Consumer

• While investment managers spend money on expanding their ESG investment systems and disclosures in preparation for the FSA’s guidelines, they expect the business of ESG funds to continue to grow.
• It’s desirable for investment managers to disclose qualitative and quantitative information, recognizing the need to incorporate ESG factors into their investment decisions and to show that results are being achieved.
• Some investment managers are redefining ESG funds to incorporate ESG factors beyond ESG integration, and this trial-and-error process will continue as investment managers position ESG investment trusts as key products.

• 25% reduction on hardware cost of car production in one year would be remarkable if achieved
• Integrating two sales systems into one is a positive move, but not good enough in our view.
• Mr. He taking direct resposibility of styling design division is a sign that the company acknowledges that it is a key improvement area for estabilishing brand image

• There are 42 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this past week: Thai Beverage (THBEV SP)‘s delisting Offer for Oishi Group PCL (OISHI TB).
• Key updates took place for AAG Energy Holdings (2686 HK), Pushpay Holdings (PPH NZ), GK Goh Holdings (GKG SP), Halcyon Agri (HACL SP), and S.M.Entertainment Co (041510 KS).

• PDD stock price has been increasingly driven by TEMU as of late, thanks to TEMU’s fast growth and aggressive geographical expansion.
• TEMU rollout introduces more variables to upcoming 4Q results , especially with regard to incremental investments that pose downside risks to earnings, which will sharply decelerate in 4Q and beyond.
• We are turning more constructive on TEMU, but acknowledge the challenges in trading off between topline growth and bottom line deceleration in a potentially prolonged tightening cycle. Stay neutral.

• Addition of Writing Legends to existing maths and literacy apps will create more opportunities to upsell and cross-sell. 
• Brightpath, the recently acquired assessments technology provider, adds a new horizontal with the potential to reduce school customer churn
• Competition is high from groups such as DreamBox, IXL, ABC Mouse, Khan Academy and BYJU’S . 3P Learning remains a significant player with a strong customer base and improving product portfolio.

• TL5 holdouts have exposed themselves to being trapped by MFE, which has already shown in the past that it has no qualms about running its subsidiary for its own interests.
• The implied exchange values the audiovisual business of TL% at 1.2 EV/22eEBITDA TL5/MFEA spread is +3.02%, I would wait for it to turn negative to open a position.
• MFE A shares are trading at a 34.7% discount, which seems excessive nevertheless. With more A shares coming in the market (and higher liquidity), I would be long MFEA/short MFEB.

• RPSG Ventures Limited (RPSGVENT IN) [“RPSGV”] continues to scale up its FMCG business. Q3FY23 FMCG revenues saw a YoY growth of 23%. QoQ, there was some de-growth due to seasonality.
• Excluding one-off other income, Firstsource Solutions (FSOL IN) reported weak Q3FY23 earnings led by sluggish growth and weak margins.
• RPSGV remains a deep-value holding company that is trading at a discount of >85%. As its FMCG and Sports businesses scale up, the stock has potential to re-rate significantly.

• On March 2 we discussed how the pullback in global equities was in full swing as Europe/UK indexes displayed 4.5-month uptrend breaks, joining the pullback in the MSCI ACWI.
• At the time, we expected this pullback in the MSCI ACWI (ACWI-US) to move down to $86-87 at minimum, and potentially $84 (December 2022 low) or $75-77 (the 2022 lows).
• ACWI-US broke below $86 and is approaching $84. $84 will be an important support level to monitor, but if it breaks, the $75-77 level is still firmly in the cards.

• Japanese companies are keen on obtaining ISO certifications, so it’s relatively easy for companies that have obtained these certifications to ensure the comprehensiveness of sustainability information by disclosing such information.
• It’s useful to know the degree to which management recognized the challenges and the leadership that management could exercise in solving those challenges, rather than laundry list of self-praise information.
• For management to recognize issues and implement initiatives at global level, it’s expected to hire a head who is sensitive to global initiatives and work with him/her to resolve issues.

• DPC Dash (1405 HK) is now looking to raise up to US$90m, after having shelved its last attempt to raise around US$75m in its Hong Kong IPO in December.
• The company is the exclusive master franchisee for Domino’s Pizza in China, HK and Macau. DPC operated 604 stores across 17 cities, as of Feb 2023.
• In this note, we run the deal through our ECM framework and talk about valuations.

• In this insight, we take a look at the potential index changes and the resultant capping flows for the HSCEI Index in June 2023.
• According to our estimation, there could be two changes for the HSCEI in June 2023 and there could be one-way index flows of US$585mn.
• The final index changes along with indicative capping and index weights could be published in Mid/Late-May 2023.

• Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$380 million at the IPO reference price of JPY2,000. Pricing on 26 March.
• We previously discussed the IPO in Trial Holdings IPO: The Bull Case and Trial Holdings IPO: The Bear Case.  
• In this note, we discuss valuation. Our analysis suggests that Trial is attractively valued at the IPO reference price of JPY2,000. We would participate in the IPO.

• Like all department stores, Iwataya in Fukuoka is keen to grow services for its wealthiest customers. 
• It already has special lounges for high spending customers and has now opened a new, invitation-only lounge for its top 300 clients, many of whom are under 40.
• Capturing more share of the wealth market is the only real hope department stores have to grow.

• The exclusive master franchisee of Domino’s Pizza in mainland China, Hong Kong and Macau, DPC Dash’s IPO opened for subscriptions today at a price range of HK$ 46.0-55.0 per share.
• The IPO valuation is not particularly enticing to lure us as we don’t think it’s at a sufficient discount to Yum China Holdings Inc (9987 HK)’s multiples.
• DPC Dash (1405 HK) is also relatively more expensive than Domino’s Pizza (DPZ US) master franchisees in other regions.

• Kelsian Group (KLS AU) aims to raise around US$90m (A$135m) via an institutional placement. Together with the placement, the company will also undertake a US$95m (A$143m) non-renounceable entitlement offer. 
• The issuance of new shares will be a large one for the firm to digest, representing 150.6 days of three month ADV and 20.3% of current mcap. 
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Giant Biogene has been added to Hong Kong Stock Connect.There’s also positive sentiment driven by the consumption recovery after China reopens. But the Company is overvalued if compared with peers.
• The subsequent product pipeline progress is relatively slow, with a gap of nearly two years in the middle. So, Giant Biogene’s stock price performance may be relatively weak after 2024.
• Due to various restrictions, the actual market space of collagen in the future may not be as large as expected. This is a point investors need to be aware of.

• Anycolor (5032 JP) reported Q3 results today. 9mo Revenue is now above the lower end of original forecasts for the full-year. 9mo OP is 25% higher than the original mid-range.
• The net profit forecast is now up 51% from the original mid-range, and up 128% on the year. The stock has cratered. Badly. 
• It is now 19x April 2023 earnings for 90% revenue growth and 150% Net Profit growth and 40% OPM in the last quarter. Go figure.

• Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$380 million at the IPO reference price of JPY2,000. Pricing on 26 March.
• In Trial Holdings IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on bottom quartile gross and operating margin, mid-tier FCF generation and unusual cash collection cycle.

• Greentree Hospitality (GHG) is a Chinese hotel franchiser and operator that trades at a large discount to other US traded peers and had some rumours floating around in 2022 that it would be taken private by its controlling shareholder who owns 88.7% economic interest in the shares.
• The controlling shareholder also indicated that the reason for its late Q1 2021 report was that they had hired capital market consultants to explore a take-private offer.
• It does have some hair on it, but let’s first focus on the positives

• The big online malls continue to grow at higher rates than many branded e-commerce stores, meaning consecutive annual gains in market share. 
• Amazon’s lead now seems to be widening while Rakuten is also pulling ahead of Z Holdings, which continues to struggle with poor integration of assets, and we see little upside.
• Amazon is now Japan’s 2nd biggest retailer but, despite its problems in Mobile, Rakuten is proving a relentless competitor in e-commerce and we remain bullish on its e-commerce prospects.

• TSE will require companies with P/Bs below 1x to disclose improvement plans, urging them to shift to management that reflects an awareness of their cost of capital and stock price.
• The good thing about this TSE request is that “cost of capital” will be widely recognized by companies. Companies can no longer easily reject shareholder proposals regarding cost of capital.
• It should also be an opportunity for management to evaluate its own corporate value and compare it to market value and consider whether it should remain listed or go private.

4imprint’s FY22 results are impressive, with 45% organic revenue growth and an uplift in operating margin to 9.0% (FY21: 3.9%) despite some gross margin pressure from inflation. Much of this is due to the step-change in marketing efficiency via investment in the 4imprint brand, which has delivered large numbers of new customers and higher order counts. The group is inherently highly cash generative, and we already assumed that a special dividend was likely. This is now confirmed, at twice the level we anticipated, at $2/share. The pace of growth will likely moderate this year and there will need to be some investment to cater for the larger volumes, but momentum remains good, and our forecasts are edged ahead.

• 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.
• On 9 February 2023 we published a bullish recommendation in China Resources Beer Holdings (291 HK), targeting an 8.75% multi-week rally in Q1 2023.
• 291 HK rallied from 58.75 on 9 February to 63.90 on 7 March (15 trading days), a rise of  8.75%. Target achieved on 7 March 2023.  

• This is our first report on Advance Auto Parts, a leading provider of automotive aftermarket parts in the U.S.
• Advance Auto Parts had a difficult year in 2022 though it did manage to improve its top-line results in the fourth quarter and managed an all-around beat.
• Mid-single-digit comp sales growth in DIY multichannel dominated the fourth quarter.

• Pointerra Ltd (ASX:3DP) provides a powerful cloud-based solution (Pointerra3D) for managing, visualising, analysing, using, and sharing massive 3D point clouds and datasets.
• The company has taken a highly manual, slow, and cost-prohibitive process and turned it into a fast, efficient workflow solution for 3D data, enabling digital asset management from any device in any location.
• The Pointerra3D suite of solutions spans target sectors including survey and mapping; architecture, engineering, and construction (AEC); utilities; transport; resources; and defence and intelligence.

• Colgate’s management seems to be making the right moves in pet food, but performance would need to improve in other segments as well.
• Upside appears limited in the short-run and I will be looking for more evidence that management could deliver higher gross margins, I am cautiously optimistic that Colgate will deliver better results in 2023.
• Performance of Colgate-Palmolive (NYSE:CL) in recent years could hardly be described as success.

• In this insight, we provide a proration analysis of the S.M.Entertainment Co (041510 KS) tender offer by Kakao Corp (035720 KS).
• Our base case assumes 71.4% of outstanding shares will participate in the tender offer, including HYBE, NPS, KB Asset Mgmt, Com2Us, and 70% of the remaining local and overseas investors.
• There is a very high probability of a successful tender offer of SM Entertainment shares by Kakao. Post end of tender offer, its share price could fall about 5-10%, however. 

• The target volume is 47.6% of the nominally estimated tendering pool size. It may go up due to retail investors’ typically low participation in tendering.
• Other factors MAY OFFSET this. Most notable is the tendering possibility of HYBE (18.45%) and Lee Soo-man (4.96%). Combining these, the allocation rate will likely be between 50% and 60%.
• Using this 50-60% band as a reference point, we should assess the risk of mismatching between the degree of post-tendering price correction and our loss buffer range for non-tendered shares.

• Three years ago I wrote a piece about the history of activism at Tokyo Broadcasting System (9401 JP), suggesting it was not expensive but activist gains might be hard won.
• Yesterday, TBS announced it would sell strategic cross-holdings to raise cash for investment, as per its Medium-Term Management Plan 2023, and its full-year forecast Net Profit would rise 75%.
• That tells you what you need to know, and it guides you to the value within. 

• After rallying a fair bit at the beginning of 2023, we have seen sharp pullbacks in Eva Precision Industrial Holdings (838 HK) and China MeiDong Auto (1268 HK) share prices.
• We believe the price cuts highlighted by Victoria Li in her insight China Auto: ICE Price War Triggered by Dongfeng, JV Players Under Pressure are a significant cause. 
• While we like both stocks and they are cheap, we feel both companies will face short to medium-term pain in their businesses and share prices as the saga unfolds.

• Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$380 million at the IPO reference price of JPY2,000. Pricing on 26 March.
• Trial aims to act as a one-stop shopping store where a consumer can buy whatever they want at a great price. Trial’s basic pricing strategy is Every Day Low Price.
• The key elements of the bull case rest on top quartile revenue growth, encouraging same-store sales growth, solid margin profile and cash generation.

• Mahindra & Mahindra (MM IN) is facing challenges in the highly competitive SUV segment in India.
• Model-Wise data indicates declining sales volumes for some of its models such as Scorpio, XUV300, and XUV700.
• The strategy of focusing on the higher end of the SUV market may lead to confusion and loss of market share. 

• Questionable marketing practices and cheap counterfeits could make TEMU a legal nightmare for Pinduoduo (PDD US).
• Meanwhile, SHEIN doesn’t seem ready to give in easily to the competition. Thus, TEMU could be a significant burden on Pinduoduo’s profitability in the medium-long term.
• Considering the discounts, advertisements and promotional spending done by TEMU in the fourth quarter, we think it is unlikely that Pinduoduo will meet the 4Q22 consensus OP of RMB 11.7bn.

• Australia’s gaming equipment/systems giant is among the best poised to reward shareholders over the next 18 months as sector recovery speeds.
• ALL’s stock performance over the past 5 years amid 3 of covid headwinds has rewarded investors with ~a 62% total shareholder return–including dividends.
• ALL is riding the front of the cashless gaming systems tech which can grow exponentially over the next 3 years in all key global jurisdictions, Asia, US and EU.

• Trial Holdings (5882 JP) is looking to raise around US$375m in its Japan IPO.
• TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
• In this note, we will talk about the not-so-positive aspects of the deal.

• Recent pullback of Trip.com (9961 HK) has made this China’s tourism recovery play even more attractive.  Since end-Feb, consensus earnings forecasts have been upgraded by 19-20%.
• It is best positioned to capture the revival in China’s domestic and outbound travels. Forward booking data has pointed to very solid momentum over the next few months.
• We anticipate good margin expansion going forward, and its resilient financial position provides opportunities for value-enhancing M&As. These all justify a premium valuation over peers. 

• Singapore VII Topco III (Blackstone-affiliate) is looking to raise at least US$585m in its stake sale of Sona BLW Precision Forgings (SONACOMS IN) . 
• The share sale is a clean-up one and will lift the overhang on the stock.
• The block is marketed at a floor price of INR400/share, at a 8.3% discount to last close. 

• Kum Yang and Youlchon Chemical are within the borderline for inclusion, whereas Hwaseung Enterprise and K Car are in the deletion zone.
• Since the review period has reached 75%, it seems reasonable to consider a somewhat aggressive buildup for them.
• We can also consider setting up preemptive positions only for Kum Yang and Hwaseung Enterprise and then sequentially look for entry opportunities for Youlchon and K Car later on.

• Having conducted several acquisitions and reinvested most of the operating cashflows into building its overseas business base, Fuji Oil Holdings (2607 JP) seems ready to unleash its earnings potential.
• There could be more than a 100% upside to Fuji Oil shares if ROE returns to the historical median of 9% in the next few years.
• Therefore, if Itochu Corp (8001 JP) has plans to takeover Fuji-Oil, the current price and the position in the business-cycle present the best opportunity to buy-out Fuji-Oil at a bargain.

• Few companies have generally achieved significant growth since listing, and about half of the companies are below their market capitalization at the IPO, which is challenges in TSE Growth Market.
• Even if the number of companies subject to such shares is limited, the use of multiple voting shares shouldn’t be ruled out if the dilution of voting rights hinders fundraising.
• The key to solving the challenges of TSE Growth Market, where few companies have growth potential and have financing needs, is the ability of management to realize growth potential post-listing.

• We have compiled a summary of the results and outlook statements for our assessed peers of Ricegrowers Limited, trading as SunRice (ASX:SGLLV), with a particular focus on trading conditions, product pricing, freight costs, outlook statements and consensus earnings changes.
• The overwhelming summary of trading conditions over CY22 was ‘challenging’ outside of Treasury Wine Estates (ASX:TWE) and Ridley Corporation (ASX:RIC).
• The overwhelming outlook commentary assumes normalising weather conditions, price increases recouping cost inflation, lower freight costs, improved labour availability and higher earnings. 

• Trial Holdings (5882 JP)‘s is looking to raise around US$375m in its Japan IPO.
• TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
• In this note, we will talk about the positive aspects of the deal.

• Harvey Norman Holdings (HVN AU) will be deleted from the MVIS Australia Equal Weight Index at the close of trading on 17 March.
• One way turnover is 3.9% resulting in a one-way trade of A$68m. Only Harvey Norman Holdings (HVN AU) has more than 1 day of ADV to sell from passive trackers.
• Harvey Norman Holdings (HVN AU) has underperformed Myer Holdings (MYR AU) significantly over the recent past and the index deletion could provide an entry point into a trade.

• On 12 March, HYBE (352820 KS) announced that it is no longer pursuing S.M.Entertainment Co (041510 KS) in an M&A battle with Kakao Corp (035720 KS).
• This will result in a very high probability of Kakao winning the M&A battle of SM Entertainment.
• Many institutional investors are likely to have pushed back on HYBE’s capital raising efforts, which seems to have been the clincher of HYBE backing out of this M&A for SM. 

• Thai Beverage (THBEV SP) is proposing to take 79.66%-held Oishi Group PCL (OISHI TB) private by a voluntary Delisting Offer. 
• The Offer price is THB 59/share, a 26.9% premium to last close. 
• This Delisting Offer requires a shareholder vote. Payment may occur sometime in August. 

• 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  21Vianet Group (VNET US), 111 Inc (YI US), Alliance Aviation Services (AQZ AU), Oishi Group PCL (OISHI TB), Toyo Construction (1890 JP), Aag Energy Holdings (2686 HK), Jiangnan.
• Lowest spreads – Norwest Energy NL (NWE AU), Genesis Minerals (GMD AU), GK Goh Holdings (GKG SP), Nitro Software Ltd (NTO AU), Boustead Projects (BOCJ SP), Nissin Electric (6641 JP).

• Oishi Group PCL (OISHI TB) has disclosed a delisting tender offer from Thai Beverage (THBEV SP) at THB59.00 per share, a 26.9% premium to the undisturbed price (10 March).
• The offer is conditional on Oishi shareholder approval which requires 75% approval by total outstanding shares and <10% rejection by total outstanding shares. ThaiBev can vote at the EGM.
• The offer price is reasonable and timing is the key risk. The delisting EGM will be held on 3 May. The offer must be open for 45 business days.

• Tesla’s sales growth is yet to revert to a linear distribution, given Tesla’s market share and the exponential growth attached to the EV space.
• Rumors of a lithium mine acquisition and an additional Gigafactory indicate that Tesla is working toward a lower cost base.
• It has been a rollercoaster ride for Tesla, Inc. (NASDAQ:TSLA) stock recently, as various market-based and idiosyncratic features coalesced to ramp up the asset’s volatility.

• There are 43 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this past week: TPG’s non-binding Offer for Invocare Ltd (IVC AU).
• Key updates took place for Yashili International Holdings (1230 HK), Pushpay Holdings (PPH NZ), Nippon Steel Trading Corporation (9810 JP), and S.M.Entertainment Co (041510 KS).

• Without sufficient sales growth and profitability, including profit margins and ROE, it is understandable that shareholders will demand greater shareholder returns in order to secure a return on their investment.
• Since Zojirushi’s foreign shareholder ratio is 19.9%, it was expected that shareholder proposals including takeover defense measures would likely be rejected at the general shareholders meeting.
• The likelihood of passage by a company that have low foreign ownership ratio is unlikely to increase without significant change in the attitude of domestic institutional investors toward shareholder proposals.

• Melco Resorts & Entertainment (MLCO US) has entered into a share repurchase agreement with a wholly-owned entity of Melco International Development (200 HK) to repurchase (and cancel) 40.37mn shares for US$169.8mn.
• Melco’s effective holding will decline to 51.7% from 53.1% currently. This is the second parent/sub repurchase agreement in the last 7 months. 
• MLCO’s previously announced US$500mn share repurchase program remains unaffected by this privately negotiated transaction, with US$412mn still available for future repurchases under the program.

• Playmates Toys (869 HK) just published its FY22 results showing a decrease in revenues of 19% but a consistent dividend of 2c HKD
• More importantly, it shared more details about the TMNT upcoming movie launch
• Reiterate thesis that upon TMNT relaunch Playmates toys could be a major beneficiary

• The current slowdown in volume can be attributed to both the broader macroeconomic slowdown & the pausing of the inventory system during the COVID, which has resulted in some mismanagement.
• However, the slowdown is not due to a loss of market share, product quality, or adverse distributor policies, indicating a cyclical issue rather than a structural one.
• In case of a gradual recovery of the macroeconomic situation and appropriate measures taken by Page Industries (PAG IN) , volume growth may pick up in the future.

• General Mills delivered a decent result for the previous quarter, surpassing the market expectations with respect to revenues and earnings.
• In the recent scenario, North America is the first priority of General Mills and they are focused on growth in its core market.
• Despite the post-pandemic situation and hurdles, the company has witnessed a decent growth in cash flow and revenue.

• LKQ Corporation delivered a significantly below part result in the year’s final quarter.
• Revenue declined in the quarter as compared to the last year, driven by the divestiture of PGW and FX translation.
• Organic revenue of parts and services increased but the overall top-line was below analyst expectations.

• Diageo delivered an operating profit and organic top-line growth above the medium-term guidance of the company.
• Despite the challenging economic environment, organic net sales grew.
• The Super Premium Plus brands of Diageo grew organic net sales.

paragon has announced the result of the Eurobond tender offer at 60% of nominal, securing just under €1.7m nominal out of a potential €5m. The offer forms part of the ongoing debt reduction programme that will see the majority of the outstanding bond liabilities (both Swiss franc and euro) redeemed over the next few months (see our previous note). While the shares and bonds have been responding well to the management initiatives, these appear to pose a considerable potential opportunity for investors, assuming the operational growth strategy is successfully implemented.