Consumer

• On Friday 24 February 2023, the Hang Seng Index Committee announced changes for the HSTECH Index – Weibo Corp (9898 HK) IN, Ming Yuan Cloud Group (909 HK) OUT.
• Notably, the changes in FAF due to the new treatment for Dual Primary Companies means decent boosts in weight for XPeng (9868 HK) and Li Auto (2015 HK). 
• Of the three “major” indices, this one produces the most fun – US$900mm+ and 8.7% flow one-way. And the big flows are additive to the other indices.

• HSCEI keeps its constituent count at 80 names, adds XPeng (9868 HK) and deletes China Feihe (6186 HK). 
• There are decent flows in this rebal, with Tencent (700 HK) and Alibaba Group (9988 HK) seeing selling, Meituan (3690 HK) seeing buying. Li Auto (2015 HK) sees FAF upweight.
• Janaghan Jeyakumar, CFA had called the deletion of China Feihe, but had another name higher on the ADD list. 3.2% and HK$2.6bn one-way flow.

• Haidilao issued a positive profit alert last Friday which beat our and market expectations by a big margin. Profitability improved  mainly due to shutting restaurants and labor optimization. 
• We expect the news and the street’s earnings revision will drive near-term stock rally. 
• That said, growth challenges remain and will be under spotlight during 2023-24. The expected stock rally will just build more expectations in the price. Take profit from the rally. 

• As expected, XPeng (9868 HK) replaces China Feihe (6186 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close on 10 March.
• Using prices from the close on 24 February, estimated one-way turnover is 3.28% and will result in a one-way trade of HK$2,162m at the close on 10 March.
• Short interest on XPeng (9868 HK), Li Auto (2015 HK), China Feihe (6186 HK) is quite high in terms of days of ADV to cover and in terms of float.

• Notable names that have proposed amendments to their articles of association for changing the dividend record date at this year’s AGM include Hyundai Motor Group, POSCO Holdings, and Kakao Corp.
• There were skeptical views on how much response local big-name companies would show to Korea FSC’s plan. However, the response from large companies has been unexpectedly positive and aggressive.
• We should consider the possibility that the preferred stock premium of companies whose dividend visibility has improved through this may continue to improve compared to those that have not.

• If TSE were to require companies with low P/Bs to disclose improvement measures, more companies are likely to take immediate action to increase shareholder returns.
• Reducing equity capital is effective in raising ROE, but simply draining cash accumulated from the past through shareholder returns will not lead to long-term stock price outperformance.
• Among the components of ROE, ROA improvement is required rather than immediate increase in financial leverage. Companies should disclose their more detailed plans to increase ROA over the medium term.

• Chipotle Mexican Grill delivered a highly disappointing result for the last quarter.
• The company failed to meet the revenue expectations as well as the earnings expectations of Wall Street despite AUVs expansion and improved restaurant-level margin.
• The management faced several challenges this quarter, including one of the highest inflationary periods and an uncertain macro environment.

• Kraft Heinz saw strong revenue momentum in the last quarter and managed to deliver an all-around beat with a good growth in base volumes.
• The management claims to be outperforming the competition in food service and emerging markets.
• In 2023, the management is looking towards expanding its marketing technology and personnel investments to propel the company’s growth.

• Jehoshaphat’s short report has alleged that Techtronic Industries (669 HK)/TTI has been inflating its profits dramatically for over a decade with manipulative accounting.
• Our forensic analysis of the allegations suggests that some are credible red flags while others are essentially an exaggeration.
• TTI’s response to Jehoshaphat is pitiful. Valuation is meaningless until management adopts more conservative accounting or compelling disprove the allegations.

• Alibaba’s 3QFY23 results marginally topped consensus. With the share price dropping 0.65% cf. +0.35% for the index, both results and the price reaction were in line with our expectations.
• Yesterday’s results confirm that Alibaba (ADR) (BABA US)’s core businesses, Taobao and Tmall are in trouble and cost-cutting elsewhere is insufficient to offset the short-term weakness.
• Therefore, we do think that this is a good opportunity to profit on the short side with Alibaba shares having the potential to fall another 40-45% in the short term.

• Techtronic Industries (669 HK) was targeted by Jehoshaphat Research (JR) accusing that the company’s profits are inflated dramatically over a decade with manipulative accounting.
• As per the report, routine expenses incurred have been booked under various asset accounts such as deferred development costs thereby showing ever increasing margins for a cyclical business.
• We have assessed the merits of some of these claims using our forensic accounting framework and it appears that most of the claims are very difficult to refute.

• After decades of industrial, urban focus, city-dwelling Japanese first began a tentative reengagement with nature through hiking two decades ago. 
• This has evolved into more extended trips that began to include camping and visits to wilder areas.
• These excursions are still a bit forbidding for many, so camping and outdoor activities in a park managed by a trusted brand have strong appeal, providing new revenue for brands.

• In our latest int’l reports we have preached caution, and since January we have discussed our expectations for $93 to cap upside on the ACWI-US
• Thus far, $93 has proven to be rock-solid resistance, and ACWI-US now displays a 4.5-month uptrend violation signaling the pullback has officially begun.
• We would expect this pullback to continue down to $86-87 at minimum, and potentially $84 (December 2022 low). Even $75-77 (the 2022 lows) is not out of the question.

• Coca-Cola had a successful year in 2022.
• In spite of the difficult macro environment, the company performed well and expanded by concentrating on broadening the scope of its offerings.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Marriott International had a decent business recovery in 2022 and the company delivered an all-around beat in the last quarter.
• The number of leisure transient room nights in the fourth quarter increased compared to 2019.
• Their mobile app users, digital room nights, and digital income all increased in 2022, each by 32% year over year.

• Restaurant Brands International has delivered a mixed set of results in the quarter with revenues well above analyst expectations.
• However, the company missed out on meeting earnings expectations as the profitability was lower for Tim Hortons, Burger King, and Popeyes in the domestic market.
• We give Restaurant Brands International a ‘Hold’ rating with a revised target price.

• Jehoshaphat Research (JR) argues the case that Techtronic Industries (669 HK) has been engaged in “snowballing” to maintain margin growth.
• JR flags TTI is the only public company in the world (with over $1bn in revenues) exhibiting positive sequential gross margin change in every semi-annual period over ten years.
• Short interest had been picking up ahead of the short sell report. Shares fell 19% before being suspended in the afternoon session.  

• Star Entertainment Group (SGR AU) is looking to raise A$685m via an ANREO of 3 shares in The Star for every 5 shares at a fixed price of A$1.2/share.
• The A$1.2/share price is a 21.1% discount to the last close and a 14.3% discount to the Theoretical Ex-Rights Price (TERP) of A$1.4/share.
• Short interest is near the highs and there is an index deletion pending. We’d look to buy the stock on a move lower, especially closer to index deletion.

• Revenue grew by 2% YoY in 3Q22, as the decrease of online sales offset the increase of physical stores.
• The operating margin began to improve, as the company cut sales and marketing expenses in minor businesses.
• We believe the stock has an upside of 78% for March 2024 and the price target will be HK$170.

• It was reported on 22 February in numerous local Korean media that Oasis Management has invested about 1.5% stake in KT&G Corporation (033780 KS).
• This investment in KT&G is reportedly Oasis Mgmt’s first investment in Korea. For now, Oasis Mgmt has not made any public announcement about its investment in KT&G.
• With Oasis Mgmt investing 1.5% stake in KT&G, we believe it is increasingly likely that it could start its activist campaign on KT&G sometime in 2023.

• Star Entertainment Group (SGR AU)‘s announced it intends to raise $800mn after reporting a statutory $1.26bn 1H23 loss.
• This equity raising will be broken down into a A$685mn non-renounceable entitlement Offer and a A$115mn institutional placement. The equity raising is fully underwritten. 
• Star also announced it has secured covenant relief through to June 2025. Star’s immediate focus is to get its house in order and prove its suitability to hold casino licences. 

• A correction in Perfect Medical Health’s (1830 HK) share price recently has led to it trading at a decent multiple of 15.2x/11.6x FY23e/24e PE(x) with a 6.9%/9.1% FY23e/24e dividend yield. 
• We estimate the lockdowns in China from Oct-Dec last year will impact the H2 FY23 result, leading to softer revenue growth of 4.8% for FY23 (profit 11% YoY). 
• We are optimistic about China re-opening and cross-border travel and believe that >20% revenue growth can materialize in FY24, led by a recovery in China/HK revenue. 

• At 6.2x EV/Sales, ManU’s shares are trading well above any other listed European football club, which may increase if the Glazers manage to cash in at a trophy asset valuation.
• Suitors are queuing and prospective bids as high as about £5 billion ($6 billion, 8.4x EV/Sales) been made to restore the club to its former glory.
• Unlimited wealth and investments in players don’t guarantee winning a European Champions League, but Manchester United is still a unique asset, with more chances than not of changing hands.

• Star Entertainment Group (SGR AU) will raise A$800 million with a fully underwritten 3:5 pro rata accelerated non-renounceable entitlement offer and institutional placement at A$1.20, a 13.6% discount to TERP.
• The equity raise of A$800 million will maintain leverage within the targeted 2.0x-2.5x net debt/EBITDA long-term range in our fines high-case scenario.
• Adjusting for the raise, Star trades at a discount to peers. While the shares will be under short-term pressure due to the raise, there is long-term value for the brave. 

• Aeon’s main GMS arm, Aeon Retail, is on track to post a net profit in FY2023 after a 4-fold increase in OP in 1H2022.
• This is largely thanks to stronger sales and footfall and the success of efficiency measures introduced over the past few years.
• The improvements look sustainable and should lead to improved results for Aeon longer-term adding to the already good results from the drugstore, real estate and overseas businesses.

• Guangzhou Automobile Group Co. Ltd. (GAC) (601238.SH -0.51%) is working to get more domestically produced microchips into its vehicles.
• It relies on overseas suppliers for about 90% of its automotive chips.
• GAC Capital Co. Ltd. sees plenty of opportunity to increase the share of domestic chips in the automaker’s cars.

• Zeekr, a premium EV brand by Geely, aims to raise around US$1bn (estimated) in its US listing in 1H2023. GS, BofA and MS are said to be running the deal.
• Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
• In this note, we take an early look at the IPO based on publicly avaiable information.

• Today (22 February), S.M.Entertainment Co (041510 KS) provided a detailed analysis of the strategic partnership with Kakao from shareholders and fans perspectives.
• The timing of this detailed strategic partnership announcement is a bit unusual since it comes BEFORE the actual tender offer announcement and potential capital injection into SM Entertainment by Kakao.
• Our call on this M&A remains consistent. In the last week of February/early March, Kakao could make a tender offer at prices of at least 140,000/150,000 won, in our view.

• Honasa Consumer (HC) is looking to raise about US$350m in its upcoming India IPO.
• HC’s product portfolio includes products in the baby care, face care, body care, hair care, color cosmetics and fragrances segments.
• In this note, we will talk about the not-so-positive aspects of the deal.

• Since January, our expectation for 2023 has been for 4165 (and 4165-4200) to cap upside on the S&P 500.
• We’ve been preaching caution with the indexes testing resistance, and we are now getting confirmation that suggests a pullback has officially begun
• SPX, QQQ, and IWM all demonstrating false breakouts, alongside bullish inflections in Treasury yields, high yield spreads, and the U.S. dollar. Defensives also display bullish RS reversals

In our European High Yield Investment Outlook, we first discuss our high-conviction trade recommendations. We then examine major geopolitical and macroeconomic drivers for the year, as well as commodity price trends. We also assess the interest rate exposure of companies in our coverage universe and elaborate on developments for European HY markets, including new issuances and defaults. Lastly, we cover sectoral developments and the key drivers for companies under our coverage.

Overall, we are cautiously optimistic for 2023, and believe selected names still offer interesting opportunities, albeit spreads have recovered strongly this year.  

• FY 2022 earnings were above expectations, execution remains strong. Upgrades coming
• FY 2023 outlook: double-digit margins, positive FCF; announcement of a share buyback program of €1.5bn + €4.2 ordinary dividend
• We remain bullish on Stellantis, our top OEM pick for 2023. Valuation very supportive. 

• Despite a challenging quarter, Walt Disney managed to deliver an all-around beat and expanded internationally.
• The sequential improvement was driven by lower SG&A costs and higher revenue at DTC.
• At Domestic Parks and Experiences, significant operating income and revenue growth in the quarter was achieved.

• Yum Brands delivered a decent growth in 2022 despite labor shortages and commodity inflation.
• It ended the year with an all-around beat in the last quarter and more than 55,000 restaurants operating globally.
• We give Yum Brands a ‘Hold’ rating with a revised target price.

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.

• Adani Transmission
• Tata Motors ADR

• Tyson Foods delivered a highly disappointing set of results for the last quarter.
• The drop in earnings was a result of weaker results in beef, pork, and chicken.
• Prepared foods revenues increased for the quarter, driven by pricing actions and volume growth.

• Devyani International (DEVYANI IN)  has outperformed Jubilant in terms of growth, revenue, and EPS.
• Devyani International (DEVYANI IN)’s focus on KFC and Costa Coffee benefits from the “Dine In” trend, while Jubilant faces increased competition.
• DEVYANI’s plans to double store count and penetrate underrepresented categories justify its premium over Jubilant Foodworks (JUBI IN) .

• On 20 February, KRX announced that effective 13 April 2023, Samyang Foods will be included in the KOSPI 200 index and Hyundai Greenfood will be excluded.
• We have a positive view on Samyang Foods and we believe this stock will outperform KOSPI leading into the week of KOSPI 200 inclusion (13 April). 
• We think that expectation will play a bigger role and some investors may choose to buy this stock ahead of the actual inclusion date.

• The balance sheet is in great shape and could fund a much more aggressive growth strategy (or higher shareholder returns)
• JT lags peers in the higher growth vape & oral markets. Ploom X needs investment to be a global hit. The balance sheet can easily fund both
• Why bullish? The stock is trading cheap and offering a higher yield than its five-year average

• While this was a major step forward, it did not adequately explain how Fujitsu would invest the cash from the sale of these non-core businesses in its core businesses.
• The investment strategy of buying listed subsidiaries with parent-subsidiary listings was shown to be reasonable. The exit risk may be lower when the parent makes the subsidiary a wholly-owned subsidiary.
• If valuations are enhanced by expectations of increased corporate value through reviews of the parent’s business portfolio, the dissolution of the parent-subsidiary listing is a powerful way to enhance valuations.

• Since our last update in January 2023, Inter Parfums (IPAR) has released its preliminary fourth quarter sales results and there has been more data affirming consumer demand for fragrances
• The reopening of China was earlier than IPAR’s management’s forecasts, which could have a material boost to sales in 2023.
• The addition of Lacoste to the product portfolio remains the catalyst for 2024 sales growth

• General Mills continued to outperform the market, in spite of the sharp drop in share price in recent months.
• The company now trades closer to fair value, but weakness in the pet food segment was largely unexpected.
• The drop in volumes is unsettling, but the company now trading closer to a fair value.

• Kimberly-Clark’s stock has enjoyed a brief period of at-par performance with the rest of the equity market.
• Some of the tailwinds that made this rally possible are dissipating and are unlikely to provide a sustainable tailwind for shareholders.
• In recent years, it has been next to impossible to conceive a long investment thesis for Kimberly-Clark (NYSE:KMB).

• In this insight, we discuss our thoughts on S.M.Entertainment Co (041510 KS) management’s official response on why it is opposing HYBE (352820 KS)’s tender offer offer.
• Currently, about 85% of SM’s employees oppose HYBE’s proposed acquisition of nearly 40% stake in SM Entertainment. 
• In the last week of February/early March, Kakao Group could make an official tender offer at prices of at least 140,000/150,000 won, in our view.

• Rakuten Inc (4755 JP)’s 4Q22 results were not all that great with operating loss exceeding consensus by ¥8.4bn mainly through fair value losses in minority investments.
• The domestic e-commerce and fintech businesses did reasonably well with 23.4% and 16.4% YoY OP growth while the mobile business managed to narrow its quarterly loss by ¥8.2bn.
• However, we think the main catalysts for shares to rise 12% following earnings are Rakuten Symphony, Rakuten Energy and a possibly attractive valuation for the Rakuten Bank IPO.

• Hilton Worldwide Holdings delivered an all-around beat in its last result with strong free cash flows.
• It distributed over $1.7 billion to shareholders for the entire year due to strong profits and increased margins.
• We give Hilton Worldwide Holdings a ‘Hold’ rating with a revised target price.

• Despite the severe production unpredictability and inflationary pressures, BorgWarner performed strongly and delivered an all-around beat in the last quarter.
• BorgWarner declared its intention to cut its absolute Scope 3 emissions by at least 25% by 2031.
• The Scope 3 target was formally submitted to SBTi for certification together with their goal of achieving 85% absolute Scope 1 and Scope 2 emissions reductions by 2030.

• Post the Powertrain spin-off, Conti’s automotive business is more robust and of higher quality, now more focused on rapidly growing areas such as autonomous mobility and safety and motion.
• The Tires division is resilient by nature and generates strong cash flow.
• The Company benefits from long-term structural trends. Valuation is supportive, with 25% upside from current levels

• Unilever had a decent performance in 2022.
• It achieved underlying sales growth of 9.2% and a fair level of operating margin aligned with expectations despite the volatile period.
• Prestige Beauty delivered outstanding double-digit growth with a strong performance by Paula’s Choice.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• The bullish response to the 50% Fibonacci retracement at 61750 in Q1 2023 has been impulsive. 
• KIA Corp is set to challenge the top of the 2021/2023 parallel downtrend channel around 78500. A break above the channel will confirm aggressive topside targets (90000/100000).

• Honda managed to deliver an all-around beat but is operating in a challenging business environment.
• In Q3, Honda Motor’s production and unit sales of automobiles decreased due to the impact of the pandemic and semiconductor supply shortages.
• In these conditions, Honda made corporate-wide efforts to enhance its profitability structure and achieved an operating margin of 6.3%.

• Honasa Consumer (HC) is looking to raise about US$350m in its upcoming India IPO.
• HC’s product portfolio includes products in the baby care, face care, body care, hair care, color cosmetics and fragrances segments. 
• In this note, we will talk about the positive aspects of the deal.

• Kellogg ended the year with an all-around beat and double-digit net sales growth in every region, supported by end-market success.
• The company continued to experience great growth in emerging countries, driven by its portfolio of noodles and other products in Africa.
• They reduced the profit impact of abnormally high input costs that increased during the year using efficiency and well-planned activities for managing sales growth.

• The second wave of pandemic is important logic to drive up Fu Shou Yuan’s share price, but the peak value/lethality could be lower than first wave, leading to lower-than-expected demand.
• Whether the second wave can “arrive as expected” may not depend on pandemic itself, but on “whether to let it happen”,especially when China’s making every effort to promote economic recovery.
• Besides solid fundamentals/optimistic performance, hot market sentiment is very essential if Fu Shou Yuan (1448 HK)’s share price is to outperform. Policy changes are also a potential source of unease.

• Since companies are in the process of raising their own human capital efforts, it’s good to use  ISO 30414 certification as an opportunity to see how well they are doing.
• Many companies may believe that ISO will share the risk of information at the time of disclosure with respect to the accuracy of the disclosed information.
• Since perfect information doesn’t seem to be required in the Annual Securities Report for FY3/2023, the information will actually be available for intercompany comparisons starting with that for FY3/2024.

• S.M.Entertainment Co (041510 KS) is trading through the partial offer terms as HYBE (352820 KS) and Kakao Corp (035720 KS) jostle for control.
• The political noise around the Adani Group situation will continue to be significant. Part of India believes this is a hatchet job against PM Modi and the BJP.
• Star Entertainment Group (SGR AU) is an extraordinarily toxic company. But just how much negative news is already baked into the share price?

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, Pertamina Geothermal is set to make its debut in the coming week.
• Placements picked up pace this week, with multiple deals across geographies.

• Toyota delivered strong set of results in the quarter despite the changing business environment especially given the company lagging behind in the global shift to EVs.
• The company’s focus on hybrid vehicles and its avoidance of shifting to EVs is hurting its market share immensely in many key markets.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Ford Motor delivered a disappointing result in the last quarter.
• The performance was below the expectation of the management as well as Wall Street and its industrial performance was not up to the mark.
• However, Ford’s balance sheet liquidity stays strong, and the ability of the company to generate free cash flow has improved.

• Hershey ended the year on a strong note despite macroeconomic uncertainty, continued supply chain disruptions, and inflation.
• Consolidated net sales, organic, constant currency net sales, and reported net income increased and the company managed an all-around beat.
• The growth in net sales was driven mainly by net price realization, with steady consumer demand behind increased capacity and higher advertising levels.

• Philip Morris ended 2022 on a positive note and delivered another all-around beat.
• The company’s volume increased significantly due to the ongoing IQOS development and steady cigarette volume.
• Over a third of the total Philip Morris and more than 50% in 70 markets had smoke-free net revenues for the entire year.

• Strong passenger traffic year-to-date indicates that full-year passenger throughput for 2023 will be on par with 2019.
• Concerns that China resuming outbound travel could turn domestic tourists away from Hainan are overblown, overlooking the huge pent-up leisure travel demand over last three years.
• We expect investors will focus on pace and sustainability of the recovery when company announces 2022 results. Being eligible for Stock Connect Program in 2023 will be a key catalyst. 

• Clorox delivered a solid set of results in the previous quarter with organic sales growth in 3 to 4 segments, double-digit earnings growth, and gross margin expansion, despite the challenges in the market due to an unstable global operating environment.
• The company delivered an all-around beat and continued to work on the enhancement of its brand equity.
• Clorox has been encountering different challenges in the macro environment for the past few quarters especially after the Covid-19 tailwinds have receded.

• Estee Lauder delivered a highly disappointing result despite surpassing Wall Street expectations in terms of revenues as well as earnings.
• With its business continuing to be pressured by external headwinds resulting from the pandemic, the organic net sales and the earnings per share decreased in the quarter for Estee Lauder.
• Estee Lauder should also benefit from the acquisition of Tom Ford in competing with L’Oréal.

• Shareholders have gently pressed. SARIA has upped by 4.4% (“increased and final”) its cash offer for casings manufacturer Devro to 320p+10p interim, which represents 10x EV/Fwd EBITDA and 17.1x Fwd P/E.
• The increased consideration puts the offer almost in line with market leader Viscofan’s multiples (10.2x EV/Fwd EBITDA). The initial offer was already generous, even more so now.
• The deal should complete. Spread (gross/annualised) is 1.06%/2.65%, assuming settlement by 14 July (settlement will happen the same day as the second permitted dividend payment).

• The number of shareholder proposals in June 2022 was 241, significant increase from 136 in June 2021. It’s expected that the number of shareholder proposals will increase again this year.
• The increase in the percentage of shareholder proposals recommended by voting advisors can be considered an increase in shareholder proposals that are quite reasonable from the shareholder’s point of view.
• The percentage of overseas investors in favor of shareholder proposals increased, while that of domestic institutional investors remained unchanged at 7%, the same as the previous year.

• Sirius XM had a mixed quarterly result.
• This was a challenging environment for the company as the auto sales were the lowest in 11 years in 2022.
• Sirius XM is trying to attract more consumers to its platform and continues holding the largest share of car music outside combined terrestrial radio.

• Starbucks delivered a disappointing set of results as it failed to meet Wall Street expectations in terms of revenues as well as earnings.
• The U.S. company-operated stores Starbucks have a decent revenue in the quarter, and so did North America overall.
• In the quarter, it launched its first Starbucks reward named Reward Together partnership with Delta Airlines.