Consumer

• The Composite Document for Shandong Fengxiang (9977 HK)‘s unconditional mandatory Offer from PAG Capital is now out.
• Shareholders who tender will be paid within 7 business days. 
• An H-class meeting will be held on the 18 January to vote on whether to delist Fengxiang. There is no guarantee this will occur.

• Our flash checks for Go Fashion India (GOCOLORS IN) and LUX Industries Ltd (LUX IN) suggest weak consumer sentiment continues to prevail.
• Competitive intensity is an area of concern for category creator and leader Go Fashion India (GOCOLORS IN) 
• Rupa & Company (RUPA IN) is giving a tough fight to LUX Industries Ltd (LUX IN) in the rural markets.

• Since late November we have been discussing our expectations for a pullback, while recommending shifting exposure to defensives (Staples, Utilities, Health Care) and/or taking profits.
• The pullback is finally happening following breaks below 3910 support on the S&P 500, $177.50 support on the Russell 2000 (IWM), and $279 support on the Nasdaq 100 (QQQ). 
• These levels are now resistance, while major resistance remains at 200-dayMAs/YTD downtrends. Stick with defensives/cash as we believe a test of the YTD lows on the aforementioned indexes is likely.

• In this insight, we discuss an update of pair trade between Emart (long) and Coupang (short). 
• Back on 1 August 2022, we recommended a pair trade between E Mart Inc (139480 KS) (long) and Coupang (CPNG US) (short).
• This pair trade has worked well in the past five months and we continue to like this pair trade (long Emart and short Coupang).

• Skyworth Group Limited (751 HK) has announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.  
• On 17 June 2020, Skyworth announced a partial buyback – 12.83% of shares out or 392.8mn shares, at HK$2.80/share, a 32.1% premium to last close. 
• Upon successfully completing this partial offer, Stephen Wong & concert parties would hold >50%, prior to the excise of any outstanding options. 

• FY22 results for Water Oasis (1161 HK) were very encouraging, with significant HoH improvement from 26 mn HKD to 70 mn HKD (excluding a 33 mn HKD one-off).
• With only 5 out of 6 operational months for H2 FY22, we see a significant improvement in H1 FY23 if HK should remain operational for all six months. 
• With the reinstatement of dividends as financial conditions improve, the stock trades at 5.2x FY23 PE with a >15% dividend yield conservatively and 25% of the market cap in cash.

• MR D.I.Y. Group (MRDIY MK) has continued to perform as coming out of the pandemic, offsetting inflationary pressures with selected price increases helping to stabilise margins.
• 4Q2022 should be strong with an upward normalisation of inventories, with a target for 180 new stores in 2022 and a further 180 stores in FY2023, fuelling future sales growth.
• MR D.I.Y. has a unique market position and strong brand in Malaysia, and Brunei and generates much higher ROEs than its regional peers hence justifying a premium valuation. 

• Hotel Shilla is a key beneficiary of the end of the zero COVID policy in China and the end of the mask mandate in Korea. 
• In the past several weeks, there has been a major shift on the highly stringent zero COVID policies in China which should have a positive impact on Hotel Shilla. 
• In the next several quarters, we believe that there is a good chance that the company’s results exceed the consensus expectations, driven by millions of tourists from China to Korea. 

• The Keepers Holdings (KEEPR PM) set a new precedent of paying out 50% of its earnings. If sustained, the yield for FY22e/FY23e will be 6.6%/8.4%. 
• The move has made The Keepers Holdings (KEEPR PM) a growth/dividend yield stock with mid-teens profit growth and a forward yield >6% (~10% cash as % of mkt cap). 
• The catalyst for the company will arise from its strong Q4 2022 earnings. The management has already indicated the growth trajectory is similar to the prior quarters.

• Although there are some points to iron out, Fortress Investment is in the final stages of negotiation to purchase Sogo Seibu from Seven & I, with Yodobashi Camera as partner. 
• This is an exciting move for Yodobashi as it should be an excellent choice to leverage Sogo Seibu’s better locations and create more competition for rivals like Bic Camera.
• Even so, some stores will no longer have a future under their existing banners and the acquisition will mark the final demise of a 170 year old brand and company.

• Pan Pacific International Holdings (7532 JP)’ Don Quijote stores rebounded strongly from Covid, despite the lack of inbound tourists, reflecting the hard work done to update stores and merchandise.
• This innovation continues and Don Quijote stores recently even began offering several new private brand cosmetics ranges and new electronics, including a new small footprint freezer. 
• The company expects 15% of domestic sales from private brands alone but rising to 25% in the near term, with significant upside for operating profits.

• Takashimaya and H2O Retailing entered what felt like a forced engagement of convenience in 2008 when all their other competitors were busy merging.
• Although discussions for a full merger were held, in truth, thea agreement was more about practical collaboration to create more efficiencies. 
• With both firms now more secure and cross-shareholdings more problematic, they will sell off their equity in each other but continue to work on joint projects.

• Sumber Alfaria Trijaya through its Alfamart and Alfamidi formats is one of the largest mini-market operators in Indonesia but is now expanding aggressively into the convenience store space through Lawson.
• The company should have a strong finish to the year with an additional 1,200-1,300 new stores being added over the period plus margins improving as Alfamart adds new services.
• Sumber Alfaria Trijaya is a core proxy to the winning mini-market format in Indonesia plus it is looking to replicate its success in the Philippines in Collaboration with SM Investments.

• Lawson introduced a new store format in Tokyo last month called Green Lawson, touting new ways to save energy and reduce waste. 
• The new store also features an early version of a retail advertising system that emulates Familymart Vision.
• The latest updates emphasise the continued investment by the big three convenience stores to remain relevant and improve sales efficiency while also countering the labour shortage.

• In this insight, we provide an update to our long-short pair trade of Hyundai Motor (long) and Tesla Motors (short), which we presented back in June 2022.
• Since 9 June 2022, Hyundai Motor’s share price is down 13.4% and Tesla’s share price is down 48.6% in the same period, resulting in net gains of 35.2%.
• We discuss five major factors impacting Tesla’s share price this year including market share losses, Musk’s acquisition of Twitter, valuation multiples decline, China operations, and global recessionary fears in 2023.

• This is our first report on Royal Caribbean Cruises, a well-known player operating three cruise vacation brands, including Royal Caribbean International, Celebrity Cruises and Silversea Cruises.
• Royal Caribbean Cruises has seen strong demand, fighting off inflation, and continues to focus on its value proposition of providing the best-quality vacations in the world.
• We initiate coverage on the stock of Royal Caribbean Cruises with a ‘Hold’ rating.

• Royal Caribbean Cruises is a renowned cruise player operating three cruise vacation brands, namely Royal Caribbean International, Celebrity Cruises and Silversea Cruises.
• The company has seen a strong recovery post the pandemic and its recent results have been strong.
• The good news is that Royal Caribbean Cruises has seen strong demand, fighting off inflation, and continues to focus on its value proposition of providing the best-quality vacations in the world.

• XXXLutz consortium secures 80.94% of home24 shares. The Additional Acceptance Period runs until 28 December. More shares will be tendered and delisting will eventually take place in 2023, in my view.
• My updated fair value estimate is €7.44/share (average of DCF and comparables, as per the tables below), just 0.8% below the offer price, hence my TP remains unchanged at €7.50.
• Gross spread is 0.93%. The risk of being stranded with a delisted stock encourages tendering at €7.50.

• The Mosaic Company is one of the major producers and marketers of concentrated phosphate and potash crop nutrients.
• The company’s business has been impacted by the ongoing inflation and supply chain issues and has been reducing its production off-late.
• Besides, the weather in the U.S. prevented spring planting, and the short planting window limited nutrient treatments.

• Global Industry Classification Standard (GICS) structure updates will lead to changes to the S&P/ASX All Technology Index at the March rebalance.
• To better reflect the GICS changes and reduce constituent turnover, S&P DJI has proposed changes to the index universe for constituent selection.
• We expect there will be 4 deletions from the index in March, but that could increase to 10 if the changes are not adopted.

• Last August 13th we urged investors to take a hard look at the spurt in the Philippine gaming market as soon as covid related shutdowns ended. Bloomberry traded at 7.1php.
• We reiterated our bullish view this past November 13th at 9.7php.
• Price at writing has fallen back to 7.50 indicates that conviction in the Philippine gaming recovery has not yet been recognized by investors in the space.

• This is our first report on TJX Companies is pleased with its third-quarter performance.
• The company once more produced solid profitability and a fantastic merchandise margin.
• We initiate coverage on the stock of The TJX Companies with a ‘Hold’ rating.

• About ₩3T trillion is presumed to flow from NPS to KOSPI MID. Then, ₩0.8T from local publicly raised funds should be sitting in KOSPI MID. Adding these two alone amounts ₩4T.
• Of course, this is ACTIVE. In other words, they do not need to proceed with universe changes due to rebalancing at the same pace as ETFs.
• Nevertheless, we should note that the domestic fund industry does not allow a large gap with BM. Hence, at least ₩4T of funds follow KOSPI MID quite tightly.

• Dollar General Corporation is a major discount retailer operating in the U.S.
• The company’s business has been impacted by inflation and the ongoing supply chain issues but it has managed a decent comp sales growth and market share growth of both consumable and non-consumable product sales in recent results.
• This includes challenges within the company’s supply chain, higher inventory shrink and damages, sales mix pressures, and everything that impacted gross margin.

• This is our first report on major discount retailer, Dollar General Corporation.
• Its revenue growth was led by comp sales growth and in market share of both consumable and non-consumable product sales.
• Dollar General, during the quarter, experienced significantly higher cost pressures.

• This is our first report on Constellation Brands, a dominant player in the international alcoholic beverage market, particularly the Mexican beer space.
• The buy rate increased in the quarter for both total wine categories and high-end beer in tracked channels.
• The beer business of the company remained well placed that continues to support the steady growth of the brands.

• Constellation Brands is a major player in the international alcoholic beverage market, particularly the Mexican beer space.
• The beer business of the company is well placed that continues to support the steady growth of the brands.
• Among other developments, Constellation Brands has recently reached a pact with The Wine Growth to divest a portion of the company’s premium and mainstream wine portfolio.

• One of our routine channels is suggesting the possibility of some of Mahindra & Mahindra (MM IN) ‘s Scorpio-N bookings being fake.
• This channel (an online auto forum) has been a trusted source of information followed by various industry veterans including the company’s chairman.
• While the rationalisation of fake bookings as a recent industry practice could solace some, the fallacy of the bookings narrative only gets stronger. 

• Ryohin Keikaku (7453 JP) rose 24% following an earnings beat in the previous quarter. However, the share price progression afterwards was less than we anticipated.
• Our analysis points to one more big earnings beat as consensus is still conservative on cost assumptions.
• We think Ryohin Keikaku could take another big stride towards our target price following 1QFY23 results, due on the first week of January 2023.

• The target is those who purchase 25% or more of the shares of a listed company and become the largest shareholder with management rights.
• The minimum volume of a mandatory offer is [(50% of total shares + 1 share) – the management right purchase volume].
• We will be exposed to pro-rata risk, so it will be essential to figure out the nature and propensity of the shareholder composition to estimate the tendering rate in advance.

• Sula Vineyards raised around US$117m in its India IPO, although demand wasn’t all that great.
• Sula Vineyards (SV) distributes wines under a bouquet of brands. In addition to its flagship brand “Sula,” popular brands include “RASA,” “Dindori”, “The source,” “Satori”, “Madera” & “Dia”. 
• We have looked at various aspects of the deal in our previous notes. In this note, we will talk about demand and trading dynamics.

• Near the end of the review period, we see 7 stocks moving from MidCap to LargeCap, 6 from LargeCap to MidCap, 8 from SmallCap to MidCap and vice versa.
• One spin-off should be added to the MidCap segment, while a bunch of recent listings will be added to the SmallCap segment.
• Stock migrating upwards have outperformed stocks migrating downwards and we expect there could be some mean reversion from the middle of January.

• JD Health (6618 HK) is on the right track in terms of business model and investment logic. The Company has also begun to enter a virtuous circle in financial performance.
• There were some positive business updates in term of To B business in 22Q1-Q3, which would bring JD Health closer to establishing a complete “retail pharmacy + healthcare service” ecosystem.
• For trading strategy, at present, considering the complex external environment, we recommend investors to do short-term trade, rather than long-term hold.

• Sentiment driven rally is fading. Although COVID exit remains swing factor, individual company’s performance will increasingly be driven by their business models.
• Our proprietary store expansion framework suggests divergent growth outlook for major players – stretched for Haidilao, moderate for Jiumaojiu and Yum China, and ample for Xiabuxiabu.
• Xiabuxiabu is our top pick due to its strong turnaround not yet priced in depressed valuation. We also like Yum China but stay cautious on Jiumaojiu and Haidilao on valuation.     

• A little over two months since PAG Capital won the judicial auction to acquire 70.92% of Shandong Fengxiang (9977 HK), the acquisition has now cleared all regulatory clearances, including SAMR.
• PAG will now be required to make an unconditional Offer for all H-shares at HK$1.5132/share. Separately, PAG intends to delist Fengxiang which involves Scheme-like delisting resolutions. 
• This is done. The timing for approving the SPA was bang-on with my expectation.

• PAG completed the auction procedures for the acquisition of a 70.92% stake in Shandong Fengxiang (9977 HK). This will trigger an unconditional MGO at HK$1.5132 per H Share.
• As PAG has no compulsory acquisition rights, it will also seek shareholder delisting approval. The MGO is not conditional on the approval of the delisting resolution.
• The composite document is to be despatched on or before 28 December. At last close and for an end-of-January payment, the gross and annualised spread is 5.1% and 65.9%, respectively.

• Consumer sentiment is soft, but competition is limited for both Bata India Ltd (BATA IN) and Campus Activewear (CAMPUS IN) 
• Bata enjoys good relationships with its distributors and franchisees, traction for offline sales channels is strong.
• Campus is in an aggressive expansion mode, with leadership in the sports shoe segment driving sales.

• Match is down 70% in 2022, and down 50% relative to the S&P. 
• Despite impressive new CEO and a self help story, shares have continued to underperform rival Bumble and the market by wide margin on macro concerns.
• 13x Forward EBITDA for a company forecast to grow EBITDA at a 16% CAGR through 2025 (we think closer to 20%), has 35% EBITDA margins and $1B in annual FCF

• Multiple negative data points have come out reflecting limited initial uptake for Netflix’s ad-based tier.
• (We think) Netflix lack of AVOD uptake is due to it being fully saturated in its major markets wheras competing services starting from scratch have higher AVOD uptake.
• Lack of incremental subs from AVOD points towards a weaker than expected 4Q22 and downside to guidance…not good for a stock that has ripped since 2Q22 earnings.

• Discounts to NAV of covered holdcos have showed a mixed performance during November and the first half of December, with the same number of spreads widening and tightening.
• Discounts to NAV (31 October): C.F.Alba, 49.5%; GBL, 35.7%; Heineken Holding, 18%; Industrivärden C, 13.5%; Investor B, 15.5%; Porsche Automobile Holding 40.4%. The spread of Rio Tinto DLC widened to %.
• Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts. Recommended trades are: GBL, Rio Tinto (DLC), CF Alba (long position).

• Zx Inc (ZX CH) is looking to raise about US$100m in its upcoming HK IPO. The deal will be run by CICC and China Securities International. 
• Zx Inc runs three different businesses, namely an interactive entertainment business (Tan Wan), an instant food brand (Zha Zha Hui) and pop toy business (Bro Kooli). 
• Its interactive entertainment business Tan Wan focuses on publishing game products while while leveraging its precision marketing, in-depth operation and brand incubation capabilities. 

• As earnings recovered following the COVID drop, Oriental Land (4661 JP)’s FY+2 EV/OP returned to around 40-60x range, which in our opinion is too expensive, especially in current market conditions.
• The positivity surrounding the opening of Fantasy Springs got investors to pay huge multiples but Fantasy Springs is no longer looking enticing to investors.
• With a miss and a downgrade to FY23 guidance on the horizon, we are expecting OLC’s share-price to break the long-term trend to the downside in the next few months.

• Last evening, the CSRC and the SFC agreed to further deepen mutual stock market access between the Mainland and Hong Kong and promote the development of both capital markets.
• For Southbound Stock Connect, eligible foreign companies primary-listed in Hong Kong will become eligible. That could mean 5 additions to Stock Connect.
• Additionally, Southbound access via Shanghai Stock Connect will be expanded to being it in alignment with Shenzhen Stock Connect. That could see 131 stocks added to Shanghai Stock Connect.

• Saria agreed to acquire Devro for 316.1p/share in cash, for an implied equity value of £540.8 million and an implied EV of £667 million. This represents 9.6x EV/Fwd EBITDA, 65% premium.
• The offer price seems fair: the multiple is close to Viscofan’s (market leader) and my fair value estimate is 305p (DCF based). A competing bid seems unlikely.
• After the shares went ex-dividend, gross spread is 2.7%, but the estimated annual return is 3.6% (assuming settlement by 30 September 2023), which means there should be better opportunities elsewhere.

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.

• China South City
• Kawasan Industri Jababeka
• Lifestyle International Holdings

• Both Kappa Kreate and ATOM are almost completely controlled by their parent company, ColoWide, and we cannot expect corporate governance practices that would actually be a relief to minority shareholders.
• With the parent company in full control, the subsidiary’s minority shareholders are likely to be aware that the interests of the parent take precedence over those of the minority shareholders.
• Parent company shareholders shouldn’t tolerate continuing to own subsidiaries that damage their interests. The problem isn’t a problem of the interests of the subsidiary’s shareholders, but of the parent’s shareholders.

• A perfect storm of inflation, aggressive monetary tightening, and recessionary fears in 2022 has rocked the Housing market.
• This is especially true for home builders like Landsea Homes, which went public through a SPAC last year.
• While not a household name, Landsea has firmly established itself as an affordable builder for first-time home buyers.

• MSCI’s quarterly comprehensive index review begins with the February review. QIR disappears, and all quarters are subject to the SAIR rules.
• Currently, no constituents face deletion risk. On the other hand, we have three potential additions: Hanwha Aerospace (012450 KS), Meritz Financial Group (138040 KS), and Kakao Pay (377300 KS).
• Meritz Financial will likely take Meritz Fire’s place through a Continuation. Kakao’s chances have increased significantly due to the recent price rise and the comprehensive index review.

• To MID migrants: Amorepacific Group (002790 KS), E Mart (139480 KS), Iljin Materials (020150 KS), Hanjin KAL (180640 KS), OCI (010060 KS), LX Semicon (108320 KS), and SOCAR (403550 KS)
• To LARGE migrants: Hyundai Rotem (064350 KS), Hotel Shilla (008770 KS), GS Retail (007070 KS), CS Wind (112610 KS), and Posco International (047050 KS) 
• This time, the degree of predictability is high as the MC gap widened from an early point. So, we should consider building our position in phases from early next month.

• China private higher education sector is recovering with the supportive government policy
• The sector trades at single digit P/E, which is attractive
• China Education Group with its largest scale and solid trade record is a good candidate for investment