Consumer

• Craftsman Automation (CRAFTSMA IN) is engaged in the business of manufacturing engineering components, sub-assemblies, products and rendering of contract manufacturing services to various industries
• Key forensic takeaways include working capital troubles, alongside inflation woes deteriorating gross margins etc. There is grey area noticed in accounting treatment pertaining to JV as well.
• Focus should also be on the aluminum segment, which is going through a tough phase regarding operating leverage and low margins.

• Recent and pending supply-chain deforestation regulations represent a new and ever-growing source of transition risks – financially-material risks with far-reaching ramifications.
• Significant developments regarding the European Union’s pending forest-risk commodity laws (e.g., inclusion of natural rubber, addition of banks to its purview) inspired this Insight.
• This Insight briefly summarises EU and U.K. deforestation regulations, then analyses potential risks and implications for issuers involved in related forest-risk commodity supply chains.

• Leapmotor (9863 HK) raised around US$800m in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In this note, we will talk about the demand for the deal and other trading dynamics.

• Leapmotor (9863 HK) priced its H Share at HK$48.00 per share to raise net proceeds of HK$6,057.4 million (US$772 million). The H Share will start trading tomorrow.
• The H Shares of peers posted no first-day gains and are currently below the listing prices. Market sentiment on peers has remained weak since the release of the prospectus.
• Leapmotor, at best, should trade in line with median peer multiples. Leapmotor is fairly valued at the IPO price. We continue to remain on the sidelines.

• Lawson Inc (2651 JP) has confirmed it will list its upscale supermarket subsidiary, Seijo Ishii early next year.
• Seijo leads in premium supermarket retailing and is growing as fast as the wealth market does, with plenty of room left to expand.
• Seijo Ishii is now building its own production and import capabilities to increase originality and could begin to challenge even some of their larger rivals.

• Oyo (1698548D IN) is looking to raise around US$700m in its upcoming India IPO. The IPO will consist of both a primary and secondary portion.
• Oyo runs a digital platform that serves as a hotel and home aggregator between patrons, which include owners and lessors, and customers, such as travelers and guests booking for accommodation.
• Since our last notes, Oravel Stays (Oyo) had filed its addendum, containing both its full-year performance for FY22, and its most recent 1Q23 performance (period ending Jun 2022).

• There was a substantial increase in the AUM even in the current market condition. More funds must have sought blue chip stocks as relatively safe assets in this volatile market.
• Celltrion and LG Energy Solution will likely replace KB Financial and Shinhan Financial. On the other hand, POSCO is out of the race even with a +5%p float rate change.
• LG Energy also has an up-weight event of the KOSPI 200. Since these passive flow events have an interval of only one day, we expect a fairly concentrated passive impact.

• Leapmotor (9863 HK) has priced its IPO at HK$48 per share, at the lower end of the indicative IPO price range of HK$48-62 per share. 
• At the above price, the company raised net proceeds of approx. HK$6,057.4m at a market capitalisation of HK$54.9bn and a post-money EV of HK$45.9bn.
• The HK offering was undersubscribed while the international offering was initially oversubscribed by 2.33x and the unsubscribed portion of the HK offering was later reallocated to international offering.

• Selamat Sempurna (SMSM IJ) is one of the most interesting industrial companies in Indonesia but also the largest filter manufacturer in South-East Asia for heavy equipment and autos. 
• The company mainly produces filters for the replacement market under its Sakura brand, with Indonesia being the major growth driver along with the US but it exports to 120 countries. 
• The company has an almost second-to-none track record for growth in both profits and dividends, with current valuations looking attractive. 

• Netflix has had a slew of upgrades recently on bullish estimates for its coming advertising supported tier…with the upgrades buying into Netflix’s exorbitant CPM demands.
• We think advertising supported is revenue accretive for the US and Canada, but question how this works out internationally.
• Disney is far better positioned for AVOD. It has a developed ad infrastructure, owns all its content, and has better brands to sell advertising against.

• BorgWarner’s second quarter performance was strong and it delivered an all-around beat despite a slight decline in global output.
• The company outperformed in North America and Europe and had sales of nearly $3.8 billion, an increase of around 7%.
• The first line of the company’s heavy-duty electric trucks, which is anticipated to be announced in 2024, will use this battery system.

• Equity investors in countries with overvalued currencies have two ways to lose and those with undervalued currencies have two ways to win.
• Today’s strong USD looks, in the end, to be our currency and our problem.
• Keep an eye out for dangerously destructive economic policies, but don’t use that as an excuse to avoid the asset class entirely.
• The yen and euro are at their cheapest levels in decades and hedging emerging market equities would be an expensive proposition even if the currencies weren’t generally cheap versus the USD.

• Rakuten’s Mobile losses have held back its share price over the last few years, but it is finally starting to show some improvements with costs shrinking sequentially in 2QFY22.
• However, most investors seem to have overlooked this QoQ drop thinking that it is driven by the impact of seasonality.
• With the loss of subscribers in the previous quarter seeming temporary, we are expecting revenue growth through ARPU expansion to more than offset Rakuten Inc (4755 JP) Mobile’s cost growth.

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EuroSTOXX Indices for the December 2022 Rebalance.
• There could be five M&A-related intra-review deletions between now and the end of the year.
• There could be more index changes in the December 2022 Rebalance too. 

• Mitra Adiperkasa (MAPI IJ) has proved itself with flying colours during the pandemic and continues to do so as mobility resumes, with offline sales recovering but digital remaining firm. 
• The company continues to build out its newer brands such as Boots, Footlocker, Sketchers,  DigiMAP, and Lego, with 161 store openings in 1H2022 and more to come in 2H2022.
• Mitra Adiperkasa is starting to ramp up its regional presence in Vietnam and the Philippines especially, which represents a future growth driver. Valuations are attractive despite the recent run up. 

• Only 12.1% of prime market listed companies have a majority of independent outside directors who can at least ensure the independence of the board of directors.
• On the nominating/compensation committees, 1/3 of companies are chaired by an inside director. Few committees have clear policies for selecting directors/CEO, and aren involved in determining compensation of individual directors.
• More companies are complying with regard to sustainability. However, it is necessary to analyze whether the target is an acceptable time frame and whether the target value is too low.

• Following a contraction in Chinese apparel sales since 3Q21, and similar negative GMV and product revenue growth for Vipshop, we have witnessed a recovery to growth since June.
• Current sell-side forecasts are, however, still for a -10.8%y/y contraction in product revenue for Vipshop in 3Q22f, followed by a -4.4% contraction in 4Q22f which seems overly pessimistic.
• Given the conservative nature of near-term top-line growth expectation, and management guidance, the probability for positive earnings surprise seems high.

• Summers Value Partners is a boutique value manager that uses a focused, long-term approach to investing in areas of the market where most managers are unwilling or unable to participate.
• The Summers Value Fund LP (“the Fund”) returned -25.9% net in the first half of 2022.
• The majority of our decline took place in the first quarter as we were too slow to react to the Fed’s decision to increase interest rates and shrink its balance sheet to cool the over-heated economy.
• The next stage of the bear market will most likely involve lower corporate earnings due to a more challenging businessclimate and reducedaccess to capital.

• Market consensus on Q3 deliveries has been dropping toward my ~330,000 estimate on weaker China sales, as we saw in Q2. 
• This time they can’t blame Covid-shutdowns—Tesla’s production is wide open.
• Instead it looks like softer demand despite lower prices—signalling potentially more pressure ahead.

• Omnicom’s performance in the second quarter was good as the company delivered an all-around beat.
• The company kept its attention on improving its current skills throughout the quarter to fulfill the demands of its clients and potential customers.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• We visited a store of Freshippo Outlets in Shanghai in workhour.
• We believe the store is popular and accumulating more customers.
• However, the digitalized services bring some difficulties to old customers.

• In this insight, we take a look at the potential index changes for FTSE 100 and FTSE 250 in the run up to the December 2022 Rebalance.
• There are multiple FTSE 100 and FTSE 250 members involved in M&A situations and there could be many intra-review changes during 4Q 2022.
• Most interestingly, the names leading the race to become intra-review ADDs seem to have decent volume impact.

We view Tata Motors as “Medium Risk” on the LARA scale. The company has weathered the impact of the COVID-19 pandemic better than expected. Compared to other major automotive players, Tata Motors is small in terms of scale and product offerings. Meanwhile, the global market is becoming increasingly consolidated. The large capex required for the company to catch up in terms of electric and petrol vehicle development (in the latter case due to diesel falling out of favour) will likely restrict its ability to generate FCF and deleverage. 

That said, Jaguar Land Rover (JLR) has a respectable position in the premium (luxury) auto market and highly differentiated product offerings (superior off-road capability), while Tata Motors India boasts a strong position in the domestic commercial vehicle market. We also note positively Tata Group’s reputation and the likelihood of extraordinary support from parent Tata Sons.

Our fundamental Credit Bias on Tata Motors is “Negative”. This is due to JLR’s weak sales and production, in turn owing to the ongoing semiconductor shortage.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. The auto industry is exposed to environmental risks in general, with stringent regulations pushing the industry towards zero-emissions vehicles and away from others (e.g. diesel). The industry is also exposed to fines related to the disclosure of emissions or manipulation of test results to attain certain emissions standards.

That said, Tata Motors has navigated the challenging operating environment very well in the wake of Volkswagen’s emissions scandal. The company has not been penalised by regulators.

• Interpublic Group reported another strong quarter surpassing Wall Street expectations in terms of both, revenues as well as earnings.
• Organic net revenue growth of the company has been consistent growth and has been seen in the company’s U.S. and other international markets.
• Interpublic Group remains a highly client-centric organization, and its culture and major involvement with its clients involve custom solutions.

• VF Corporation gave a mixed performance in their last quarter with growth in its big four brands as well as a healthy top-line performance beyond expectations.
• The growth in the quarter was driven by the footwear of men led by seasonal executions, trekkers, and lifestyle hikes.
• We provide the stock of VF Corp with a ‘Hold’ rating and a revision in the target price.

• Community group buying is a type of B2C e-commerce where purchases are instigated or influenced not by individual buyers alone, but by reseller agents or a group of fellow consumers

• Community group buying is a 3-5bn USD market in Southeast Asia today; future outlook depends on how well current players will be able to continue to innovate

• In its most basic form, Community group buying is innovating by introducing agents of resellers who can take on the tasks performed by traditional distributors or retailers

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
• Highest spreads – Shandong Fengxiang (9977 HK), Alliance Aviation Services (AQZ AU), Infomedia Ltd (IFM AU), Ramsay Health Care (RHC AU), 21Vianet Group (VNET US), 111 Inc (YI US).
• Lowest spreads – OZ Minerals Ltd (OZL AU), Nitro Software Ltd (NTO AU), Tyro Payments (TYR AU), MACA Ltd (MLD AU), Link Net (LINK IJ), Dongzheng Automotive Finance (2718 HK).

• In line with previously reported trends in Chinese retail sales growth, the large Chinese eCommerce operators reported a decline (or contraction) in GMV growth in 2Q2022.
• Following a contraction between March and May this year, China’s retail sales growth has returned to growth since June, which continued in July and accelerated in August.
• Alibaba’s next reported quarter’s annualised growth will be on an extremely depressed base.

• Fast Retailing’s share price has risen 24% year-to-date, outperforming the index and global peers
• The share price has been driven by multiple expansion, which we believe is now at risk of reversing
• With an uncertain economic backdrop, we believe management may issue conservative guidance for the next fiscal year. We turn Bearish.

• Revenues of major express parcel companies grew rapidly in August.
• JD logistics will provide logistics service to live streaming retailers on Douyin.
• In 2Q22, revenue of Trip.com decreased by 32% YoY and operating profit turned negative.

• This past week, I had a discussion with Changhwan Lee, the founder and CEO of Align Partners which is currently an activist investor on S.M.Entertainment Co (041510 KS).
• This insight provides the details of why Align Partners is going activist on SM Entertainment. 
• Through more successful proxy fights such as SM Entertainment, there could be greater value that could be unlocked from many listed companies in Korea with poor corporate governance. 

• Leapmotor (9863 HK) is looking to raise between US$800m-US$1.03bn by selling 130.82m shares at a price range of HK$48-62/share. Between 30-39% of the shares will be taken by cornerstone investors.
• The continued slide in its closest peers could put pressure on the stock post listing, though there could be some passive buying in December.
• Leapmotor (9863 HK) could be added to the HSCI and Hang Seng Tech Index (HSTECH INDEX) in December. Stock Connect could come online in December too.

• Astra International just held its public expose at which the company reiterated the strong performance in 1H2022 driven by automotive, finance, heavy equipment and commodity-related businesses. 
• The momentum will continue into 2H2022 and car sales continue to show strong growth, with the tailwind of higher commodity prices and increased mobility.
• Astra International remains one of our top picks in Indonesia for the ongoing recovery in an environment where commodity prices remain high. Valuations are attractive versus history. 

• Volkswagen sets the price range for the Porsche AG IPO between €76.50 and €82.50. The books are covered several times. Porsche AG will begin trading on September 29.
• Through a holding chain, the Pïech and Porsche families will control 25% of the votes of Porsche AG directly and 39.975% indirectly (total of 64.975%), with just a 24.275% economic interest.
• The IPO looks set for success, with possible DAX inclusion, and pricing likely towards the top-end. This should favour Volkswagen’s re-rating and tighten the discount to NAV of Porsche SE.

• Marriot Hotels has its fair share of underlying risks as it continues its path to recovery after the pandemic.
• Cross-border travel has seen a good recovery which is benefitting the company.
• We also have a dedicated analysis of the company’s Environmental, Social, and Governance (ESG) risk scores in order to evaluate the sustainability risk.

• Marriot Hotels continues its path to recovery and delivered a solid result driven by strong demand for its brand all over the world.
• RevPAR in every region all over the world has almost recovered to the pre-pandemic levels and helped the company deliver an all-around beat.
• Overall, we provide the stock of Marriot Hotels a ‘Hold’ rating with a revision in the target price.

• This is our first report on Sonos, the multi-room audio products major.
• The macroeconomic environment has grown significantly more hostile for Sonos off late after it enjoyed a decent phase during the pandemic.
• Despite the uncertain environment, Sonos has a strong brand identity, a dependable and devoted premium client, and a sizable and expanding market opportunity.

• We challenge Mahindra & Mahindra (MM IN) ‘s narrative of strong demand and booking pipeline (140k+ open bookings, excl Scorpio N as of Q1 FY23) 
• There is a possibility of a monthly booking rate of 10.3k for XUV700 and 5K per month for Thar being overstated. 
• With increasing competition (MSIL + Toyota), cancellations will increase leading to even lower waiting periods and a reduced booking pipeline. 

• The controlling shareholders of Shandong Fengxiang Co Ltd-H (9977 HK),  a company engaged in chicken breeding, slaughtering, and processing, are unable to meet their debts.
• As such, these shareholders who hold 70.92% of shares out in Fengxiang, via domestic shares, have been forced into a judicial auction, the completion of which may trigger an MGO. 
• Taking pointers from Dongzheng Automotive Finance (2718 HK)‘s recent auction means we back out a possible payment around late December – on the assumption an unconditional MGO is triggered.

• Sula Vineyards (1332009D IN) is looking to raise about US$175m in its upcoming India IPO. 
• 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”. 
• The firm has managed to stay profitable with margin expansion despite COVID-19. However, wine appears to remain a very small part of the Indian alcohol consumption market. 

• FTSE-250 constituent Vistry Group (VTY LN) has agreed to buy rival Countryside Partnerships (CSP LN) in a recommended cash&stock deal that values embattled Countryside at c.£1.25 billion (lower than previous offers).
• Consideration is 1 CSP LN=0.255 VTY LN+60p, 9.1% premium, 7.0x EV/Fwd EBITDA and 1.3x P/Fwd BV, which seems cheap. The sector is pricing in many potential bad news.
• Gross spread is +2.1%. It has only been negative during three days since the deal announcement. I would wait for the spread to become negative before taking a position. 

• Our base valuation of Leapmotor HKD 34.9 per share, which is 27% lower than the low end of the IPO price range of HKD 48 per share. 
• Given the steep downside of our target price (6-12 month period) relative to the IPO price range, we are Negative on  the Leapmotor IPO.
• Leapmotor is selling 130.82 million shares in the IPO at a price range of HKD 48 to HKD 62 per share, scaling back the size of the IPO considerably. 

• Warner Music hired YouTube’s Chief Business Officer Robert Kyncl as its new CEO, an impressive executive well positioned to expand music monetization to newer frontiers.
• The stock has roundtripped its $25 June 2020 IPO price after doubling.
• There is a compelling “comping the comp” catalyst path for 2023, as streaming revenues reaccelerate, and Kyncl renegotiates static licensing deals with Peloton, Tiktok, etc.

• Bed Bath & Beyond’s  fundamentals have continued deteriorate resulting in the departure of the man brought in to turn the struggling home goods retailer less than 3 years ago
• Amid an unfriendly operating environment and short term liquidity issues, the specter of bankruptcy for this one-time iconic retailer has  been raised
• The Altman Z-Score model which has decent track record for bankruptcy prediction, suggests there is no imminent danger. If correct, there is a potentially lucrative trade in BBBY’s bonds

• EbixCash (EC) is looking to raise around US$800m in its upcoming India IPO. The deal will be run by Motilal, Equirus, ISec, SBI Caps and Yes Securities.
• EC is a provider of digital products and services in the B2C, B2B and financial technology arena. Its has four primary business segments: Payment solutions, travel, financial technologies and BPO.
• In this note, we talk about the not-so-positive aspects of the deal

• This is our first report on Bruush Oral Care and we look to provide a detailed account of the drivers that will propel the stock in the near future.
• Bruush got listed recently and its stock price has been volatile but has maintained a more or less sideways trajectory in this short period of time.
• Overall, we believe that Bruush Oral Care has phenomenal growth prospects and is an excellent investment prospect.

• Ace Hardware Indonesia (ACES IJ) is a household name in Indonesia and should be a beneficiary of the economic recovery and improved mobility but has languished, trading at 5-year lows.
• SSSG for the last two months have remained strong pushing the YTD SSSG into positive territory and confirming an ongoing recovery. It will roll out 15 new stores this year.
• Ace Hardware Indonesia (ACES IJ) is trading at 13.5x FY2023E PER, with EPS forecast to recover by +27.8% in FY2023E versus its 5-year average forward PER of 27x.

• Leapmotor (LM) aims to raise around US$1.0bn in its Hong Kong IPO. LM is a smart EV company based in China, founded in 2015.
• As of end Jun 22, it had delivered a total of 104,829 cars with most of its sales coming from its mini units, T03.
• In this note, we will run the deal through our ECM framework and talk about valuations.

• Leapmotor (2007699D HK) has launched its HKEx listing at HK$48.00-62.00 per share to raise up to US$1.0 billion. Books are open from 20 to 23 September.
• We previously discussed the IPO in Leapmotor IPO: The Bull Case, Leapmotor IPO: The Bear Case, Leapmotor IPO: Look Before You Leap, Leapmotor IPO: Valuation First-Look. 
• Leapmotor, at best, should trade in line with median peer multiples. Leapmotor is fairly valued at the low end of the IPO price range. We pass on the IPO.

• Leapmotor (2007699D HK) is a leading smart EV company in China that designs and builds EVs. The company develops key hardware, software and all electronic components of the vehicles internally.
• The company has filed for an IPO on the HKEx and plans to raise about US$1bn through the IPO.
• In this insight, we analyse the company’s financials to understand the key reason behind the absence of gross profit margins compared to other players in the market.

• On 16 September, the administrator published the details for the auction of Shandong Fengxiang Co Ltd-H (9977 HK) controlling shareholder’s 70.92% stake in Alibaba Judicial Auction. 
• If the auction is successful and results in any person and a group of persons acting in concert holding 30%+ of the voting rights, it will result in an MGO.
• The base bid implies an MGO price of HK$1.563 per H Share, a 103.0% premium to the last close. The auction will be held from 10 October to 11 October.

• In my previous analysis, I found that firms with high frequency of share repurchase cancellations increased their market capitalization during the relevant period (12/2021-1/2022).
• Even though the short-term share price performances of companies that announced share repurchases were mixed, the share prices of companies with track record of several share repurchases have risen.
• It takes certain amount of time for investors to understand the track record and the capital allocation policy is consistent with the goal of increasing corporate value over the-long run.

• EbixCash (EC) is looking to raise around US$800m in its upcoming India IPO. The deal will be run by Motilal, Equirus, ISec, SBI Caps and Yes Securities.
• EC is a provider of digital products and services in the B2C, B2B and financial technology arena. Its has four primary business segments: Payment solutions, travel, financial technologies and BPO.
• In this note, we talk about the positive aspects of the deal.

• After raising guidance yet again in 1QFY23 through stronger than expected performance in the overseas business, Seven & I is scheduled to release Q2 results on 6th October 2022.
• We are optimistic that 2QFY23 could provide the platform for Seven & I to break the ¥6,100 level, at which the share-price has been stuck for the first 9-months 2022.
• This is because, we are seeing a significant improvement in Seven & I’s domestic performance while, North America is carrying the growth momentum that been there since the Speedway-acquisition.

• The Porsche IPO is expected to be the second largest IPO ever in Germany. Total proceeds from the IPO will be 18.1 billion to 19.5 billion euros.
• The IPO price range is from 76.50 euros to 82.50 euros per share, which suggests a valuation of 70 billion to 75 billion euros.
• After the IPO, Volkswagen will have an extraordinary shareholders meeting in December to propose to pay 49% of total proceeds to shareholders in early 2023 as a special dividend.

In our next Webinar, we welcome Analyst Soo Young Kim , who will take us through the ESG risks present in South Korea and her analysis based on negative ESG incidents. 

The webinar will be hosted on Wednesday, 21 September 2022, 17:00 SGT/HKT.

Soo Young is the Head of ESG Intelligence at Who’s Good, Asia’s first AI-driven ESG Insight Provider. Using AI technologies and public data, Who’s Good provides objective and up-to-date corporate ESG insights on Asian companies.

• The value accretion that will occur by unlocking treasury shares will be more significant than Hyundai Dept. The treasury shares account for 10.64%, compared with 6.61% for Hyundai Dept.
• Neither Holdco nor Opco will likely remain in the KOSPI 200 after relisting. So we cannot expect PASSIVE inflow at the time of relisting.
• A tender will likely follow. However, neither is available for shorting. So, we should use Opco’s overheated price adjustment as an exit timing for our positions aimed at value accretion.

• Etsy recently launched the Etsy Purchase Protection program where buyers will get a total refund for purchases they make on Etsy.com in cases that do not match the item description, never arrive, or arrive damaged.
• This new program aims at making shopping on the website more worry-free.
• The purchase Protection Program of Etsy will complement the company’s brand efforts in improving customer support, maintaining integrity in its marketplace as a destination for special and unique items, and increasing trust signals over the user experience.

• Best Buy delivered a decent result this quarter surpassing Wall Street expectations on all counts.
• Best Buy is also viewing more interest in the sales events such as tax-free events, prime day, and other events that are geared at an exceptional value.
• Best Buy also opened new outlet stores, finished store remodels, and started to implement newly signed deals with healthcare companies.

• Church & Dwight has recently been in the news for its acquisition of the Hero Might Patch brand.
• In the last quarter, Church & Dwight increased consumption in 11 of the 17 categories in which they participate, in some cases on top of significant increases in consumption from the previous year.
• One of their acquisitions, Therabreath, had a great quarter with 33% consumption growth.

• Under Armour’s brand strength helped the company deliver an all-around beat while navigating the present environment.
• The company’s financial performance has been decent as its wholesale revenue increased while the eCommerce revenue and direct-to-consumer revenue decreased.
• The company is planning to launch a new footwear platform, Kevin, that can change the landscape of athletic footwear.

• The recent decline in crude oil has resulted in optimism WDFC’s gross margin would improve. There is a delay before WDFC sees a benefit/impact from the price of oil
• We continue to maintain our viewpoint of WDFC experiencing slower demand for its products from consumers and retailers holding back on orders
• WDFC’s exposure to international markets could negatively impact sales due to the strong US Dollar