Consumer

• LG Energy Solution (373220 KS) (LGES) raised US$10.8bn in its South Korea IPO, after pricing at the top-end of the IPO price range.
• The stock was listed on 27th Jan 22. Its one-year lockup is set to expire soon.
• In this note, we will talk about the lock-up dynamics and updates since our last note

• In late December, I wrote 2023 High Conviction – Anycolor (5032) Aiming at TSE Prime and TOPIX – And How!. Shares closed at ¥6,470 that day. Then went to ¥5,500. 
• They have since rebounded some, and now 3 pre-IPO VC investors have announced an overseas offering. This was NOT unexpected. They need more shares to get their TSE Prime listing.
• The Offering is 3.27mm shares which is 5-6 days of volume. This lifts the TSE Prime inclusion amount, eventually, but the story is still about growth and model.

• 7-11 play CP ALL PCL (CPALL TB) is coming up “cheap” on my monitor versus cash & carry subsidiary Siam Makro Public (MAKRO TB). 
• Preceding my comments on CPALL/MAKRO are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Shandong Fengxiang (9977 HK)‘s delisting resolution was overwhelmingly voted against by independent H Shareholders. The results were not helped by the poor turnout.
• PAG’s MGO at HK$1.5132 per H Share is not conditional on the approval of the delisting resolution. The MGO remains open with a final closing date of 1 February.
• PAG currently holds 85.44% of the outstanding shares. At the last close and for a 10 February payment, the gross and annualised spread is 1.6% and 28.9%, respectively.

• HK$0.96 per share special dividend announced last Friday disappointed the market. 
• The dividend implies only 20% of the cash on the balance sheet paid out in dividends
• We think there could be 1-2 more special dividends in 2023E given lack of obvious uses for the cash balance

• The Keepers Holdings (KEEPR PM) recent move of +24% (3 months) was catalyzed by the dividend payout ratio (to 50%) increase and a solid Q4 2022 on the cards. 
• Post the move, the stock trades at 8.4x/6.6x FY22/23e. The dividend yield for FY23e/FY24e is 6.0%/7.6% ( based on a 50% payout). 8% of the market cap is net cash.
• We expect the next catalyst to be when the company reports its earnings ( probably the second week of April 2023). 

• Japan’s largest snacks maker, Calbee Inc (2229 JP) has raised prices by 10-20% for almost 75% of its product range.
• Meanwhile, main inputs such as potatoes and palm oil have seen extensive price drops in the past few months.
• With margin pressures alleviating from both angles (revenue & cost), we think Calbee’s FY24 OP is bound to exceed ¥30.0bn.

• Rakuten only has a 15% stake in Seiyu, alongside majority shareholder, KKR, but the pivot by Seiyu post-acquisition shows the potential for Rakuten in this sector.
• Building on the 5 year plan that it set out in 2021, Seiyu last month announced a ¥100 billion in investment over the next 5 years.
• Funds will be used to increase integration with Rakuten’s online supermarket, with the aim to become the biggest GMS retailer.

• Last April I wrote about Tsi Holdings (3608 JP) which was trading at 0.5x EV/EBITDA and where I suggested it could double in 2-3yrs. 
• The day after I wrote, the stock closed at ¥312/share, briefly touched ¥480 before ending the year at ¥444. On Friday they announced Q3 earnings, now TTM EV/EBITDA is 2.5x.
• They also announced a buyback, and the stock is up further. It is worth looking into the details both near-term and what they mean longer-term.

• Of the four peers, only Coupang adopts the gross method. Since the others adopt the net method, it is impossible to compare PSR with OASIS, which uses the gross method.
• If they really want to use PSR, it should only be compared with Coupang. Even if we apply CPNG’s current EV/Sales multiple (1.36x), it would only slightly exceed ₩0.5T.
• A more logical way would be to use EV/GMV. Even in this case, it wouldn’t be easy to expect a valuation higher than ₩0.5T.

• The Kingston Financial (1031 HK) scheme document is out with the scheme meeting scheduled for 9 February. The IFA considers the offer to be fair and reasonable. 
• Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and the headcount test. No shareholder holds a blocking stake.
• Peer re-rating increases the headcount test risk. At the last close and for the 10 March payment, the gross and annualised spread is 5.3% and 42.2%, respectively.

• China recorded 270,000 increases in deaths in 2022 to 10.41m (+2.7% YoY, vs. flat in 2020). This is a sad demographic trend but favourable to Fu Shou Yuan (1448 HK).  
• Death rate of 0.74% has returned to the 1974 level. With termination of “zero COVID” policy, this is poised to increase. This will also stimulate demand for its pre-need services.
• Despite a 73% rebound in share price from trough, valuation is still undemanding at 14.4x FY23F PER. This implies a 35% discount to the average of 22x since 2013. 

• Fast Retailing (9983 JP)’s 1QFY23 results were below consensus estimates with OP missing consensus by 13.2%.
• The outlook for the rest of the year doesn’t seem too well either with Domestic profitability held back by rising wages and growth markets affected by slowing demand for apparel.
• Even though China could emerge from COVID to boost Uniqlo’s profits, we see significant downside risk to Fast Retailing’s FY23 guidance.

• The Scheme Booklet is now out and Kingston Financial (1031 HK)‘s shareholders can vote on Chu Yuet Wah’s Offer on the 9 February.
• The Cancellation price of HK$0.30/share was a 47.78% premium to the undisturbed prices. It will not be increased. 
• Currently trading at a gross/annualised spread of 5.3%/44.4%, assuming payment on the 10 March. 

• OASIS Corp (1799513D KS) is looking to raise up to US$166m in its upcoming Korea IPO. 
• Oasis Corporation is an early morning delivery service business that delivers fresh food to consumers. It runs an e-commerce platform named ‘Oasis Market’ as well as offline stores.
• Oasis Corporation aims to boost its sales and presence by further improving on its omnichannel strategy. However, its explosive growth appears likely to have been driven by COVID-induced lockdown measures. 

• We have been bullish on the prospects of the Aussie gaming tech maker’s real world valuation in the light of its outstanding performance.
• The company’s relatively low institutional holding profile suggests its visibility is limited.
• WE put a one year PT on the stock at AUD$45 vs its current trade at AU$33 because it outperforms industry peers in ROE among other reasons.

• Forcing companies to submit ROE targets as measure to counter the fact that half of companies languish below 1x P/B is like a teacher asking students to submit an assignment.
• If that motivates the management, good for them. However, in our experience, only a small percentage of students are motivated by the teacher’s words and see their performance improve.
• If companies are asked to submit ROE targets, they shouldn’t simply meet them by changing capital structure through shareholder returns, but should achieve them through investments for future earnings growth.

• Growth in the Japanese home interiors and furniture markets is set to continue long-term. 
• At present, just a handful of brands have any major presence led by Nitori Holdings (9843 JP) which continues to expand market share.
• With multiple formats, Nitori looks set to continue to dominate but faces competition from unlikely quarters, especially Yamada Denki (9831 JP).

• On 11th Jan 2023, WM Motor Technology Co Ltd announced its intention to merge with Apollo Future Mobility (860 HK) .
• WM Motor failed to list in Hong Kong last year and this is essentially its attempt to undertake a reverse merger at a valuation well below its previous funding rounds.
• In this note, we will talk about the deal dynamics and  take an early look at its implications.

• British American Tobacco’s stock could reach $45 per share.
• The firm’s dividend policy means a dividend yield of 6%+ is likely to sustain.
• The organization’s non-combustible products segment is skyrocketing and makes up approximately 15% of the company’s revenue mix, consequently providing valuable economies of scope.

• The equity story lies with a strong execution, further synergies, cost-cutting, a strong BEV ramp-up, and diverse leading brands
• Strong operating and financial performance since IPO.  Net cash >€ 20bn as of end-2022e, >€ 30bn from 2024e
• Trades on very attractive multiples. We believe that the Company’s intrinsic value is well above the current share price.

• After Macau’s government renewed the concession periods for the city’s six incumbent gambling concessionaires for another 10 years, the key players are up 86% on average
• Both Melco International Development (200 HK) and Melco Resorts & Entertainment (MLCO US) have gained a little over 100%. 
• Melco’s NAV discount is back out to 36%. The simple ratio – Melco/MCLO – is around the lowest level since Melco began consolidating MCLO in early 2017.

• Seven & I Holdings (3382 JP)‘s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.
• This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.
• Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.

• Allied Blenders & Distillers (ABD IN) is looking to raise about US$250m in its upcoming India IPO. I-Sec, Axis Capital, JM Financial, Kotak and Equirus Capital will be the bookrunners.
• ABD is the largest Indian-owned Indian-made foreign liquor (IMFL) company and the third largest IMFL company in India, in terms of annual sales volumes between FY14 and FY21.
• ABD has grown its brand over time and managed to stay profitable, despite COVID-19. However, sales volume has yet to return to pre-COVID levels, along with its profitability. 

• This is our first report on DoorDash, the largest online food aggregator in the U.S.
• The company is a market leader in its domain and has demonstrated incredible resilience.
• Even in the last quarter, its market revenues have increased significantly despite the oil crisis, relatively persistent inflation, and the European war.

• In January 2021, Tianneng Power (819 HK)‘s (TPI) battery unit Tianneng Battery (688819 CH) (TBG) was listed on China’s Star Market, as discussed in Tianneng: Star Market Battery Spin-Off Priced.
• TBG is now proposing the issuance of GDRs, accounting for 10% of existing shares out, to be listed on the SIX Swiss Exchange.  
• A circular has been issued and TPI shareholders go to the vote on the 31 January. TPI currently holds 86.53% in TBG worth >300% of its market cap.

• We remain bearish on Fast Retailing given its valuation premium versus global peers
• Q1 sales were resilient despite global cost of living issues. Profits missed on rising costs and China’s Covid hangover 
• Cost pressures on the wage bill could be a multi-year issue as Uniqlo seeks to align with global pay standards

• China ( >20% of revenue ) changing its stance on COVID provides Perfect Medical Health (1830 HK) with an opportunity to crystallize its expansion plans there. 
• The border reopening between HK/China will provide a boost to its HK operations (>70% of revenue). The second half of H1 2023 results reflect an improving revenue trend for HK.
• The stock trades at 16x/11x FY23e/24e with ~15% of the market cap in cash and a dividend yield of 6.5%/9.5% FY23e/24e (based on ~100% payout ratio). 

• Chinese e-commerce giant Alibaba Group Holding Ltd. signed a strategic cooperation agreement with the government of Hangzhou, the eastern China city where the company is headquartered
• Alibaba and its finance affiliate Ant Group Co. Ltd. have been at the center of the Chinese government’s multi-year crackdown on the internet sector since October 2020.
• In 2021, Alibaba was fined a record 18.2 billion yuan ($2.6 billion) for monopolistic behavior.

• Positive response of China Education Group (839 HK)‘s placement indicated a good return of investor appetite to the sector. Its premium multiples stay well justified even after recent rally. 
• The HK$1.6bn proceeds will reduce gearing to 29.2% (including contract liabilities) from 41.7% with minimal dilution. Narrowing in valuation gap against asking price of targets means more M&A potential. 
• More funding for expansion of existing campuses, increase in accommodation and the set up of COVID-19 related curriculum will allow CEG to realise higher revenue per student.

• Tesla’s disastrous performance has resulted in the company no longer being among the Top 10 largest U.S. public companies.
• Market commentators remain laser-focused on business fundamentals, while outside factors are still in the driver’s seat.
• Back in April of last year (less than a year ago) the optimism on Wall Street was running high.

• Sales have fallen for four quarters. Comp store sales growth fell -8% last quarter due to customer weakness, the declining macro environment and constraints on exam capacity (optometrists).
• Optometrists are supply constrained, which pressure margins from rising compensation. Investor-owned optometry service providers are at a disadvantage competing with professional practices that don’t share fees with investors.
• National Vision is neither large and vertically integrated like Essilor Luxottica, nor niche focused like Warby Parker is on ecommerce. Their low-price strategy is easily replicable by competitors.

• Jardine Cycle & Carriage (JCNC SP)‘s is currently trading tight at a ~6% discount to NAV.
• The implied stub and JCNC/Astra International (ASII IJ) ratio are the highest outside the 2008 financial crisis.
• Key catalysts for JCNC’s outperformance, such as the SIMSCI Index inclusion, have passed.  JCNC is trading rich. Look to reverse the stub.

• With the recent rally in the equity markets in Hong Kong and China, we think the asset play investment thesis for China Dongxiang Group Co (3818 HK) has revived.  
• We estimate its investment portfolio value may have increased by HK$2bn since end-Sep, yet market capitalisation only rose HK$500m, suggesting still significant 77% discount. 
• Encouraging recent developments at Alibaba Group (9988 HK) and Ant Financial, which both are its holdings, are positive. The reduction is losses for sportswear business is an added driver. 

• After selling a 35.43% stake in Olam Agri to Saudi Arabia’s Public Investment Fund last month, Olam Group (OLG SP) intends to dual list the company in Singapore and Saudi Arabia. 
• The stake sale implied a US$3.5bn value for the agricultural arm, or ~50% of OGL’s current market cap based on its remaining position in Olam Agri. 
• Olam Agri may raise up to US$1bn via the listing. A separate London listing of OGL’s food ingredient business is expected to occur subsequent to Olam Agri’s listing.

• Eva Precision Industrial Holdings (838 HK) has come off its lows but still trades at an attractive  7.8x/5x PE FY22e/23e and a dividend yield of 3.8%/5.9% FY22e/23e (assuming 30% payout).
• The auto business should be propelled forward by orders from EV stalwarts, BYD, Nio, Tesla, etc. We expect the auto business (30% of revenue) to grow 50% in 2023.
• Another two catalysts we look forward to are the split of the auto business to unlock value and the completion of the buyback announced by the company in 2022.

• Lawson’s Q3 OP of ¥16.2bn was around 20% above consensus suggesting that the company’s profitability is starting to outperform after being held back by upfront investments on store renovations.
• Although this is the 3rd beat in a row, Lawson Inc (2651 JP)’s guidance has remained unchanged and the consensus OP only saw a marginal improvement.
• After ignoring for so long, we think investors could soon start noticing Lawson’s growth prospects in China as the business there is starting to turn profitable.

• Rept Battero is a lithium-ion battery manufacturer focusing on lithium-ion EV battery products and ESS battery products. The company has filed for an IPO on the Hong Kong Stock Exchange.
• The company had recorded strong growth over all its battery segments and was the fastest growing battery manufacturer among top 10 lithium-ion battery manufacturers in China.
• However, we find the company’s inability to generate profits at gross profit level concerning.

• This is our first report on Hilton Worldwide, one of the largest hotel chains in the world.
• Despite the good performance, Hilton failed to meet Wall Street expectations with respect to revenues but it did manage an earnings beat.
• We initiate coverage on the stock of Hilton Worldwide Holdings with a ‘Hold’ rating.

• In this note, we will take a look at the Asia Pacific IPO pipeline for 2023, specifically for India, Asia-linked ADRs, Korea, Japan and ASEAN.
• This list has been compiled on a best effort basis from tracking the company filings and through various other sources.
• The deals you see in this note are only a part of our full IPO pipeline tracker. Feel free to drop us a message for additional information on these IPOs.

• Hilton Worldwide is one of the largest hotel chains in the world.
• Hilton’s management also announced several strategic alliances to strengthen their international network and improve the guest experience.
• All categories saw rates rise above levels from 2019, with transitory leisure rates rising into the high teens and business transient and group rates rising into the mid-single digits.

• We expect a number of changes to the MSCI Standard indices for the Asia Pacific region at the first Quarterly Comprehensive Index Review to be implemented on 28 February.
• As usual, most changes are expected in China with a smattering of adds and deletes for the other markets.
• On average, the adds have outperformed the deletes over the last few weeks and months and pre-positioning should continue for the next couple of weeks.

• Although it looks quite challenging, we think Fast Retailing (9983 JP) should beat consensus when it reports 1QFY23 results on 12th Jan 2023.
• We think shares could briefly touch 2021 highs on a relatively strong beat as it would suggest that the company’s aggressive expansion plans in North America and Europe are viable.
• Thus, we would look to buy Fast Retailing with a short investment horizon. We see considerable downside risks over a full-year period.

• H World Group (HTHT US) aims to raise around US$260m via a follow-on ADS offering.
• The company plans to use the proceeds mostly for investment. This will be the first deal by the company post its H-share listing in 2020.
• In this note, we will talk about the deal dynamics and  run the deal through our ECM framework.

• Company’s second largest shareholder General Atlantic sold out entire holdings at 5.9% to 6.4% discount to Monday close. 
• The placement reflected mainly General Atlantic’s attempt to time market to recoup a 10-year investment instead of any negative read of company fundamentals, in our view.
• Recent newsflow continues pointing to steady recovery in all business lines of Xiabu group.  Its valuation discount relative to peers  has not captured strong turnaround prospects. Sector top pick. 

• On 10 January, Korea Kolmar Holdings (024720 KS) announced that it plans to cancel 1.1 million shares to be acquired through redemption of redeemable convertible preferred shares.
• Korea Kolmar Holdings currently has a market cap of 314 billion won so this share cancellation represents nearly 17% of its market cap.
• This large shares cancellation should have a positive impact on Korea Kolmar Holdings’ share price. It is also trading at 40% discount to its NAV. 

• Many of the PREFERRED shares in Korea entered the short-term oversold territory versus ORDINARY (on a 20-day moving average).
• The liquidity boom that started in the local bond market at the beginning of the year seems to have led to the relative outperformance of ORDINARY.
• We should consider collective trading, which utilizes the oversold condition across the entire PREF zone, rather than an individual approach to a specific PREF at this point.

• China Education Group (CEG) completed the placement of HKD1.61bn on Jan 9.
• CEG used to do 2-3 M&As per year and had a decent track record.
• CEG also has chances to acquire public companies or their assets.

• WDFC reported fiscal first quarter (November 2022) results where sales declined more than expected while past price increases helped gross margin rebound from the August quarter
• WDFC’s inventory maintained its incline reaching a new record and is now $119.1 million. We believe WDFC’s inventory hides the true cost of the business
• The lack of demand remains a headwind that is leading to higher inventory levels. The scale of increase in inventory should continue to play a factor on WDFC’s earnings quality

• The offer has ended. The bidding consortium has secured 92.67% of home24 shares (including capital increase and share purchases). Completion still remains subject to customary antitrust approvals.
• Unsurprisingly, the shares are now trading at a 8.07% discount to the offer price. Delisting is looming and holdouts have not a sell-out right. 
• It is still puzzling to me why >7% of shares have not been tendered. The bidders might make a delisting offer, but not necessarily at the offer price.

• China Education Group (839 HK) is looking to raise up to US$209m in its top-up placement. 
• This will be the fourth placement by the group since its listing in 2017, we have earlier looked at the past three placements as well.
• In this note, we will look  at the deal dynamics and run the deal through our ECM framework.

• Meilan Airport is both a strategic asset and a key beneficiary in China’s blueprint for Hainan. The hub holds an indispensable yet underappreciated position in Hainan’s DFS market.
• While jump in depreciation and plunging passenger traffic in 2022 dealt heavy blow to the company, they also pave the way for a strong turnaround as re-opening revives travel demand.
• We expect the company’s net profit to reach RMB600 million in 2023 and further double to RMB1.2 billion by 2025, driving share price to double in three years.

• Kakao Pay is the only possibility to be included in the February MSCI IR. It comfortably beats both the full market cap and float market cap hurdles.
• It can be assumed that the full-fledged emergence of local institutional flows targeting MSCI inclusion contributed to some extent to Kakao Pay’s outperformance early this year.
• More extreme reverse flow trading could emerge. In other words, there is a possibility that the share price will turn into a sell-off even before the MSCI announcement.

• A state-owned company invested in Ant Group which was also founded by Jack Ma.
• We believe both the revenue growth rate and the operating margin will rise in following quarters.
• We believe the stock price still has significant upside even after the surge in past four trading days.

• The gift market has contracted in recent years as corporate and formal gift giving has declined, but companies and individuals are enthusiastic adopters of digital gifting thanks to the convenience. 
• Businesses, in particular, are using eGifts as marketing and promotion tools and Giftee is one of the biggest beneficiaries of this trend. 
• The convenience and low cost of these services suggests considerable potential for expansion going forward, even if the consumer online gift market will increasingly be owned by LINE.

• This is our first report on Tractor Supply Company, a major rural lifestyle retailer in the U.S. catering to recreational farmers and ranchers.
• It delivered a mixed quarter, missing out on the revenue expectations of analysts but managing an earnings beat.
• We initiate coverage on the stock of Tractor Supply Company with a ‘Hold’ rating.

• Honasa Consumer (1652951D IN) is looking to raise about US$350m in its upcoming India IPO. The deal will be run by Kotak, Citibank, JM Financial and JP Morgan.
• Honasa Consumer is the largest digital-first beauty and personal care (BPC) company in India in terms of revenue for FY22 (Year ended 31st Mar 2022) according to RedSeer. 
• Honasa Consumer’s product portfolio includes products in the baby care, face care, body care, hair care, color cosmetics and fragrances segments. 

• What better way to start the year than to make a fool of myself by predicting some trends for 2023?
• Forecasting or predicting anything is extremely difficult and the further out you go, the less accurate you can be.
• That’s even the case with weather with ~ 90% accuracy on 5-day forecasts and 50% on 10-day forecasts.

• This is our first report on Lennar Corporation, one of the largest homebuilders and home finance service providers in the U.S.
• The company delivered another all-around beat for the last quarter and year-end 2022, strengthening its positioning for changing market conditions.
• Both new and existing home market sales and sales prices are significantly down, and given commercial underwriting and lending restrictions, new rental properties are also being restricted.

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.

• Central China Securities
• Greentown China
• Melco Resorts & Entertainment
• Shui On Land
• Sunny Optical
• Tata Motors ADR
• Wynn Macau Ltd

• Yamada Denki (9831 JP) has bought back nearly 16% of shares out ex-Treasury in the 7.5 months since last fiscal year earnings were announced. It went limit up on Day1.
• Then it stopped – despite the buyback being 15% of expected volume every day for a year and a HUGE piece of Real World Float.
• There is 8% left to buy at current prices – 16-18% of volume the next 4.5mos. And it is still a dirt cheap capital structure and somewhat sticky shareholder structure.

• A state-owned company invested in Ant Group, which boosted Alibaba’s stock price.
• Tencent obtained five new game licenses in December, three of which are imported games.
• China Literature’s daily active users increased by 80% in 2022 and reached the historical high.

• CBIRC approved the capital replenishment plan of RMB10.5bn of Ant CFC on Dec 30, 2022
• Under the regulatory guidance, Ant Group needs to complete a multifaceted rectification plan
• After the fund raising, Ant Group’s next step is to obtain FHC license and credit bureau license

• Artificial Intelligence (AI) and Deep Learning Applications are all the rage, primarily thanks to the likes of OpenAI’s ChatGPT being used for text and Dall-E being used to generate digital images.
• ChatGPT’s popularity has soared, reaching a user base of 1 million users in 5 days, and OpenAI itself is benefiting from the surge in users, now valued at $29 Billion.
• Investors are already looking for the next wave of AI products that can make a big splash and potentially disrupt legacy industries.