Consumer

• The revenue growth accelerated and the operating margin improved in 3Q22.
• However, management said the performance may not continue and profit is not their target.
• We believe the stock has a downside of 23% for year end 2023. 

• The indication that China is prepared to scrap its strict Zero-COVID policy has gotten Shiseido Company (4911 JP) going again after an earnings beat in Q3 saw shares climb almost 20%.
• Given that the shares have been range bound throughout the COVID crisis, we think Shiseido could reach near the upper limit of the COVID-range in the near-term to around ¥8,000.
• Nevertheless, we would approach this trade with caution and only with a short time horizon as we see a lot of downside risks in the medium to long term.

• Weilong Delicious has downsized its IPO to raise around HK$942m (US$121.3m). The company also has the flexibility to set its IPO price at a 10% discount to the bottom.
• The company’s top line growth has slowed down in 1H2022 and margins have been under pressure with increased S&M spending to further penetrate into online channels.
• Weilong’s IPO is priced at a significant premium to domestic as well as multinational peers which do not justify the growth prospects.

• In the near-term, China’s relaxation of COVID-combating measures will boost consumption and demand for cross-province travel. China Tourism Group Duty Free Corp Ltd (1880 HK) is a beneficiary.
• Hotel bookings in Sanya have surged over the last two days, reflecting positive demand reaction. However, China’s full border opening likely in 2023 is a challenge to CDFC.  
• Low base in FY22 will drive 45% earnings growth for FY23. However, valuations are not cheap at 33.8x PER for FY23, a significant premium to consumption sector and international peers.

• The December 2022 index changes for DAX, MDAX, and SDAX were announced late last night (5th December 2022).
• Porsche AG (P911 GR)‘s addition to the DAX Index is the main talking point. There are more changes for the MDAX and the SDAX indices. 
• In this insight, we take a closer look at our expectations for index flows and potential trading ideas.

• Charts have not changed much from the prior week, with there actually being some deterioration within banks (KRE, KBE). 
• The $SPX has been unable to sustain a breakout above its 200-day MA/YTD downtrend, the $IWM remains below $190 resistance, and the DJIA could not sustain a breakout above 34,280
• As long as these indexes are below these levels, we continue to see this as a good time to shift to more defensive areas and/or take profits.

• This is our first report on Chinese e-commerce giant, JD.com.
• Although 2022 has been a difficult year, JD achieved a number of encouraging milestones and improved metrics in its financial and business operations, especially during the third quarter.
• We initiate coverage on the stock of JD.com Inc. with a ‘Hold’ rating.

• On the 26 November, Macau’s government renewed the concession periods of the city’s six incumbent gambling concessionaires for another 10 years.
• Genting Malaysia (GENM MK), a last-minute interloper, failed in its bid to secure a license. It scored lowest under the government’s bidding review. MGM China (2282 HK) topped the scoresheets. 
• As with all incumbents, Melco International (200 HK) and Melco Resorts & Entertainment (MLCO US) eked out strong gains following the renewal. Melco’s current discount to NAV is currently 20%.

• ATRenew (RERE US) operates the largest pre-owned consumer electronics transactions and services platform in China. It is listed in June 2021 at US$14 per ADS. 
• The shares are down 63% YTD largely due to the tech market sell-off. Unlike most tech companies, ATRenew is starting to deliver growth with profits, cash generation and share buybacks.
• The valuation is undemanding compared to a peer group of pre-owned marketplaces and global online retail marketplaces. It will also appeal to investors with an ESG mandate.

• Richard Liu came back to manage JD.com after he resigned half a year ago.
• Alibaba Health revenue increased 23% YoY in 1H23, which benefited from hospitals being closed.
• Pinduoduo revenue increased by 65% YoY and operating profit increased 388% YoY in 3Q22.

• We should set the minimum level of the target size to estimate the flow impact on T-1 Effective at ₩15T from ETFs.
• We then need to pay attention to the recent trend that an additional flow from NPS appears post-Effective, with a significant portion on T+1~3.
• We should revise down our expected rate of return on our early-phase setup aiming at the preemptive trading (T-6W Effective) by NPS.

• DPC Dash (DPC HK) is the exclusive master franchisee of Domino’s Pizza (DPZ US) in mainland China, Hong Kong and Macau with around 546 stores as of 9M2022.
• The company has refiled for an IPO on the Hong Kong Stock Exchange after failing the first time to raise around US $100m in March 2022.
• Discounted pricing has failed to propel the Dominos brand to the top in many Asian markets where pizza is considered a luxury meal. DPC-Dash is experiencing the same in China.

• Weilong Delicious Global (WDG HK)  a spicy snack food company in China, aims to raise around US$140m in its Hong Kong IPO.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
• We have covered various aspects of the deal in our previous notes, in this note, we will talk about  the final valuations.

• Weilong Delicious Global (WDG HK), a leading spicy snack food company in China, has launched its IPO to raise up to US$141 million. 
• We previously discussed the IPO in Weilong Delicious IPO: Remains in a Pickle, Weilong Delicious IPO: In a Pickle, Weilong Delicious IPO: Mixed Update, Weilong Delicious IPO Initiation: Tasty Bite. 
• In this note, we present our forecasts and look at valuation. Weilong is unattractively valued at the IPO price range. We would pass on the IPO.

• JD.com Inc. (9618 HK)-backed ATRenew (RERE US), one of the pioneers of China’s circular economy, registered its first non-GAAP net profit in the 3Q22.
• The improvement pivoted off core business stability (consumer electronic devices recycling and sales) and an increasing revenue stream from its multi-category recycling business, including luxury goods.
• This is all positive. However ATR, like all US-listed China plays, faces the prospect of a potential delisting under the HFCAA just 16 months away.

• Despite the plunge in share price after FY22 result, we think Hope Education Group Co Ltd (1765 HK) has not yet reached its bottom given the challenging outlook faced.
• We are concerned about stretched financial position with gearing surged 32.5pp in last year. Heavy capex and need to repay outstanding convertible bonds will strain its cash flow.  
• Market earnings expectations are still overly optimistic. New schools looks to drag on near-term margins while surge in staffing, primarily teacher, costs is an added pressure.

• As investors we are faced with a deluge of noisy breaking news, business media talking heads, and what has felt like non-stop Fed speakers offering their differing views on the economy and the path of rate hikes going in 2023.
• This week was no different. Fed Chair Jay Powell was front and center suggesting that interest rate hikes will likely be stepped down to 50bps in the upcoming December Fed meeting in a few weeks.
• This was already discounted and expected by the market and effectively didn’t offer much of anything Wall St. didn’t already know.

• Shakey’s Pizza (PIZZA PM)  is on the cusp of reporting a stellar Q4 2022. The stock trades at 16.2x FY22e/10.4x FY23e, with massive scope for upgrades from the street.
• With the addition of brands like Potato Corner, Peri-Peri, and R&B Tea, the company has sustainably solidified its scope for mid-teens CAGR growth from 2023 onwards.
• The company continues to lower its leverage, and net-debt equity was 0.75x in Q3 2022 as cash generation from its operations solidified the balance sheet. 

• In this post I tracked my performance on stock mentioned in my blog, and I would like to officially close some ideas here.
• I will start doing that from now on. Something I did privately but not on the blog publicly.
• Either because they have worked out and upside is no more attractive, or because the facts have changed.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute. 
• These insights may flag those companies where shares have been pledged. Stocks mentioned include: Perfect Medical Health (1830 HK), Hong Kong Aerospace Technology (1725 HK), and ESR Group (1821 HK).

• Yili is the largest dairy company in China with established entry barriers of brand and products.
• Yili aims to join the world’s top three dairy enterprises by 2025 and strives to seize first place by 2030.
• Management announced the plan of a revenue CAGR of ~10% y/y between 2021 and 2025 and margin improvement of 50bps each year.

• Warner Music Group is one of the top three giants in the music entertainment business across the world.
• Despite the numerous macro challenges, the company achieved double-digit growth for the previous year and outperformed management expectations in several important metrics, such as total revenue, and operating cash flow.
• The company’s music publishing business has shown a remarkable performance and the highlight remains its strong digital revenues which have witnessed a strong momentum given the growth in streaming.

• Itochu Corp (8001 JP) has restarted accumulating Fuji Oil Holdings (2607 JP) shares, with an acquisition of 3.5m shares during the last-quarter to take its ownership percentage in Fuji-Oil to 44%.
• With both earnings and valuations at a cyclical bottom, Itochu could be encouraged to accumulate more Fuji Oil shares in the short term, resulting in Fuji Oil outperforming its peers.
• We think even a takeover offer could be possible while the share price is hovering near the cyclical bottom.

• The December rebalance of the HSI INDEX, HSCEI INDEX and HSTECH INDEX takes place at the close today. One-way flow is estimated at HK$8.4bn.
• There are 3 adds for the HSI INDEX and 4 adds/ 4 deletes for the HSCEI INDEX. There are float changes for a few stocks as well as capping changes. 
• There is excess volume on most adds/deletes post announcement and short interest has also picked up significantly.

• Following a one-month suspension, carbon-fibre wheel maker Carbon Revolution Ltd (CBR AU) announced it will merge (and delist from the ASX) with Twin Ridge Capital, a US-listed SPAC.
• CBR said it also requires upward of A$30mn in bridging finance to fund near-term costs (through to June 2023). The share price promptly tanked 50% upon the resumption of trading. 
• It’s an intriguing situation with an implied notional share price of A$1.49/share under the merger, versus the current price of A$0.15. So I dig a little deeper.

• Although the stock split doesn’t raise the intrinsic value of the stock, the stock price is likely to rise on the speculation that future purchases into the NISA are expected.
• As cross-shareholdings decline, the companies are actively engaging in IR activities with individual investors to secure shareholders who share the company’s position against foreign shareholders who are increasing their presence.
• Some believe that NISA will be used as receptacle for the disposal of BOJ’s ETF holdings, but companies may hope that the silent shareholder hold ETFs as long as possible.

• Gap delivered a strong set of results in the quarter surpassing Wall Street expectations in terms of revenues as well as earnings.
• The company has taken steps to maximize profitability and cash flow while rebalancing and lowering inventory to drive short-term and long-term improvements across its entire business.
• However, the company is proving strength in lifestyle segments, which are growing at an accelerated rate in the current market.

• Despite operating in a turbulent market, including inflationary pressure on the consumer around the world, Foot Locker generated better-than-expected results and managed to surpass Wall Street expectations on all fronts.
• Due to strong brand consistency across the board and successful back-to-school marketing initiatives, Kids Foot Locker had mid-single-digit growth.
• Additionally, Foot Locker extended its partnership with Puma to connect with next-generation consumers through exclusive basketball and other high-end partnerships.

• Macy’s delivered a strong set of results surpassing Wall Street expectations in terms of revenues as well as earnings.
• Besides, they created permanent Toys “R” Us shop-in-shops within every Macy’s site, offering a unique experience not offered nationally anywhere else.
• Macy’s also has a flexible pricing plan to change discounts and markdowns if demand materializes slowly.

• Ross Stores’ results were well above market expectations in terms of revenues as well as earnings as it increased storewide values.
• On the other hand, given their third-quarter sales growth and enhanced holiday assortments, they face their easiest sales and earnings comparisons in the fourth quarter.
• We maintain our ‘Hold’ rating on Ross Stores with a revised target price.

• JD Health (6618 HK) and Yum China Holdings Inc (9987 HK) will replace Longfor Properties (960 HK) and XPeng (9868 HK) in the FTSE China 50 Index on 16 December.
• The largest flow and impact of passive trading will be on Yum China Holdings Inc (9987 HK). There could be buying on Yum China Holdings, Inc (YUMC US) overnight.
• Short interest on the deletes is over 7% of float and there could be short covering against the passive selling at the close on 16 December.

• Rakuten’s successful junk bond sale means the Rakuten Bank IPO will happen next year and not in December as some had feared
• More detail on mobile shows that network costs including D&A are 4x that of service revenue and slightly higher QoQ. Roaming alone is higher than service revenue 
• And that means Rakuten can’t aggressively go after new subscribers unless it wants operating losses to accelerate. Bad for Rakuten but good news for incumbents KDDI, NTT and Softbank. 

• Post market close yesterday, FTSE announced the preliminary changes to the Kuala Lumpur Composite Index (KLCI) (FBMKLCI INDEX) for the December rebalance. The final changes will be announced today.
• As expected, AMMB Holdings (AMM MK) and Ql Resources (QLG MK) will replace Hartalega Holdings (HART MK) and Top Glove Corp (TOPG MK) in the index.
• From a near 20% index weight in 2020, Malaysian glovemakers will have no representation in the index once these changes are implemented.

• Balrampur Chini Mills (BRCM IN) is one of the major integrated sugar manufacturing companies in India. Besides sugar, the company also engages in the business of ethanol and power generation.
• Balrampur has managed to turnaround its free cash flows and earnings quality. Additionally, it has also stabilized working capital on the back of declining debt. 
• While there are not many red flags, care must be given to inventory reconciliation with bank statement.

• Mahindra & Mahindra (MM IN) ‘s production data provides more questions than answers.
• The drop in production for Thar and XUV 700 in October in spite of the high order backlog is surprising. 
• Considering the industry outlook and the existing sales and production for these two models, we believe this demand forecast may not materialise

• Lava International (9263793Z IN)  is one of the leading end-to-end focused mobile handset and mobile handset Solutions Company based in India, with operations in a number of countries.
• Major business risk arises from external environment, as Lava is one of the prominent leaders in feature phone segment, where the market is dying. 
• Key forensic takeaways pertain to ECL provisioning and some absurd trend in line items. There are several discomforts on the governance end as well which must not be ignored.

• Berli Jucker (BJC TB) is seeing a recovery underway although it has been masked by YoY comparisons and some pressure from higher raw material costs for its packaging business. 
• The company is back into expansion mode in retail with 200 new Mini BIGC stores planned for 2023 plus it will increase its aluminium can capacity in Thailand by 10%.
• Berli Jucker (BJC TB) continues to be an interesting recovery play as an indirect play on tourism and consumption recovery as well as now declining commodity prices. 

• It was announced today that Hong Jung-Guk (eldest son) received a 10.5% stake in BGF Co. (10 million shares) from his father Hong Suk-Jo. 
• Hong Jung-Hyeok’s (second son) stake in BGF also increased from 0.03% to 10.5%.
• We like a pair trade between BGF Co (go long) and BGF Retail (go short). The combination of price momentum and valuation favor BGF vs BGF Retail. 

• We are publishing updated forecasts and commentary for Sky Perfect after meeting the company post-results 
• Media results were predictably weak but the company hopes to make up ground in H2 as it ramps up marketing spend to support sport packages that launch in Spring
• Amazon’s reveal that it has tested LEO-based satellite software highlights cloud platform interest in space ICT infrastructure like that being pursued by Sky Perfect JSAT and NTT

• Weilong Delicious Global (WDG HK), a spicy snack food company in China, aims to raise around US$200m in its Hong Kong IPO.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
• In this note, we provide an update to our earlier peer comparison and valuations.

• The December rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
• The largest inflows will be on Alibaba Group, Haier Smart Home, Kuaishou Technology, Li Auto, PetroChina, Tencent, JD.com, China Resources Mixc Lifestyle Services and Tingyi Holding.
• The largest outflows will be on SMIC, NetEase, AIA Group, HSBC Holdings, China Construction Bank, Alibaba Health Information Technology, Innovent Biologics, China Mobile, Ping An Insurance and ICBC.

• The next six months will be critical for the future of the global gaming industry as Regulators carry out further investigations into the Microsoft acquisition of Activision
• This is particularly important for SONY, where games account for around one third of consolidated revenue and profits
• This is a battle for the future of subscription services and cloud streaming – Call of Duty yields unprecedented power over the industry. Regulators need to do their Duty. 

• Pinduoduo (PDD US)’s 3Q22 mirrored its strong previous quarter with revenue of RMB 35.5bn (consensus: RMB 30.8bn) and OP of RMB 10.4bn (consensus: RMB 6.7bn).
• CCP’s anti-monopoly drive and common prosperity measures are helping Pinduoduo to outperform the competition.
• Nonetheless, we refrain from being outright positive on any of the Chinese e-commerce names with the economy heading into a slowdown and the lowest sector-multiple at above 12x FY+1 OP.

• China Education Group (839 HK)‘s 27.8% growth in net profit affirmed its solid fundamentals and minimal exposure to regulatory risks. We also welcome its resumption of dividends.
• Management expects profitability will be driven by the 48% new student enrollment growth, potential for tuition increase and global education segment recovery. Consensus forecasts are currently too conservative.
• Weaker 2H FY22 profit is due to higher depreciation and finance costs but will be absorbed with higher enrollment. Capex will be light and we also like its deleveraging move. 

• Commodities trader Theme International Holdings (990 HK) is up 670% since the inset of Covid, and that is after declining 52% from the July 2021 peak.
• A sharp increase in iron ore prices since 2020 resulted in FY21 net income of HK$1bn against HK$146mn in FY19. Net cash is currently HK$4.2bn, 38% of Theme’s market cap. 
• You Zhenhua is Theme’s largest shareholder. Theme recently acquired a 6.6% stake in You Zhenhua-controlled Esteel, which in turn holds a 61% stake in BRC Asia Ltd (BRC SP). 

• J Front has acquired a stake in an e-sports management business and will use this to target younger people, drawing them into its buildings through themed events.
• Event marketing has become a key weapon for department stores and shopping buildings and should help bring in more young people.
• J Front is also using technology to bring in more HNWIs – where the real profits lie.

• Haier Smart Home Co Ltd (6690 HK) revealed that domestic sales are performing well in the “Double-11” festival and overseas sales have outperformed peers in Black Friday.
• The high-end brand Casarte has maintained good market shares in refrigerators, drum washing machines and air-conditioners. Overseas market also saw positive upgrade demand. 
• Its digitalisation strategy has enhanced customers’ shopping experience and increased repurchases. HSH has also achieved improvements in overall efficiency through such efforts.

• At the end of the further extended acceptance period, PMHH owns 93.11% of the shares of Swedish Match (obtained both through shares tendered and market purchases).
• PMHH intends to initiate compulsory redemption under the Swedish Companies Act to acquire all remaining shares in Swedish Match and request delisting from Nasdaq Stockholm. PMI wins again.
• Although the shares are still liquid, gross spread is 2 bps, and therefore there is no trade worth considering, in my view.

• 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), Alliance Aviation Services (AQZ AU), Genex Power Ltd (GNX AU), Golden Energy & Resources (GER SP), Perpetual Ltd (PPT AU), 111 Inc (YI US).
• Lowest spreads  Tyro Payments (TYR AU), Warrego Energy (WGO AU), Nitro Software Ltd (NTO AU), Chip Eng Seng Corp (CHIP SP), Uzabase Inc (3966 JP), PTB Group Ltd (PTB AU). 

• Amid the challenging market, Bosideng International Holdings (3998 HK)‘s 15% growth in 1H FY23 profit is decent. Excluding impairments, operating profit would have grown by 31.3%.
• It expects FY23 gross margin to expand and further store optimisation to enhance operating margin. The introduction of highly successful ultralight down jackets is an added driver.
• With 32% increase in online branded apparel sales, the channel will be Bosideng’s key growth impetus. For “double-11”, sales have outperformed peers significantly, showcasing its product strengths.

• Companies that went public through SPACs in 2020 and 2021 have struggled this year due to inflation and, most recently, a weakening economy.
• SPACs have gotten a bad reputation for making unproven, unprofitable companies public, ultimately leading to a majority underperforming the broader market and a few even going out of business soon after their debut.
• However, SPACs have also taken established companies public, like convenience store chain operator Arko, which has relatively fared better.

• Cisarua Mountain Dairy (CMRY IJ) remains one of Indonesia’s most interesting high-quality consumer staples companies, with strong brands in both premium dairy products and premium packaged foods. 
• The company grew total sales by 76% YoY for 9M2022, with dairy products growing 51% YoY and packaged foods by 125% YoY driven by increasing capacity to serve burgeoning demand. 
• Margins have been impacted by rising raw material prices but powdered milk prices have been falling which should mean margins recover but all the same 9M2022 net profit rose 1.5x.

• There are 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals were discussed on Smartkarma: the Tangs’ Offer for Chip Eng Seng (CHIP SP); and the Mori Trust Sogo Reit (8961 JP)/Mori Trust Sogo Reit (8961 JP) merger. 
• Key updates took place for: Pendal Group (PDL AU)/Perpetual Ltd (PPT AU), Total Access Communication (DTAC TB)/True Corp Pcl (TRUE TB), and Lifestyle International Holdings (1212 HK).

• We calculated the intrinsic value of the stocks is ~30% undervalued at US$6.79 a share.
• The strong Manila market recovery and planned on time opening of Cyprus property does not seem to be baked into the price at writing.
• Macau travel bans will keep MLCO dead pooled, but value lies in its assets still at work

• Nitori is one of few Japanese retailers to brave the US market. The US has beaten Nitori for now and it will instead focus on Japan and Asia. 
• Nitori’s ability to leverage its efficient supply chains to lower prices will likely lead it to further dominance at home and allow it to invest in the rest of Asia.
• The company expects pressures on costs to ease in 2023 as the Yen rises but is working on reducing the cost of goods and operations.

• Suzuki is our top pick in the auto sector in Japan as a key beneficiary of strong demand for autos in India
• Suzuki reported better-than-expected 2Q earnings – but the stock price has not reacted
• Suzuki remains mispriced. Suzuki’s market cap is negative if we strip out the value of Maruti

• China Tourism Duty Free (CDF) is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers.
• As per Frost & Sullivan (F&S), it had 86.0% market share by retail sales revenue in China duty-free merchandise sales in 2021.
• With signs emerging of China finally looking to relax its COVID restrictions over the coming months, this will lead to a sales revival at its airports.

• The success of domestic brands in the low-cost cosmetics segment seems to be cascading into mid and high-price segments within the Chinese cosmetics market.
• This could be bad news for Shiseido Company (4911 JP), whose investors are expecting the company to maintain its historical superiority in the Chinese cosmetics market.
• We think that there’s a good chance for FY+2 EV/OP to return to the 12-20x range once the market price-in Shiseido’s weakening competitive position in the mainland China market.

• JD.com should have an outsized benefit from a recovery in Chinese retail sales as further macro stimulus and a gradual easing of China’s covid-zero policy stimulates demand throughout 2023.
• Following a return to margin expansion this year, due to economies of scale and curbing operating expenses during a challenging macro environment, the longer-term margin expansion trend remains on track.
• JD.com Inc. (9618 HK) trades on extremely attractive valuation multiples (PE, PEG, FCF yield) with net cash on its balance sheet equal to 32% of its market cap.

• Weilong Delicious Global (WDG HK), a spicy snack food company in China, aims to raise around US$200m in its Hong Kong IPO.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
• In this note, we will talk about the updates from the recently re-refiled PHIP.

• Alibaba and JD stock prices have rallied around 20-30% in the past month, which was the low-hanging fruit for the investors.
• With the full re-opening in 2023 in China, there is still upside for the sector. 
• Ecommerce players will enjoy GMV growth acceleration and margin improvement next year. 

• Weilong Delicious Global (WDG HK) has refiled (again) its PHIP with an aim to raise US$200 million, materially below its original ambition to raise US$1 billion. 
• We have previously discussed the IPO in Weilong Delicious IPO: In a Pickle, Weilong Delicious IPO: Mixed Update and Weilong Delicious IPO Initiation: Tasty Bite.
• The latest PHIP highlights Weilong’s floundering attempt of putting in price increases to protect margins but without tanking demand. We would pass on the IPO.  

• Weilong Delicious is a leading spicy snack food company in China with a market share of 6.2%. The company plans to raise proceeds of about US$500m through a HKEx IPO.
• This insight focuses on the new data points from the company’s latest PHIP release (dated 23rd Nov) which includes the company’s 1H2022 results.
• Weilong Delicious Global (WDG HK)’s top line growth has slowed down during 1H2022 and margins have come under pressure due to increased S&M spending and lower utilisation.

• Dat Bike, a Vietnam-based electric motorbike startup, has raised US$8 million in a funding round.

• The deal pushes the total funding Dat Bike has raised to date to US$16.5 million.

• Founded in 2019, Dat Bike said that its electric motorcycles have 4x the range (200 kilometers versus 50 kilometers) and faster charging time (3 hours versus 6 hours) compared to most alternatives.

We view Wynn Macau as “High Risk” on the LARA scale. The company has a good operating track record in the Macau gaming market, supported by two high-quality assets (Wynn Macau and Wynn Palace). Conversely, our view also takes into account the company’s geographical concentration and exposure to Chinese regulatory changes. Moreover, we consider the risks associated with the ownership by Wynn Resorts, given Wynn Macau’s history of paying large dividends to the parent company. Over the medium to long term, the Macau gaming industry should benefit from the rising affluence and discretionary income of China’s growing middle class. That said, the industry is facing challenges from the impact of the COVID-19 pandemic on tourism and consumers’ discretionary spending.

Our fundamental Credit Bias on Wynn Macau is “Negative”, on account of its severely weakened leverage and the uncertain recovery trajectory. In addition, we are concerned that the company might resume dividend payments too quickly (before being able to generate and sustain positive FCF), which would be highly credit negative. Still, the company has adequate liquidity for now, with no debt maturities until October 2024. We also anticipate that Wynn Macau will successfully renew its concession agreement in December 2022.

Controversies are “Immaterial”. In February 2018, founder Steve Wynn resigned as Chairman and CEO of Wynn Resorts, after he was accused of sexual misconduct. Mr Wynn sold his 11.8% stake in the company in March 2018. The Board also made major changes and removed directors with past links to Mr Wynn. In our view, Wynn Resorts acted promptly to limit reputational damage. We also deem Wynn Resorts’ corporate governance to have improved, as it is now run by professional managers and no longer has direct ties to its founder. Mr Wynn’s ex-wife, Elaine Wynn, is currently the largest shareholder of Wynn Resorts (8.4% stake).

Some ESG-compliant funds may be prohibited from investing in Wynn Macau, 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”.