as live goods and other garden-related products, where the weather was more favorable.
• Despite the challenges, Home Depot’s dedicated team prioritizes associates and customers, delivering value and service throughout the quarter.

• The June rebalance of the KraneShares CSI China Internet ETF (KWEB US) will take place at the close of trading today.
• There are a couple of deletions and one inclusion. Plus there will be capping changes on the other stocks, but the impact of those changes is not large.
• The stocks have already been moving in the right direction during the day and the pre-positions could be flipped to the ETF at the close.

• In May, JD Health made a voluntary announcement that the company has made operating income of RMB795.4m (5.7% of revenues) in 1Q2023 vs RMB61.6m (0.7% of revenues) reported in 1Q2022.
• JD Health’s share price been down more than 25% despite the company announcing strong 1Q2023 results, as the market has become concerned over the company’s ability to sustain its profits.
• Our quantamental analysis proves that JD Health may not be able to generate OPM in excess of 2-3% as there is very little room for GPM to improve.

• CP ALL is increasingly one of the best proxies for consumption in Thailand, with its broad exposure to convenience stores, hypermarkets, supermarkets, wholesale through Makro’s cash & carry stores.
• The company continues to expand its store footprint and improve margins through a better product mix towards fresh and private labels, as well as group synergies around growing omnichannel sales. 
• CP ALL is the largest weighting in MSCI Thailand and has seen pressure from foreign outflows due to political uncertainty but this may be about to work in its favour. 

• Balkrishna Industries (BIL IN) is one of the big names in Off-Highway Tyre (OHT) segment across the globe.
• The company is currently in a capex mode and looks to augment its tyre capacity and expand the carbon black manufacturing.
• However, there are some corporate level discomforts regarding the payouts to the stakeholders on the back of capex, and disclosure errs in few lone items on the balance sheet.

• The test will be how many companies will disclose details that include the measures investors expect and whether the stock price will react positively when the panel concludes this fall.
• The most effective measure to ensure that “TSE’s request” doesn’t end up as a formal disclosure is for shareholders to press management at the AGMs to raise the share price.
• It’s important that the company’s resources are used effectively to maximize corporate value, and such measures should be put in place to increase the share price above the current level.

• Toyota managed to exceed analyst expectations in terms of revenue as well as earnings.
• The company faced production constraints due to factors like semiconductor shortages, natural disasters, and the ongoing impact of COVID-19.
• Their expert team members also remain committed to managing risks, investing in growth, and shaping the future of the automotive industry.

• Fox Corporation delivered an all-around beat in the previous quarter.
• The significant Super Bowl LVII bolstered the quarter’s success on the Fox Broadcast Network, which generated significant advertising revenue across their businesses and contributed to a remarkable 61% growth in advertising revenue in the Television segment.
• Despite the industry challenges, We give Fox Corporation a ‘Hold’ rating with a revised target price.

• Tyson Foods delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as earnings expectations of Wall Street.
• While the overall performance was disappointing compared to the previous year, Tyson Foods claims to have performed reasonably in volume and dollar sales, gaining market share in the retail core business lines.
• Despite these challenges, Tyson Foods remains focused on strengthening its branded foods business.

• Wynn Resorts managed to surpass the revenue expectations as well as the earnings expectations of Wall Street.
• In Las Vegas, Wynn Resorts achieved significant results in Q1, supported by a thriving consumer base.
• In Macau, Wynn Resorts generated significant earnings despite some challenges, including a lower VIP hold.

• Positive surprises in profitability during Q1 2023 failed to reverse the long-term decline of Chinese e-commerce, possibly due to market recognition of the temporary impact of cost-cutting and monetization efforts.
• In our opinion, robust growth in GMV is fundamentally essential to reverse the long-term downward trend of the Chinese e-commerce sector.
• Chinese e-commerce sector no longer discloses GMV, but Express delivery volume indicates a 20% decline in parcel volumes compared to 2021, potentially reflecting a decrease in GMV.

• The waiting is over – Q4 FY3/2023 results highlighted 1) continued recovery in the hotel industry spurred by domestic and overseas traveler demand, 2) improvement in profit structure through business model transformation and increased accommodation demand has led to an increase in revenue, and 3) the completion of the acquisition of Red Planet’s business in the Philippines highlights the company’s expansion into overseas operations.
• However, as the tourism industry in Japan is in a full-fledged recovery phase, the company believes it can achieve sustained growth.
• Sound financial foundations – the company’s recapitalization strategy has been a success, and we maintain our view that there will be positive free cash flow generation in FY3/2024.

• In the past several days, one of the biggest news in the global sports industry has been the merger of PGA Tour, DP World Tour, and LIV Golf. 
• We believe that this merger is likely to have a positive impact on the global golf industry, including on Fila Holdings (081660 KS) and Acushnet Holdings (GOLF US).
• If this merger successfully completed this year, there is a good possibility of a pick-up in golf related equipment sales and profits for Acushnet and Fila Holdings starting 2024. 

• We recently interviewed some Temu merchants, and the main conclusion is that Temu continues to experience rapid growth despite the chaos. 
• Temu’s GMV reached a new high in May; Temu faces upcoming challenges from Shein and TikTok, as they are also about to launch their fully managed models.
• Moreover, Temu’s unit economics (UE) has not seen further improvement for several months, and the supply of goods has been a problem;

• Estée Lauder continues to make new lows as risks related to its premium valuation and business concentration materialize.
• Estée Lauder’s return on capital is also facing long-lasting headwinds.
• The company will remain too richly priced for the time being, according to the company’s CEO.

• Telenet has announced the publication of the prospectus. The Board of Directors of Telenet has prepared a response memorandum in which it sets out its recommendation of the Offer.
• The offer is opportunistic and optically generous, with neither interloper risk nor sweetening to be expected. I believe most investors will cash out. Liberty could eventually drop the acceptance threshold.
• Given the ambiguity surrounding both the company and the sector in Belgium, I still think Liberty might acquire Telenet for almost a bargain. Spread is 2.38%/19.8% (gross/annualised).

In this next installment of our #webinar Wednesdays, we welcome Smartkarma Insight Provider, Nicolas Van Broekhoven, as he shares his thoughts and insights on three different small cap stock ideas. From Hong Kong to Canada, tune in as Nicolas delves deeper into stock ideas from across the globe.

The webinar will be hosted on Wednesday, 14 June 2023, 17:00 SGT/HKT.

Nicolas Van Broekhoven was on the buyside for 15 years, and most recently at a medium-sized boutique asset management firm. Having grown up in Europe, attending university in the US and living in Singapore for the last 7 years, this has given him a broad scope on the world and investing in general. He considers himself as a generalist investor with a preference for small and mid-cap companies and special situations. However, a large cap that has gone temporarily out of favor might also pique his interest. His style of investing could be categorized as more of value investor, rather than growth at any cost. Learning from Charlie Munger on the importance of quality of a company has been of tremendous value over the years. Nicolas likes businesses with real earnings, cash flows, dividends, book value and insider ownership.

• We see 8 stocks moving from MidCap to LargeCap, 9 stocks moving from LargeCap to MidCap, 9 stocks from SmallCap to MidCap, and 10 stocks from MidCap to SmallCap.
• Following a strong listing, Mankind Pharma (6596876Z IN) should be added to the Large Cap segment of the market in July.
• The expected migrations from SmallCap to MidCap have outperformed the other migrations by a huge margin over the last couple of months and there could be profit taking ahead.

• One of the few long-term success stories in supermarkets is Yaoko, which recently celebrated 34 consecutive years of record operating profits. 
• Thanks to a combination of innovation and attention to detail, Yaoko’s financial performance continues to trounce larger rivals in the highly competitive food market in Kanto.
• With Japan’s supermarket sector about to enter a period of consolidation, Yaoko will be one of the leaders.

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

• Population decline is not far in the future, and a situation is looming where rural municipalities will no longer be able to function to support social infrastructure.
• The government is sticking to maintain the foreign technical internship in industries where labor is in short supply, and managing the number of foreign workers accepted for 5-10 year time-limit.
• Accepting foreigners means that people must live in a society that recognizes diversity and each other’s human rights. Unfortunately, we are not ready to create such a society.

• Q123 Net Revenue was strong, exceeding Q119 (pre-Covid) levels by over 12%
• Almost six months into recovery, Trip.com (TCOM US) has also managed SG&A expenses well
• A good result for the company, but we see no reason to alter our long-term view

• On 1 June, Lifedrink (2585 JP), which listed in early 2022, announced it would move to TSE Prime in late June, leading to a TOPIX inclusion in late July. 
• The offset to that was an announcement of an offering, whereby the PE Fund which brought the company to market would sell up to 3.87mm shares, effectively doubling float. 
• The offering is larger than the TOPIX inclusion. The stock fell the next day, rebounded, then rebounded 11% Monday. Now it’s up more and hit a lifetime closing high.

• Challenger Technologies (CHLG SP) has disclosed a final voluntary unconditional offer from Dymon Asia and the Loo Family at S$0.60 per share, a 7.1% premium to the previous S$0.56 offer. 
• As predicted, the offer followed the recent SGX unconditional offer playbook – a lowball offer followed by declaring the offer final after a cursory bump.
• The modest offer premium will still leave minorities aggrieved. Hitting the 90% compulsory threshold implies a minority acceptance rate of 31.3%. At the last close, the gross spread is 3.4%.

• Rakuten sold its 20% stake in Seiyu to KKR at the end of May, divesting from direct ownership in physical supermarkets. 
• This provides a much needed injection of cash for Rakuten’s digital projects and should also help the online platform build trust with other supermarket chains interested in joining its platform.
• Both companies reaffirmed their commitment to build the largest online food retail platform within the next two years.

• After consumer electronics retailer Challenger Technologies (CHLG SP) announced a voluntary unconditional cash offer of S$0.56/share on the 30 May, it has closed through terms every day. 
• At a 3.1% and 4.3% to undisturbed and one-month VWAP, the Offer was low-balled. The Offeror (Dymon Asia and Challenger’s CEO Loo Leong Thye) have now bumped to S$0.60/share. 
• The price has been declared final. It is still only a 9.1% premium to undisturbed. But it is a lifetime high. 

• The S&P 500 broke above 4200 and the 2-month megaphone pattern on Friday, and is already approaching the 4300-4325 area which we have anticipated would cap upside for 2023.
• While we would be cautious at these levels given our expectation for inflation to remain elevated, we cannot get too bearish if the S&P 500 is above 4165-4200.
• Breadth remains weak within the S&P 500, but we are starting to see breadth improvement within small-cap Russell 2000 (IWM). More on that below, IWM targets include $190 and $200-202.

• Discounts to NAV of covered holdcos have generally tightened during May. Discounts to NAV: C.F.Alba, 50.1%; GBL, 40.5% (!); Heineken Holding, 16.0%; Industrivärden C, 5.2%; Investor B, 11.6%; Porsche Automobile Holding, 45.1%. 
• The spread of Rio Tinto DLC widened to 17.2%. Rio Tinto is a candidate for an Australian top hat structure.
• Recommended trades: Heineken Holding/Heineken, Porsche SE/vs. listed assets and Rio DLC.

• Fashion wear retailer ENM Holdings (128 HK) has received a delisting Offer from major shareholder, Chinachem.
• The Scheme consideration of HK$0.58 is a 24.7% premium to last close, although shares popped 24% prior to suspension. 
• The Offer price is final. There is probably enough here for the Offer to get up. But there is potentially significant value to be unlocked from recent land rezoning. 

• The Nikkei 225 Sep 2023 review has 2 months left of data collection. That means the rankings are quasi-fixed. So then the question is what to do with them.
• There is a consultation in progress. You still have one week to respond, but that doesn’t change the names. 
• The top inclusion is the big one in dollar terms but low in liquidity. The next two are likely to be consumer names, and much more impactful. 

• ADEA could be the most under the radar artificial intelligence (“AI”) beneficiary through its patent portfolio related to hybrid bonding
• Hybrid bonding is expected to help usher the next generation of semiconductors to handle the growing need for speed and bandwidth with lower power consumption
• ADEA’s stock has been mainly valued on the free cash flow it is able to generate from its media patent portfolio with little value given to ADEA’s semiconductor patent portfolio

• With increasing pressure to buy back treasury stock to raise ROE, more companies with few tradable shares are expected to promptly retire treasury stock in the future.
• Companies that have retired treasury stock three or more times show not only higher stock price valuations, but also superior growth policy scores, cash holding scores, and dividend policy scores.
• Rather than simply focusing on the share repurchase, the focus should be on the overall cash allocation that led to it, including investment in growth and shareholder returns.

• Hyatt Hotels delivered a mixed set of results in its most recent quarter with revenues above Wall Street expectations but below-par earnings.
• Hyatt achieved significant net room expansions, with more than 5000 rooms added on a gross in the quarter.
• In the quarter, Hyatt completes its Dream Hotel Group acquisition.

• Royal Caribbean delivered a solid result managed an all-around beat in the last quarter.
• For both ticket and onboard, solid demand for Caribbean itineraries is translated into advanced load factors at quite a better-than-expected pricing.
• Moreover, secular tailwinds continued benefitting Royal Caribbean, with consumers shifting spending and preferences from goods to experiences, resulting in strong travel and entertainment spend.

• Fenbi Ltd (2469 HK) was added to the Hang Seng Composite Index (HSCI) at the close Friday and will be added to Southbound Stock Connect from open of trading today.
• We see 22 potential adds, 19 potential deletes, couple of close deletes, 5 deletes on prolonged suspension and 4 close liquidity deletes for the HSCI in September.
• There are 11 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.

• Enm Holdings (128 HK) announced a privatisation offer from Chime Corporation at HK$0.58 per scheme share, a 54.7% premium to the undisturbed price of HK$0.375 per share (24 May). 
• The key condition is the scheme be approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). No shareholder holds a blocking stake. The offer price is final.
• Detractors will argue the offer is low due to ENM’s net cash (75% of the market cap). However, the offer is reasonable compared to historical multiples and share prices. 

• 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), Enm Holdings (128 HK), United Malt Group Ltd (UMG AU), Estia Health (EHE AU), HKBN Ltd (1310 HK), Hailan Holdings (2278 HK).
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Challenger Technologies (CHLG SP), Lian Beng (LBG SP), SBI Shinsei Bank (8303 JP), Newcrest Mining (NCM AU). 

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.

• NagaCorp Ltd

• Australian tax-loss selling is a thing. Retail investors will take gains on things that run up in price, or get taken over, then look for losses.
• The China Conch Venture Holdings (586 HK) / Anhui Conch Cement (600585 CH) ratio is at an all-time low. The implied stub is re-testing its all-time low.
• Historically, Canon (7751 JP)‘s buybacks are aggressive. It may pay to observe market data to see when they are done. It may also pay to look at peer outperformance cycles. 

• It was a busy week with index rebalance implementations and announcements of index changes.
• The coming week has the KOSPI200 and KOSDAQ150 rebalancing on Thursday and a bunch of onshore China indices rebalancing on Friday.
• There were big inflows to China ETFs during the week while the largest inflows went to the Tracker Fund of Hong Kong Ltd (2800 HK) ETF.

• There are 38 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals were discussed on Smartkarma this week: Golden Eagle Retail (3308 HK)‘s Scheme; and Challenger Technologies (CHLG SP)‘s voluntary unconditional cash offer
• Key updates took place for Yashili International Holdings (1230 HK), Inner Mongolia Yitai Coal B (900948 CH), and Metro Pacific Investments Co (MPI PM).