Consumer

• I-Tail (ITC TB), Thai Union Group (TU TB)’s pet care division, will launch an up to US$600 million SET IPO this week, according to press reports.
• We previously discussed the IPO in I-Tail Corporation IPO: The Bull Case and I-Tail Corporation IPO: The Bear Case. 
• In this note, we look at the 9M22 results. The results highlight that i-Tail is in rude health with accelerating growth, healthy margins, cash generation and manageable leverage.

• Seven & I has at last agreed to sell the ailing Sogo Seibu chain – although not for enough to offset years of investment with little to show for it.
• Some hope that this means the start of a house cleaning exercise to rid the group of its multiple under-performing retail assets, leaving a gleaming exemplar of rational efficiency.
• This is unlikely, especially for the original Ito-Yokado general merchandise chain and a problem given the lack of growth potential in the group’s domestic business.

• While Macau remains hostage to Beijing’s zero tolerance covid policy, Philippine gaming has taken the lead in ASEAN recovery ramp.
• The Soliare property at manila has outperformed expectations on the basis of pent up demand beginning to show in domestic player revenue. 
• CEO Razon has confirmed continuing expansion plans at Cebu and Emerald Bay to be completed before the end of 2023. Both will be accretive to group EBITDA.

• No substantive progress is achieved on Brilliance Group’s bankruptcy restructuring so far.
• Besides estimated max Rmb6 per share, or HKD6.5 per share special dividend 2022E, shareholders may get more cash dividends in the next few years
• Our enterprise value analysis shows Brilliance China’s fair value could be as high as HHD21.9 per share, including estimated HKD6.5 per share special dividend 2022E.

• Tata Motors Ltd (TTMT IN) will eliminate its ADS program. This is another potentially juicy trade. 
• Canada’s Brookfield, along with EIG look to take over Origin Energy (ORG AU), one of Australia’s largest energy companies.
• This OZ Minerals Ltd (OZL AU) trade is fundamentally a bit short gamma on copper. If copper takes another dive, then it may no longer be interesting to be long. 

• Etsy reported a strong set of results that were beyond market expectations with a strong adjusted EBITDA margin and growth in revenue.
• Also, it had some early incorporation of buyer interests and taste to create more personalized and predictable recommendations.
• The company held Etsy Up: Holiday edition, its foremost global holiday kickoff event for sellers all over the world.

• Earlier today, Seven & I Holdings (3382 JP)’s board decided to sell the underperforming department store business Sogo Seibu to the SoftBank Group controlled Fortress Investment Group for around ¥200bn.
• The sale of Sogo & Seibu looks like a positive development from all angles, but it could be already priced in as the rumours were there from February 2022 onwards.
• Meanwhile, there are downside risks to Seven & I shares in the short term from falling gas prices and rising inflation in the US.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Evergrande
5. Central China Real Estate

and more…

• Financial results were largely as expected with good news in fintech on a return to double-digit revenue growth but continued steep losses in mobile
• Mobile subscriptions fell by 280K (-9% over two quarters) as users of free plans churned off keeping YoY growth to 2%
• The company is keen on the potential once platinum band spectrum is available but that is up to two years away

• While the world moves on from the events of 2020 and the pandemic fades through the rear-view mirror, a cluster of fallout still clings to Starbucks, the world’s largest coffee retailer.
• The operational stress of the pandemic, as well as concerns over in-store safety1 , catalysed demand for unionisation in the company’s most integral market, the United States.
• Since the first store won its union vote in Buffalo, New York, in December 2021, over 330 stores in 38 states have filed for an election, yielding more than 250 successfully unionised stores.

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
• Overall, net inflowover the past week was ~US$0.26bn, split between Shanghai (+US$0.08bn) and Shenzhen (+US$0.18bn).
• The largest inflows were into Midea Group (000333 CH) and Shenzhen Mindray Bio-Medical Electronics (300760 CH). The largest outflows were in China Yangtze Power  (600900 CH) and Kweichow (600519 CH).

• Yum Brands’ stock has been on a solid upward trajectory off-late after the company reported an impressive top-line growth this quarter.
• Even though it missed out on earnings, the company achieved a 10% system sales increase, supported by 6% unit growth and 5% same-store sales growth which did drive positive sentiment in the markets.
• KFC did an excellent job of accelerating transaction growth through its omnichannel strategy, which helped to improve comps sequentially from the previous quarter.

• Estee Lauder has shown some reversal in the past few days despite delivering a mixed set of results.
• Besides, 13 brands had organic growth, growing by high single digits to account for more than half of their organic sales.
• Overall, we remain neutral on Estee Lauder and maintain our ‘Hold’ rating with a revised target price.

• Comcast delivered an all-around beat in its recent results and its performance in its Cable Communications business in the third quarter remained impressive.
• However, it operates in a turbulent business environment in terms of increased competition from the new entrants as well as depressed move activity.
• Comcast has recently unveiled an ambitious broadband initiative promising to pass 50 million businesses and homes with the combination of Wi-Fi and 10G-enabled broadband by 2025.

• Yesterday, with earnings, Tata Motors Ltd (TTMT IN) announced that it would delist its ADS, making an application on or around 13 January.
• This sounds relatively benign because since 2004 when the ADS was listed, local funding capacity has increased substantially. It may no longer be needed. 
• But it is MUCH more interesting than that. There is lots of fun to be had here. 

• Post market close yesterday, Tata Motors Ltd (TTMT IN) announced that it intended to delist Tata Motors ADR (TTM US) and terminate its ADS program.
• The easiest option for most ADS holders will be to sell the ADS. That could take the ADS lower and to trade at a discount to the underlying shares.
• Sell Tata Motors ADR (TTM US) outright or sell the ADS/buy Tata Motors Ltd (TTMT IN) for an arb trade.

• FTSE has announced that it will be changing Golden Agri Resources (GGR SP)‘s nationality from Singapore to Ineligible at the close on 16 December. 
• This means the stock will be deleted from the FTSE All-World Index at the close on 16 December. We estimate passive trackers will need to sell multiple days ADV.
• Golden Agri Resources (GGR SP) trades cheaper than a lot of its peers but has outperformed them over the last year. There could be a short-term reversal.

• LG Energy’s virtually locked-up shares rise to nearly 95%. This should at least partially explain why its price has substantially outperformed the KOSPI in recent months, showing strong downward rigidity.
• Additional long-term money equivalent to 2-3% of SO can come in for 5% float shares. There is no precedent for a float crunch of this magnitude among top-cap local stocks.
• It seems necessary to reconsider taking a shorting position for LG Energy even after the 9th of next month when the short-term passives inflow situation is completed.

• Over the last five quarters, monthly transacting customers have increased by 36%, QoQ, the pace could be slower, but the trend remains upwards. 
• AOVs and Order frequency have the potential to inch up, but only over the long term.
• Take rates are inching up, delivery fees are going higher, and with a higher market share Zomato (ZOMATO IN) ‘s food delivery business is expected to continue improving. 

• South Korea’s largest e-commerce company, Coupang (CPNG US) is no longer a growth stock with revenue expected to start falling on a YoY basis from 4Q22 onwards.
• Therefore, we think Coupang’s current valuation, which is based on inflated revenue estimates should become redundant.
• We think a no-growth, low-margin business like Coupang does not deserve to trade north of 10.0x OP, whereas it is currently trading at 15.6x the best-case OP estimate.

• Chinese carmaker BYD Co. Ltd. has unveiled its first luxury brand of electric vehicles (EV), joining its peers in efforts to impress wealthy domestic buyers
• The launch marks BYD’s latest step into the high-end auto market as it tries to outgrow its image as a manufacturer of mid- to low-end vehicles
• BYD is China’s largest EV and hybrid vehicle manufacturer by sales. In October, its wholesale shipments surpassed 200,000 for the second consecutive month

• Acceleration in earnings growth at Haier Smart Home Co Ltd (6690 HK) is an encouraging trend. We are happy to see expansion in both gross and operating margin in 3Q22.
• Further channel additions for Casarte and digitalisation efforts will bring positive profitability impact. Meanwhile, we welcome HSH’s increase in engagement of suppliers in product design process.
• Overseas growth has also accelerated in 3Q22 and there are numerous opportunities for HSH to expand its high-end presence and introduce new products in developed country markets. 

• Booking Holdings delivered a positive set of results in the quarter and managed an all-around beat.
• Their consumers reserved 240 million room nights in Q3, just under 0.25 million more than in Q3 2019.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Bangladesh-based ecommerce startup PriyoShop is looking to add US$5 million in a bridge funding round to its cart.
• Founded in 2020, PriyoShop handles commerce through its app and manages logistics in locations like Dhaka and Chattogram through its own fleet.
• The company said that third-party logistics companies then take on shipping across the rest of Bangladesh.

• We believe the revenue growth will recover from zero in 1Q23 to 4% YoY in 2Q23.
• We believe the operating margin will improve in the following two years because the company is cutting unprofitable businesses.
• We set an upside of 43% according to other retailing giants’ price / sales ratios.

• Hangzhou Great Star Industrial Co., (002444 CH) is looking to raise around US$150m in its Swiss GDR listing. Huatai is the sole bookrunner in the deal. 
• The firm is offering 11.5m GDRs (1 GDR to 5 A-shares) for sale at a 16.1-18.7% discount to last close.
• The deal would represent just 2.3 days of three month ADV and 4.3% of the firm’s current mcap.

• The Keepers Holdings, Inc. (KEEPR PM) reported strong Q3 2022 revenue growth of 48.6% YoY and profit growth of 47.8%, led by strong growth in all categories of spirits.
• The stock trades at 8.2x FY22e/6.7x FY23e (numbers exclude the incremental earnings from its 50% stake in W&H, which we estimate could at least add 7-8% to our numbers).
• We will get more color from the post-results call on the 16th of November 2022 (aftermarket). 

• Pan Pacific International Holdings (7532 JP)’s 1QFY23 was broadly in line with consensus estimates with revenue and OP of ¥473.7bn (consensus: ¥473.8bn) and ¥23.9bn (consensus: ¥23.8bn) respectively.
• Personal brands growth and Asia expansion are driving up PPIH’s margins while most companies in the consumer sphere are failing to pass down cost inflation.
• With signs of OP moving to the pre-UNY acquisition level, we think that there’s an upside to the company’s medium-term guidance and consensus.

• This past week, I had an interview with Lee Sanghyun, the founder and CEO of Flashlight Capital Partners (FCP) which is currently an activist investor on KT&G Corporation (033780 KS).
• Our interview focused on five key issues including valuation, buyback & dividends, ginseng business spin-off, investment horizon, and aligning management’s interests with those of its shareholders.
• FCP’s shareholder return plan is to 3x higher than the one currently proposed by the company. For further details, see FCP’s website https://flashlightcap.com/. 

• Across the board miss as DTC losses peak, park margins weaken, and linear likely to fall off a cliff. 
• Big FY2023 guide down on revenues (HSD vs. LDD previously) and OI growth (HSD vs. ~25% consensus previously). 
• Disney profitability lower for longer as macro headwinds on parks, accelerating cord cutting, and pushed out D+ profitability means OI likely down $2B in both FY23-24.

• Billionaire US investor Tillman Fertitta has bought into what he believes is an undervalued stock as the Las Vegas market recovery speeds up.
• Stock could now be in play as Fertitta, Wynn’s ex-wife and Macau giant Galaxy now control a al of 20%  the outstanding shares.
• Stock is up 18% since Fertitta’s buy last week. It could well be in play.

• Jardine Cycle & Carriage (JCNC SP) was deleted from the SIMSCI Index in November 2020 and could be added back to the index at the upcoming SAIR.
• If added to the index, we estimate passive MSCI trackers will need to buy 7.9m shares (US$176m; 11 days of ADV) at the close on 30 November.
• Jardine Cycle & Carriage (JCNC SP) is trading at a tight discount to its listed holdings and the spread could widen post the MSCI implementation.

• The two names in LONG (LG Energy Solution and Celltrion) and the two names in SHORT (Shinhan Financial and KB Financial) are almost a foregone conclusion.
• POSCO Holdings is now ahead of Kakao Corp due to the recent sharp rise in its share price. But the gap between them is still quite tight.
• This rebalancing will likely aggravate LG Energy’s flow crunch as it also awaits an MSCI up-weight (2x ADTV) in end-November and a KOSPI 200 up-weight (2x ADTV) on December 8.

• In Nov 2021, Nykaa raised around US$720m in its India IPO, via mostly selling secondary shares.
• Nykaa is a lifestyle focussed e-commerce platform and consumer brand offering a portfolio of beauty, personal care and fashion products, including its own branded products.
• In this note, we will talk about the upcoming lockup expiry.

• Calbee Inc (2229 JP)’s share price fell 4% today from the top end of the trend channel as 2QFY23 OP fell short of consensus by ¥658m to ¥4.9bn.
• There was also a ¥3.5bn downgrade to full-year OP guidance on higher-than-expected energy and raw material costs. However, this seems too conservative, especially with 10-20% price hikes in September-November.
• In addition, share buy-backs are starting to become a regular part of shareholder returns with ¥12.0bn per-year in share buybacks in the previous fiscal year and the current fiscal year.

• It is doubtful that independent outside directors are actually able to actively bridge the gap between shareholders and the board of directors, as the Corporate Governance Code states in Japan.
• Behind the lack of willingness on the executive team to make major changes in the way things have been done is high % of specified shareholders (40%), including cross-held shares.
• No major change in business strategy is expected unless foreign shareholder ratio exceeds 30%. In order for the current large shareholders’ equity to decline, Sapporo should sell its cross-held shares.

• Maintain HOLD recommendation for DOHOME with a target price of Bt14.10. DOHOME’s 3Q22 net profit came in at Bt50m (-85%YoY,-84%QoQ),in-line with our forecast but below BB consensus estimated by 34%
• 3Q22 earnings sink both YoY and QoQ Its net profit came out at Bt50m (-85%YoY, -84%QoQ),the lowest level since listed.The 9M22 result accounted for 88%of full-year net profit in 2022.
• The significant drop in 3Q22 earnings pressured by lower margin from steel products, clearance sales in decoration materials category, and rising all products cost as a result from rising inflation.

• Colgate-Palmolive delivered a disappointing set of results in the relatively unstable operating environment and failed to meet revenue expectations of the market despite producing a high single-digit organic sales growth in the third quarter, with expansion in every division.
• The company also saw an increase in all four categories, with high single-digit growth in personal care, pet nutrition, and oral care.
• Another capability they are expanding across the firm is revenue growth management (RGM) with their data and analytics team strategizing on the same.

• PMI has obtained acceptances of 82.59%, waives the 90% acceptance condition and extends the acceptance period until 25 November (settlement on 2 December).
• SWMA shares are trading at an all-time high of SEK 115.8. Gross spread is 0.17% (estimated annual return is 2.52%). The market discounts that the offer will be successful.
• Done deal. PMI is ready to wait until claiming final victory, quite possibly in the further extended acceptance period. It should be able to squeeze-out and delist. Accept offer.

• SPAC National World confirmed that it is at the early stages of exploring a possible offer for UK’s largest local publisher Reach (RCH LN), whose share price had dropped 64% YTD.
• The approach comes when Reach seems to be turning a corner and digital is growing, more specifically data-led initiatives. The top ten shareholders own 61% of the share capital.
• A good offer should be tabled to convince the suffering top ten shareholders (61% in aggregate). My TP is 163.4p (comparables/DCF). The shares are trading at 4.0x NTM P/E.

• I-Tail (ITC TB), Thai Union Group (TU TB)’s pet care division, has started pre-marketing an up to US$600 million SET IPO, according to press reports.
• In I-Tail Corporation 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 its under-representation in the dog food category (largest pet food category), margins at or near the peak and declining FCF margin. 

• I-Tail, an OEM in the wet pet food category, aims to raise around US$500m in its Thailand IPO. It is a subsidiary of Thai Union Group (TU TB) .
• As per ITC, it was the number two pet food company in Asia and in the top ten pet food companies globally. ITC expertise lies in fish-based wet pet food.
• In our previous notes, we have looked at past performance, undertaken a peer comparison and spoken about valuation. In this note, we will add in its recently listed local peer.

• I-Tail (ITC TB), Thai Union Group (TU TB)’s pet care division, has started pre-marketing an up to US$600 million SET IPO, according to press reports.
• I-Tail is one of the largest original equipment manufacturers (OEMs) for wet cat & dog food in Asia, according to Frost & Sullivan.
• The key elements of the bull case rest on strong top-line growth, market share gains, ambitious growth plans and the highest margin profile among peers.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), 111 Inc (YI US), Pendal Group (PDL AU), Genex Power Ltd (GNX AU), O2Micro International (OIIM US).
• Lowest spreads – Tyro Payments (TYR AU), Nitro Software Ltd (NTO AU), Tassal (TGR AU), OZ Minerals Ltd (OZL AU), China Vast Industrial Urban Development (6166 HK), PTB.

• Astra International (ASII IJ)‘s recent 9M2022 numbers confirmed its position as a well-rounded way to play Indonesia’s economic recovery through autos and commodities through its controlling stake in United Tractors.
• The company has continued to deploy its war chest of funds from the Bank Permata sale, investing in commercial vehicle leasing, hydro-power, and digital banking in 3Q2022 alone.
• Astra International (ASII IJ trades on 9.0x FY2023 PER and 8.5x FY2024E PER versus its 5-year average forward PER of 14x, making it attractive at current levels. 

• Post the end of the review period, we see 7 potential adds and 2 potential deletes for the MSCI India Index at the November SAIR.
• Inclusion in the index will require passive trackers to buy 6-21 days of ADV on the stocks. That increases to 16-45 days of delivery volume.
• Cumulative excess volume indicates pre-positioning on most potential adds. Foreign Portfolio Investors (FPI) have increased their holding on all potential adds over the July-September quarter.

• 4 November was the deadline to tender. PMI threatened to walk away if it didn’t reach 90%. Some funds that opposed the deal trimmed their stakes, likely bought by arbs.
• The FT has reported that Elliot (10.5% stake) has tendered and that by 4 November over 80% acceptances were recorded. PMI is very likely to reach now over 90% acceptances.
• Results will be announced on 7 November, with settlement on 11 November. The squeeze-out procedure is likely be initialed as soon as possible after settlement. Gross spread is 0.87%.

• Fantasy Sportbook Operator DraftKings saw its shares drop by 28% at the close on Friday, recording the worst in its trading history even as its management and CEO remained upbeat about the company’s future.
• What was surprising about the steep decline was the fact that the company beat analyst expectations both on the revenue and EPS front in its most recent quarter while also raising its full-year guidance.
• The market remains skeptical about the company’s business model and its decision to prioritize growth over profitability, a stark comparison to its peers who have cut costs in recent months.

• Our base case valuation of the company is target price of 26,404 won per share, which represents 6% higher than the high end of the IPO price range.
• Given the low upside, we have a Negative view of this IPO.
• All in all, while we believe Millie’s Library is a solid company with excellent fundamentals, the IPO price range is not valued at meaningful discount to the intrinsic value.

• Muji has been trying to both reduce prices and consumer perception of its price positioning in the past few years, both at home and abroad. 
• This has been hard but a new ¥500 chain will make it clear that Muji is shifting positioning.
• Muji will now even compete with discount and fixed price chains across food, home and clothing and the new price format will be much better suited to markets like China.

• Strong growth continues….GOV grew 30%, 2% ahead of consensus..no macro headwinds.
• New “disclosures” imply the core business is more profitable then presumed, rationalizing management’s investments in new businesses.
• Beat and Raise…one of the few online platforms to do this in the current environment…in a business (food delivery) that most didn’t think was habitual LT.

• Since our note in April China Meidong: Back the Porsche at 20 HKD, the company is down greater than 50% despite improving fundamentals due to bearish sentiment on China.
• The stock trades at 11.3x/6.4x FY22/23e PE. Assuming an 80% payout ratio, the stock has a 7.1%/12.5% dividend yield for FY22/23e. We believe there is an upside to the payout.
• Checks with the company suggest Porsche sales are robust in the high double digits, and the company has overall accelerating revenue trends since Q1 2022. 

• Consensus has dismissed Kirin Holdings (2503 JP)’s revised revenue and OP guidance by maintaining consensus 2022 revenue and OP estimates at ¥1,970bn and ¥149.8bn respectively.
• With the yen depreciating by an additional 5-15%, domestic business outperforming expectations and raw material prices falling, we expect another raise to Kirin’s annual guidance in 3Q22.
• We think a second upgrade to 2022 guidance can turn consensus from pessimism to optimism.

• Campus Activewear (CAMPUS IN) was listed on 9th May, 2022, with its six-month lockup expiring today, 4th November 2022. 
• Campus Activewear is a lifestyle-oriented sports and athleisure footwear firm based in India. Operating under the “CAMPUS” brand, it offers a diverse portfolio of styles, color palettes, and price points.
• Coming up for six-month lockup expiry are the pre-IPO investors and the Promoters, both of which had sold during the IPO.

• Millie’s Library is getting ready to complete its IPO on the KOSDAQ exchange in November. The IPO price range is from 21,500 won to 25,000 won per share.
• Millie’s Library is the largest platform for e-books subscription in Korea. The major shareholder of Millie’s Library is Genie Music Corp (an affiliate of KT Group) with a 38.63% stake. 
• The company started to generate positive operating margin in 1H 2022 when it had sales of 21.1 billion won (up 66.1% YoY) and operating margin of 5%.