Consumer

• From a trading perspective, we should pay attention to the KOSPI 200 corporate actions in Hyundai Department Group’s demerger events, as both companies are KOSPI 200 constituents.
• Hyundai Green Food’s surviving company won’t beat the cutoff, resulting in a KOSPI 200 constituent change on April 10. Samyang Foods will be a new addition.
• Even the size of KOSPI 200 ETFs that will likely go into mechanical trading on April 10 will cause a significant price impact from a day trading perspective.

• Fancl Corp (4921 JP) delivered 3QFY23 results yesterday, which saw revenue and operating profit decrease by 2.5% and 5.0% YoY respectively to ¥28.3bn (consensus ¥29.8bn) and ¥3.1bn (consensus ¥3.4bn).
• Cosmetics growth being the main reason for Fancl’s FY+2 EV/OP of 22.4x, recent trends look scary with cosmetics revenue and OP down 24% and 27% respectively from the pre-COVID level.
• Therefore, we would look to short Fancl expecting shares to fall around 25-30% in the short term.

• 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.
• Q1 2023 is confirming that the base built around the historically significant 50 quarter MA since Q3 2021 is likely to be a material LT bottom.
• Both price action and LT momentum triggers (particularly the quarterly RSI) are confirming a sustainable LT uptrend in 2023 and potentially well into 2024. Potential 20% upswing.

• With Nissan (7201 JP) and Renault coming to a new arrangement regarding their working relationship, Renault will be left with a US$4.3bn Nissan stake that it will look to sell eventually.
• The selldown will probably take a long while to materialize.
• In this note, we talk about the announcement and take a very early look at the possible selldown.

• On 7 February, it was announced that SM Entertainment will conduct a third party rights offering and CB issue to Kakao Corp.
• Post these deals, Kakao Corp will own a 9.05% stake in SM Entertainment.
• The rights offering and the CB issue have all the hallmarks of an intermediate deal prior to an eventual takeover of SM Entertainment by the Kakao Group.

• The market seems to be expecting quite a bit from Pinduoduo (PDD US) in upcoming earnings with consensus expecting the company to make around RMB 11.4bn OP in 4Q22.
• With CCP’s anti-monopoly drive on hold, Pinduoduo may need to persuade customers and merchants a bit more than usual via sales and marketing to further improve its market position.
• TEMU was anyway going to be a significant burden on profitability. With aggressive discounting and coupons, we think that burden has gotten significantly heavier.

• Hesai Group (HSAI US) has launched a Nasdaq IPO to raise up to US$171 million at an indicative price range of US$17-19 per ADS.
• We previously discussed the IPO in Hesai Group IPO: The Bull Case and Hesai Group IPO: The Bear Case. 
• In this note, we present our forecasts and discuss valuation. Our analysis suggests that Hesai is unattractively valued at the IPO price range. We would pass on the IPO.

• Over the past two weeks, we have been steadfast in our belief that this current rally/short squeeze is likely to fizzle in the 4100-4165 area on the S&P 500.
• There has yet to be any meaningful deterioration and we cannot rule out the SPX reaching higher, potentially for 4300-4325 (August 2022 highs).
• We continue to preach caution and believe upside is limited on the market indexes. Any combination of a continued strong labor market or hotter-than-expected inflation could upset the market.

• Expectations of the new CEO Jonathan Akeroyd and the new creative director Daniel Lee uplifting the business and accelerating sales are priced in
• Resumption of Chinese outbound travel will surely happen, but it will take time
• No valuation upside at these levels. We are bearish on the stock

• We estimate that Coupang’s 4Q22’s revenue is in-line while non-GAAP net income beats cons by 29% because of the continuous cost-saving methods. 
• We cut Coupang’s TP from US$22 to US$19 because of several challenges in 2023, including inflation, barriers in international expansion, and difficulty in growth.
• Yet, our TP is still 17% above current price, so we upgrade Coupang’s rating to BUY to reflect its advantages in competitive landscape, and margin expansions.

Ebiquity’s year-end trading update confirms that revenue continued to grow strongly in H222, delivering a 20% improvement for the full year, with underlying organic growth of 9%. Management is guiding to an underlying operating margin of 12%, implying that FY22 operating profit will be just ahead of our £8.9m forecast, notwithstanding the slight undershoot on revenue. This improvement in margin reflects the two transformative acquisitions made in the year, adding operational capability and efficiency, and scaling the US reach, as well as the increase of digital in the revenue mix. The shares are priced at a substantial discount to both peers and the group’s long-term average EV/EBITDA multiple.

• As “disclosed” recently, we have a deal. Nissan Motor (7201 JP) will invest “up to 15%” in Ampere. Mitsubishi Motors (7211 JP) may join. They have many potential joint projects.
• The key is the Governance Framework, which replaces RAMA. Renault SA (RNO FP) puts 28.4% of Nissan in an open-ended Trust. Renault and Nissan have 15% reciprocal voting rights.
• The webcast is more optimistic than I am. Luca de Meo made special mention of the joint projects. This sounds good. It sounds like what has always been promised.

• Tod’s founder Diego Della Valle is undoubtedly frustrated his bid to privatize Tod’s at 40 EUR failed in 4Q22
• It was the ideal time to privatize in order to maximize value for his family before selling to LVMH, the most logical buyer since 2017
• Our conviction that Tod’s ends up in the LVMH stable of brands is stronger than ever, an exit offer of 60 EUR per share would be a reasonable assumption

• The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.
• As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.
• China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.

• Under the new leadership led by CEO Daniel Grieder, Hugo Boss’s new refreshed brand has been gaining market share over the last few quarters
• Growth has been driven by strong marketing campaigns aimed at younger consumers and an improved execution.
• Hugo Boss is a self-help growth story with further margin expansion potential. Valuation remains appealing at these levels and should re-rate in line with the sector. Upside 15%

• General Motors managed to deliver an all-around beat in the recent result with an increase in the market share and record ATPs.
• In the commercial fleet business, the company gained a profitable, considerable market share.
• We provide the stock of General Motors with a ‘Hold’ rating and a revision in the target price.

• 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 – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Origin Energy (ORG AU), Golden Energy & Resources (GER SP), 111 Inc (YI US), Toyo Construction (1890 JP). 
• Lowest spreads – Essential Metals (ESS AU), Tyro Payments (TYR AU), Chip Eng Seng Corp (CHIP SP), Conexio Corp (9422 JP), Kanematsu Electronics (8096 JP), Elmo Software (ELO AU). 

• Hesai Group (HSAI US) is looking to raise around US$170m in its upcoming US IPO.
• HSAI is a manufacturer of three-dimensional light detection and ranging (Lidar) solutions. It has shipped over 103,000 Lidar units from 2017 to the end of 2022.
• We have looked at the company’s past performance and undertaken a peer comparison in our previous notes. In this note, we will talk about valuations.

• Hesai Group (HSAI US) has launched a Nasdaq IPO to raise up to US$171 million at an indicative price range of US$17-19 per ADS.
• In Hesai Group 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 continuing pricing pressure, declining contract liabilities, gross margin decline, ongoing losses, worsening cash conversion cycle and FCF burn.

• We initiated Luckin with a BUY with TP $40 because we believe Luckin is a rising challenger in a rising market, half way through a rising business model; 
• We see room for Luckin to expand transaction frequency and transacting customers before expanding ASP in order to drive same store sales;
• In the long run, we see coffee + western bakery to gain market share over tea house + Chinese dim sum in the snack + breakfast market. 

• Minor International (MINT TB) is trading at 2.4x PBR, slightly higher than during the pre-COVID level at 2x.
• Most of its hotels are in Europe (77%) and only half of the food business is in Thailand. 
• Other Thai stocks have higher exposure to Thai tourism-related activities.

• Zojirushi’s low profitability and numerical targets are at the root of the problem with this shareholder proposal, which required disclosure of cost of capital to verify reasonableness of the targets.
• To ensure transparency of BOD, it would have required individual disclosure of director compensation, divestment of policy shareholdings, and elimination of takeover defenses, which are issues of corporate governance practices.
• When % foreign shareholders reaches 30% level, companies tend to eliminate takeover defense. Since Zojirushi’s % foreign shareholders is 20%, the shareholder proposal will be very likely to be rejected.

• Hesai Group (HSAI US) has launched a Nasdaq IPO to raise up to US$171 million at an indicative price range of US$17-19 per ADS.
• Hesai is a global leader in LiDAR technology for autonomous driving and ADAS. In the ADAS market, Hesai is the global leader in terms of shipment volume in 2022.
• The key elements of the bull case rest on a solid competitive positioning, large addressable markets, high growth and a strong balance sheet.

• There were some review cutoffs last week as well as the implementation of the PCOMP INDEX, IDX 30 Index, LQ 45 Index and IDX 80 Index. 
• The big event in the coming week is the announcement of the MSCI February QCIR on Friday morning Asia time with implementation at the close of trading on 28 February.
• Inflows to iShares Core MSCI Emerging Markets ETF (IEMG US) continue while IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) continues to see redemptions.

• McCormick delivered a disappointing result, failing to meet the analyst consensus with respect to revenues as well as earnings.
• The management claims that it is seeing an improved momentum given the changing consumer consumption patterns, Flavor Solutions demand, and steady service levels and supply.
• In Q4, their sales growth was decent in the Flavor Solutions area and kept up momentum across all geographies.

• Mondelez delivered a strong quarterly result and surpassed market expectations in terms of the revenues as well as earnings.
• The strong top-line performance of the company was driven by continued volume strength and pricing execution.
• Mondelez delivered robust top-line growth in both developed and emerging markets.

• Era of the value stocks! Inflation feeds interest rates, raises cost of capital and risks equity multiples. Headwinds to earnings growth – risks sustenance of pricey valuations.  
• Key risks: Stocks face material headwinds on cost pressure, competition, valuations 
• Stocks covered: Crompton Greaves, Stove Kraft, Lemon Tree, Jubilant Ingrevia

• Comcast achieved a strong result that surpassed Wall Street expectations in terms of revenues as well as earnings.
• The company is slowly growing its ARPU as it is working towards building its customer relationships by steadily introducing new capabilities, services, and benefits.
• In 2023, ARPU growth should continue to be the main factor influencing their residential broadband revenue growth.

• 11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.
• Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.
• As for the independence of the Nominating and Compensation Committee, which didn’t show significant correlation with % of foreign shareholders, it’s still beyond the power of engagement by overseas investors.

• Sony’s Q3 operating profit fell 8% YoY to Y428b beating consensus estimates by around 15%
• The PS5 has now sold over 32m units, finally shaking off supply constraints. Will VR2 surprise?
• We remain bullish on the stock at 15x earnings. Sony is a core play on content creation and digitization.

• Discounts to NAV of covered holdcos have generally tightened since New Year. Discounts to NAV (31 January): C.F.Alba, 49.7%; GBL, 35.3%; Heineken Holding, 17.4%; Industrivärden C, 13.8%; Investor B, 11.4%; 
• Porsche Automobile Holding, 47.4%. The spread of Rio Tinto DLC widened to 14.8%. Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts.
• Recommended trades are: GBL, Porsche Automobile Holding, Rio Tinto (DLC), CF Alba (long position).

• Management has cut its FY23 EBITDA target from its long-term goal of ¥390bn to c. ¥363bn as its core ad and eCommerce performance gets weaker
• Advertising revenue fell 1% YoY whilst eCommerce volumes (GTV) on the core third-party marketplace Yahoo!Shopping were also down significantly
• The outlook for FY23 is further blurred by management changes to address business challenges and deeper LINE/Yahoo integration.  We are lowering our target price to ¥425

• As discussed in Nikkei 225 March Review – Quiddity Leaderboard (Jan 2023) (and earlier versions), Oriental Land (4661 JP) is a candidate to join the Nikkei 225 in March 2023.
• As of early January, it was the top-ranked impact name with 11.8 days of ADV to buy, and if it underperformed the Nikkei from there, there’d be more to buy. 
• With the data collection period now complete, it is top-ranked, still. And it is still ~10-12 days to buy. Understanding shareholder structure, however, is key. So I dive in.

• Inline performance and inline guidance…the stock mistakingly traded down on Tinder’s optically weak sub growth.
• Longer term, CEO BK Kim is making the right moves reorganizing the company to focus on the growth engines (Tinder, Hinge), the idiosyncrantic drivers (Asia), and cost cutting (Evergreen Brands).
• Reiterated 2023 guidance will prove conservative, with the stock still trading at alltime lows despite the 30% move up so far this year…we buy this dip.

• As expected space segment revenue growth accelerated as global/mobile sales took off offsetting media revenue erosion
• User trends in the video business remain weak although Q3 subscriber losses improved QoQ despite this being the seasonally weakest quarter
• We are leaving our forecasts unchanged and remain at Buy

• Procter & Gamble’s share price appears to be running ahead of business fundamentals.
• P&G has a limited upside over the short to medium term, according to the recent earnings report.
• The company has a free cash flow point of view, but has a limited upside over a short-term term.

• Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as “value stocks” due to the gap between their corporate value and stock prices.
• Fujikura and JVC Kenwood haven’t posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.
• If management doesn’t listen, structural reforms won’t be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it’s important for shareholders to replace management that continues underperforming.

• Hesai Group (HSAI US) is looking to raise at least US$100m in its upcoming US IPO.
• HSAI is a manufacturer of three-dimensional light detection and ranging (Lidar) solutions. It has shipped over 103,000 Lidar units from 2017 to the end of 2022.
• In this note, we will undertake a peer comparison with domestic and US-listed peers.

• Flight Centre Travel (FLT AU) is looking to raise US$127m from a fully underwritten institutional placement. 
• The proceeds will be used to acquire Luxury Travel Holdings (Scott Dunn), a UK-based luxury travel business.
• In this note, we will discuss deal dynamics, past deal performance, and share the scores on our ECM framework.

• Aided by the Japanese Government’s efforts to rebuild the COVID-ravaged leisure sector, Oriental Land (4661 JP)’s 3QFY23 OP surpassed consensus by more than 35%.
• We believe 3QFY23 could be a peak in terms of financial performance for Oriental Land, at least until the opening of the Fantasy Springs.
• In addition, the growth story that OLC offered through the expansion of DisneySea, seems to be no longer compelling as the management has simply stopped talking about its progress.

• The market says Tesla’s 20-30% price cuts will reverse stalling demand, even though several rounds of expensive cuts & incentives in Q4 didn’t.
• I’m not convinced, as shown in my 2023 model & forecast.
• Tesla apparently isn’t either, as indicated by sharply lower guidance and apparently plans to ramp up debt to bolster cash.

• Ace Hardware has been a distinct laggard amongst listed retailers in Indonesia, with its valuations drifting to multi-year lows, given a slow recovery from the pandemic and limited digital strategy. 
• The company has continued to see lacklustre SSSG finish flat for last year but has recently opined a more optimistic outlook for 2023, planning to open 10-15 new stores.
• Ace Hardware Indonesia (ACES IJ) trades on 13.7x FY2023E PER and 12.7x FY2024E PER when it used to trade on twice that multiple with not dissimilar growth rates.

• The deal is done with the transfer of Edizione’s 50.3% stake in Autogrill under way, and with  all main hurdles cleared. Dufry must launch and offer to buy out minorities. 
• Autogrill shares closed at €6.698 on 30 January, also the implied value of the 0.158 Autogrill/Dufry share swap is 5.8% above the €6.33/share “initial” cash offer. The market expects more.
• The deal will not fall through but the price is still being negotiated, possibly around €6.8-6.9/share. The issue will now become what dilution/leverage will Dufry’s patient shareholders endure.

• Lemon Tree Hotels Ltd (LEMONTRE IN) (“LTHL”) is India’s largest mid-market hotel chain with 7 brands and 87 properties across 54 destinations and 8,489 rooms as at F22.
• We noticed few setbacks on the forensics, particularly with respect to impairment in subsidiary and unusual accounting with revaluation of PPE.
• While the operations have seen a revival in terms of ARR and margins, LTHL however is yet to reach occupancy levels of pre-covid.

We view Melco Resorts (MLCO) as “Medium Risk” on the LARA scale. The company has a sound market position in Macau through its core assets, City of Dreams (COD) Macau and Studio City. Our view takes into account MLCO’s: [1] solid execution track record; [2] satisfactory capital management; and [3] geographical and asset diversification, with six assets. This is balanced against the company’s weakened financial profile owing to the COVID-19 crisis, as well as event risks arising from its expansion plans.

Our fundamental Credit Bias on MLCO is “Negative”, as we expect the company’s FCF to remain negative in H1/23, due to capex for the development of Studio City Phase 2. We view unfavourably MLCO’s small share repurchases despite its ongoing operating cash burn. Positively, the company has a strong liquidity profile, with a robust cash position. It should begin to deleverage from H2, after the COD Mediterranean and Studio City Phase 2 developments have been completed. 

Controversies are “Immaterial”. Some ESG-compliant funds may be prohibited from investing in MLCO, due to the nature of its core business (casinos). That said, Macau’s gaming industry is established, transparent and highly regulated. We believe the curtailment of junket activities would help to further raise operators’ transparency. Moreover, the authorities are seeking to reduce the city’s reliance on gaming and promote leisure tourism in the medium term. These factors should mitigate ESG-related risks. Overall, the ESG Impact on Credit is “Neutral”.

• We previously discussed our belief that equities were in the midst of a rally/short squeeze, but that the rally is likely to fizzle in the 4100-4165 area on S&P 500
• And, as you will see below, countless other indexes and Sectors are testing important resistance levels. We continue to expect 4100-4165 on the S&P 500 to cap upside
• Buy ideas highlighted within defensives, including Consumer Staples, Health Care, and Communications: CMCSA, CHTR, UL, KHC, CAG, SJM, CPB, LLY, MRK, and NVO

• Management promises belt tightening! Losing €659M at ~€12B in revenues? And still won’t be profitable in 2023?  Why should investors believe this change?
• Gross margin guidance misses…again. Two beats in the past 3 years on gross margins.
• Podcasting growing 100% in 1Q22 exited 4Q22 growing 30%…and ad-related revenues still just 14% of the total. Why will this move the needle?

• While shareholder proposals, including those from activist investors, should be considered from independent perspective, it’s clear that even companies with high-% independent directors don’t necessarily get along with activist investors.
• Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.
• If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.

• Today, a Nikkei article suggested (after other media suggested last week) that Renault SA (RNO FP) and Nissan Motor (7201 JP) have come to agreement about their new deal.
• Post-Close, an announcement. Two striking things about this “agreement” a) it comes many months after they started negotiating, and b) we have few details, and c) we’re missing a bit.
• Renault agrees to cap voting rights in Nissan. Nissan agrees to invest in RNO’s EV spinoff, and so far, they agree to strengthen the Alliance. What’s missing is interesting/key.

• Japan-Based skincare and cosmetics maker AXXZIA Inc (4936 JP) announced on 9th November 2022 they were planning to move from TSE Growth to TSE Prime.
• Travis Lundy was Bullish on this name as he discussed in AXXZIA (4936 JP) – TOPIX Inclusion Is Likely In February and the stock has gained around 12% since then. 
• Today after the close, AXXZIA Inc (4936 JP) announced they had received the approval for their Prime Market move in February which could lead to a TOPIX Inclusion in March.

• Tesla’s big miss on Q4 deliveries turned into stalling revenue growth, sharply lower margins, and reduced guidance—as I expected. 
• As usual, actual profit and cash generated were much lower versus reported, excluding energy credit sales and unusual items. 
• So with cash burn up and guidance down, what was the mysterious $4.4 billion “investment”? Asking for a bird.

• Two of the biggest department store chains in Japan, H2 O Retailing (8242 JP) & Isetan Mitsukoshi Holdings Ltd (3099 JP) are set to disclose FQ3 earnings this week.
• The ones with FQ3 ending in November, J Front Retailing (3086 JP) and Takashimaya (8233 JP) surprised to the upside with 6% and 8% price gains on earnings.
• Our analysis indicates that H2O Retailing & Isetan Mitsukoshi could deliver stronger FQ3 results. Thus, we would look to trade Japanese Department Stores before earnings this week.

• Gujarat Ambuja Exports (GAEX IN) is an Agro Processing conglomerate having a diverse product profile across oil seeds, edible oil refining, maize and starch, cotton yarn, wheat processing, etc. 
• Our forensics primarily include the takeaways on MACPPL acquisition, its true rationale, accounting impact on the balance sheet and few disclosure errs.
• Other major takeaway relates to capex story and grey areas relating to the capacity size and timely completion, especially for its marquee plant in Malda.

• Hesai Group (HSAI US) , a global leader in LiDAR technology for autonomous driving and ADAS, filed for a $100M placeholder IPO with Goldman Sachs and Morgan Stanley leading the offering.
• The company’s last round was a $70M Series D+ at a $3B pre-money valuation, implying EV/LTM Rev multiple of 19x today, a significant premium to comparable companies in the space.
• We remain cautious about buying into the Hesai Group (HSAI US)  IPO due to rich valuation, negative free cash flows, loss-making business, intense competition, and developments in alternative technologies.

• Xpeng has announced it is speeding up its new model launch pipeline by launching 5 new models this year
• If all go to plan, Xpeng’s sales may hit 30k vehicles/month end of ’23 or early ’24
• The appointment of new President from ICE sector may lead to some market confusion on management and branding in the short term

• Netflix delivered a mixed set of results for the last quarter.
• The company surpassed its own expectations with respect to subscriber growth and added 7.66 million net new subscribers in Q4, higher than its own forecast of 4.5 million additions.
• The company ended 2022 with 230.75 million worldwide, surpassing its previous target of 227.59 million, implying a 4% subscriber growth.

• Procter & Gamble saw good results from implementing its integrated strategies and the company delivered an all-around beat.
• P&G saw its organic sales increasing while its global aggregate market share held, its productivity savings continuing, and its supply efficiency improved further.
• Hair Care saw a mid-single-digit increase, while oral care, Skin and Personal Care, Baby Care, and Family Care saw low single-digit increases.

• Tesla delivered a mixed set of results in the last quarter and failed to meet revenue expectations of Wall Street.
• Tesla has had a challenging 2022 because of delivery challenges, high interest rates, and forced shutdowns.
• For Autopilot, Tesla deployed a Full Self-Driving Beta for city streets to around 400,000 customers in North America.