Consumer

• E: In terms of resource management, Coupang was fined the most among companies that failed to fulfill their recycling obligations, and the use of plastic packaging is increasing every year.
• S: Coupang was flagged for the largest number of disputes among online platforms. Not only conflicts with consumers and communities, but also the unfair labor practices are key risks.
• G: Bom Kim resigned as chairman after the fire at Icheon Logistics Center. These measures were suspected of being intended to avoid punishment under the Serious Accidents Punishment Act.

• We are seeing signs that suggest this pullback may have run its course, as several global market indexes and Sectors appear to be making a higher low near logical support.
• This includes the S&P 500, Russell 2000, MSCI ACWI (local currency), TOPIX/TOPIX Small/Nikkei 225, MSCI ACWI Technology (IXN-US), Consumer Discretionary (RXI-US), Financials (IXG-US), Industrials and (EXI-US) — add exposure.
• While our overall outlook remains neutral, we continue to see a plethora of attractive buying opportunities in the new leaders.

• Garrett Motion (GTX) has elected to pay its quarterly dividend on its Series A Preferred shares in cash in lieu of stock.
• We believe this is a signal to investors on how the business has performed in the Q3 after GTX affirmed its full year adjusted free cash flow guidance in August
• The use of cash removes the compounding effect through issuing more shares, which would nullify the share buyback program GTX has in place

• Ralph Lauren delivered strong results this quarter surpassing revenue expectations of Wall Street as a result of solid growth across all key regions.
• Ralph delivered solid consumer metrics, which include increased net promoter scores, purchase intent, and global brand consideration through an engaging mix of performance marketing and purpose-led investments.
• We provide the stock of Ralph Lauren with a ‘Hold’ rating and a revision in the target price.

• Shidax Corp (4837 JP) is a food service business in the midst of a so-far reasonably successful restructuring. The family had a partner in Unison and hoped to extend. 
• The founding family and Unison now have ~60% together, and they vote together. Unison wants out. The family wants Oisix ra daichi (3182 JP) in. So Oisix has tendered.
• But SHiDAX sees the conflict and minorities getting hosed. So they object. The “easy” solution is a full MBO with Oisix support. 

• TORIDOLL Holdings Corporation (3397 JP) is trading near the historical peak of ¥3,000 per share which translates to a consensus FY+2 EV/OP of 30.9x.
• We think the stock has more room to run as its OP margin is expected to reach double digits for the first time since FY13.
• Meanwhile, there could be an upside to FY23 guidance as it is currently based on an exchange rate of ¥116 per $1.0.

• Honda Motor Co. Ltd.’s Chinese unit will set up a new joint venture with two Chinese partners to procure electric vehicle batteries from battery giant Contemporary Amperex Technology Co. Ltd. (CATL)
• The joint venture will be 50% owned by Honda Motor (China) Investment Co. Ltd. and 25% each by Dongfeng Motor Corp. Ltd. and Guangzhou Automobile Group Co. Ltd. (GAC)
• Honda’s joint ventures with Dongfeng and Guangzhou Automobile already use CATL batteries in electric cars made in China

• Gokomodo, an Indonesia-based agriculture supply chain platform, said it earned US$26 million in a series A round led by East Ventures.
• Gokomodo is a B2B startup that offers digital procurement, digital commerce, and distribution services.
• Its clients also have the option of buying competitive products through the company’s ecommerce storefront.

• Coolmate says it has tripled its revenue over the past year and is on track to hit the US$19 million revenue milestone in 2022.
• As Vietnam’s e-commerce is expanding quickly and the country’s robust textile and garment industries are transforming through more consolidated value chains, Coolmate will utilise the new capital to achieve its 2022 sales target and plan for an IPO in 2025.
• Founded in early 2019, Coolmate employs the D2C e-commerce model (providing products directly through online channels) to cut the distribution costs in traditional retail.

• Summary: Resilience and Growth Through Turmoil, Asymmetric Opportunity Today
• Target TGT 4.54%↑ has been a highly controversial retailer for years.
• Recall that in 2007, Bill Ackman’s Pershing Square invested in the business, ultimately building a 10% stake and launching an activist campaign to get on the board and force a sale-leaseback of Target’s extraordinarily valuable real estate.

• The last time I penned my thoughts about Lululemon was December 2021 during a period when the core business shined and Lulu’s Mirror acquisition began to show the early signs of wilting in the face of declining demand.
• I was grateful that management’s commentary implied they would avoid throwing everything at an attempt to make Mirror, a business which comprised <3% of Lulu’s revenue at the time, work.
• They have since repurposed the business into a two-tiered subscription offering, branded under the parent’s more reputable name.

• Throughout the second quarter, Lululemon’s momentum remained strong.
• The company’s total revenue accelerated by 29% compared to last year and 28% on a 3-year CAGR basis, helping the company surpass Wall Street expectations.
• It has been benefitting heavily from this launch as hiking has become increasingly popular among visitors since the pandemic.

• Ross Stores had quite a disappointing quarter where its revenues were well below Wall Street expectations.
• Comparable store sales were low in comparison to a strong increase in the second quarter of the last year.
• We provide the stock of Ross Stores with a ‘Hold’ rating with a revision in the market price.

• Gap saw a decline in its overall revenues in the past quarter but its results were still above analyst expectations.
• The company’s overall revenues of $3.86 billion were down 8% from the prior year or 7% when measured in constant currency but it did deliver an earnings beat.
• Further, they anticipate the near-term downturn in demand at Gap outlets, which they attribute to the persistent backlash from lower-income consumers.

• Although lesser-known, this Swedish company dominates one of the most lucrative segments of the global casino industry.
• In our view, it is probably the only investable casino company, and despite its size, still has a massive growth runway ahead.
• Our DCF model implies a 15%-20% total return for the company’s long-term shareholders.

• The lackluster ESG investing trust performance is the main reason for the sharp decline in new setups, as retail investors tend to trade short term.
• The fact that Japanese companies aren’t leading the world in green practices and are reluctant to disclose their activities are the factors that prevent wash from occurring and being detected.
• While it’s difficult to evaluate ESG investing in short-term-performance, it’s important to pay attention to how management is taking measures to increase corporate value in ESG perspective in particular G.

• Volkswagen aims for an IPO of Porsche AG (operating company). 25% of preferreds will be placed and 25% of ords sold to Porsche Automobile Holding SE (combined, 25% equity capital).
• Thought a holding chain, the Pïech and Porsche families will directly control 25% of the votes of Porsche AG and 39.975% indirectly (total of 64.975%), with just a 24.275% economic interest.
• Porsche Automobile Holding SE will cover c.30% of the cost of its stake through the extraordinary dividend that Volkswagen will pay. It also gets the ords at a friendly price.

• The demand for Campbell’s portfolio of brands continued to be strong in the last quarter and it was able to match the market’s revenue expectations through its result.
• The company was able to deliver an earnings beat as it enhanced supply chain performance and put into place efficient revenue management to combat inflation.
• Their Win in Soup approach will remain strong in fiscal 2023 largely due to innovation.

• Capri has seen a decent performance across all three of its luxury residences and 2022 has been delivering better results than the management had anticipated.
• The company delivered an all-around beat with a revenue of $1.36 billion, which exceeded management and market expectations.
• Fendace combined unique features with classic silhouettes from two renowned Italian luxury brands, Fendi and Versace.

• Ulta Beauty performed well in this quarter and delivered an all-around beat.
• Based on point-of-sale statistics from the NPD Group, all key categories for the quarter exceeded its expectations, and they grew their market share in prestige beauty compared to the previous year.
• Haircare, their second-largest category, experienced double-digit growth for another quarter due to newness and excellent participation in their semi-annual Gorgeous Hair Event.

• This model finds companies facing recent sharp cuts in estimates. These shorts can have very disparate characteristics.
• The key judgement involves whether the negative revisions are temporary or if they are indications of ongoing weakness in the business. 
• Breaking Estimates stocks often continue to decline after the cuts.  This week we flag:  Upstart, Cerence, Zillow, Trex

• The Sep 2022 Nikkei 225 Annual Review has been announced. This was discussed in Nikkei 225 Review Results: Nidec, SMC, Hoya IN. 
• That means we can make early predictions for the March 2023 rebalance to be announced in six months. One way turnover would be about 1.4%. 
• The top three adds are Oriental Land, Renesas, and JAL. The top 3 sells would be Toyobo, Toho Zinc, and Nippon Sheet Glass. There are some dark horses here too.

• Porsche is getting ready for an IPO to be completed by the end of this year. However, the final decision on the IPO is still subject to market conditions.
• The expected valuation of the Porsche IPO is 60 billion to 85 billion euros ($60 billion to $85 billion).
• Qatar Investment Authority has already committed to a 4.99% stake in the Porsche IPO. 

• Discounts to NAV of covered holdcos have mainly widened or stayed at the same level during August/beginning of September, in line with the loses in the main indexes.
• Discounts to NAV (5 September): Alba, 46.1%; GBL, 34.1%; Heineken Holdings 21.3%; Industrivärden C, 10.1%; Investor B, 18.9%; Porsche Automobile Holding 29.4%. The spread of Rio Tinto DLC tightened to 14.5%.
• Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts. Recommended trades are: Industrivärden C vs. listed assets, Porsche, Rio Tinto (DLC).

• The September 2022 index changes for DAX, MDAX, SDAX, and TecDAX were announced late last night.
• There is one change for the DAX Index, four changes for the MDAX Index, seven changes for the SDAX Index, and two changes for the TecDAX Index.
• In this insight, we take a closer look at our expectations for index flows and potential trading ideas.

• The reason for high remuneration of foreign directors isn’t only that remuneration is determined based on overseas compensation levels, but also that fixed remuneration for directors in Japan is high.
• It is hoped that more companies will increase the proportion of variable compensation, and that for shareholders, performance will increase enough to significantly increase variable compensation.
• In order for directors to fulfill their responsibilities in determining important strategies, the system must be designed to be high-risk and high-return as well as individually disclosed.

• The offeror and acceptances reached 44.98%, just short of the 50% minimum acceptance condition. The closing date has been extended to 13 September. 
• If the offer is declared unconditional on or before 8 September, Giordano International (709 HK) shareholders who accept the offer will get HK$1.88 but not the dividend of HK$0.085.
• The offeror likely remains confident that it will hit the 50% threshold. At the last close, the gross and annualised spread for 17 Sep payment is 1.1% and 37.2%, respectively.

• Last week, The UNHR Office published a carefully worded report saying that the actions of the Chinese Government in Xinjiang “may constitute international crimes, in particular, crimes against humanity”.
• Meanwhile, apparel brands in the US seem to be exploiting loopholes in the Uygur Forced Labour Prevention Act with Xinjiang’s clothing exports rising to a 2-year high in July 2022.
• With pressure mounting on US customs to increase oversight, Fast Retailing (9983 JP)’s newest growth pillar (the US) could be about to meet major setbacks in the near term.

• Beneunder has large sales volume on Chinese e-commerce platforms and has a large physical store chain.
• However, outdoor brands and apparel brands compete with Beneunder and some brands’ prices are close to Beneunder.
• Beneunder has to keep physical stores and control online advertising budget.

• Late last night, Giordano International (709 HK) announced the Offeror – the Cheng Family – had 44.98% in the bag after 20.41% of shares out had been tendered.
• The Offer has been extended for one week, until the 13 September. 
• Whether investors receive the Offer consideration AND the interim divided is still up for debate.

• Starbucks has recently been in the news for its big CEO announcement with Laxman Narasimhan taking over the reins of the company from Howard Schultz.
• In this quarter, Starbucks continued to extend its coffee leadership, bringing and innovating further elements of premiumization and customization to the total coffee category, which includes plat-based, handcrafted, and cold coffee beverages.
• The demand for premium tailored cold coffee all over the world is enormous and this is bound to help the company.

• Skechers had a solid quarter and surpassed Wall Street expectations in terms of revenues with strong growth that was distributed geographically and is evident in both its Direct-to-consumer and wholesale segments in spite of Covid-19 headwinds in various markets.
• During the quarter, the wholesale business of the U.S. increased because of improvements in categories and genders, including accessory and apparel lines.
• In the quarter, Skechers opened 46 stores owned by the company, which included 15 large box shores in the US.

• Driven by recovery of Casarte after lockdown removed and premiumisation of product and pricing, Haier Smart Home (6690 HK) should see sustained healthy earnings growth in 2H22.
• We expect room to improve gross margin sequentially as cost pressure subsides in 2H22. Meanwhile, overseas markets still present good expansion opportunities. 
• Premium valuations are justified by its brand strength, global presence and strong execution capability. Healthy 1H22 should clear market’s concerns on impact of weak property market. 

• China MeiDong Auto (1268 HK) presents an excellent investment opportunity, trading at 13.3x/8.1x FY22/23e, post street estimate revisions downwards with a dividend yield of 6.0%/10% (assuming an 80% payout). 
• China MeiDong Auto (1268 HK) ‘s integration of Starchase is progressing better than we expected, with metrics on inventory dramatically improving. We believe the management will focus on aftersales now. 
• The company will join the EV bandwagon by collaborating on aftersales with players having operational (not financial) difficulties performing this service, presenting a good opportunity for the company. 

• Protests against unfair labor exploitation and labor union suppression by workers continue gaining traction by civil society and leading to the boycott of SPC SAMLIP CO.,LTD(005610).
• France’s leading labor union organization, the CGT (Confédération Générale du Travail), held a rally in front of the Paris Baguette store in Paris condemning SPC partners’ unfair labor practices. 
• Dunkin’s headquarters, run by SPC affiliate BR Korea Co, Ltd has been known to be engaged in unfair practices against franchisees.

• In early May 2022, Yamada Denki (9831 JP) launched a GINORMOUS buyback program. I wrote about it suggesting the company meant business. The stock popped outright and vs Peers.
• Then it fell back, and has only recently started moving back up. Surprising given buyback dynamics but it may have been overhang. If so, that overhang should be gone now.
• And the stock is cheap, a chunk of the register is sticky, so this could get squeezier now.

• Although not many, there are strong candidates for a safe play aimed at constituent change. Inclusion: Lotte Confectionery & Exclusion: Samyang Holdings
• Lotte Confectionery’s average daily market cap must fall by more than 30% to be pushed out of the borderline. Samyang Holdings’s market cap gap to the second-lowest one is 17%.
• The trading volume of these two is so small that a significant passive impact (relative to DTV) will likely occur. We should consider a little more aggressive approach, timing-wise.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Leapmotor (2007699D HK) and Onewo Space-Tech (ONEWO HK) are pre-marketing a US$1.5 billion and US$2.0 billion HKEx IPO, respectively.
• Event-Driven developments – BYD (1211 HK), Giordano International (709 HK), MACA Ltd (MLD AU), Nitro Software Ltd (NTO AU), Link Net (LINK IJ).

• The Nikkei 225 rebalance will likely be announced this week. I continue to be slightly off-kilter, expecting Nidec, SMC, and Oriental Land to replace Unitika, Oki Electric, and Toho Zinc.
• Others would expect Hoya to replace Maruha Nichiro instead of Oriental Land replacing Toho Zinc, but I think it Nikkei Sector balance may matter. It could go either way.
• Tactically speaking, cumulative volumes and Real World Float tell you how you might trade this. 

• 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.
• One new deal was discussed this week: Potentia’s rejected proposal for Nitro Software Ltd (NTO AU).
• Key updates took place for MACA Ltd (MLD AU), Giordano International (709 HK), and Link Net (LINK IJ).

• Despite the increasingly difficult consumer environment, Macy’s delivered a decent quarterly result which also happened to be an all-around beat.
• Its $5.6 billion in quarterly net sales exceeded its projections, despite a 1.6% decline in comparable owned plus licenced sales.
• Elevated inventory levels within particular categories were caused by the high industry-wide inventory levels and the decline in consumer discretionary spending.

• We continue to see global equities as being in pullback mode, with the MSCI ACWI index (ACWI-US) already testing important support in the $86-87 range, highlighted last week.
• A bounce here would be ideal for the bullish case, but we could easily see a test of the YTD lows near $81.50 if $86 fails to hold.
• Japan’s TOPIX/Nikkei225/TOPIX Small remain bullish, as does India’s SENSEX — add exposure. Seeing some failed breakouts in Europe, notably the EURO STOXX 50 and STOXX Europe 600; a concerning development.

• The September 2022 index changes for the STOXX Benchmark Indices were announced yesterday. 
• There will be 16 ADDs/DELs for the STOXX Europe 600 Index and there will be 5 ADDs and 6 DELs for the EURO STOXX Index.
• In this insight, we take a closer look at the index flow expectations and the historical performance of Rebal events.

• Leapmotor (2007699D HK), a Chinese EV manufacturer, is pre-marketing a US$1.5 billion HKEx IPO, according to press reports.
• We previously discussed the IPO in Leapmotor IPO: The Bull Case, Leapmotor IPO: The Bear Case and Leapmotor IPO: Look Before You Leap. 
• In this note, we present our forecasts and take the first look at Leapmotor’s potential valuation range. 

• 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 inflow over the past week was ~US$0.7bn, split between Shanghai (US$0.3bn) and Shenzhen (US$0.4bn).
• The largest inflows were into Gree Electric Appliances (000651 CH) and CATL (300750 CH). The largest outflows were in Industrial Bank (601166 CH) and China Merchants Bank (600036 CH).

• Chongqing Hongjiu Fruit (6689 HK) raised around US$71m in its Hong Kong IPO.
• CHJF’s subscription rates were lackluster with weak coverage on the institutional tranche and the retail portion being undersubscribed.
• However, after applying a discount to the local peer average, we think there still remains some upside for investors given its higher revenue and profitability growth.

• Home Depot had a surprisingly good quarter unlike its rival, Lowe’s and delivered and all-around beat.
• All of the merchandizing departments of Home Depot posted positive comps; hardware, paint, millwork, plumbing, and building materials were all above average.
• Home Depot launched new capabilities on its B2B website to enhance the interconnected quoting and shopping business for its Pros.

• Lowe’s had a disappointing quarter and saw a decline in its total revenues.
• Pro sales remained strong for the quarter.
• The trends of underlying home improvements during the quarter remained strong in the quarter, but the sales of DIY have been lower.

• Yesterday FTSE Russell announced two Asian additions to its FTSE EPRA Nareit Global Developed Index – Sekisui House (1928 JP) and Healthcare & Medical Investment Corporation (3455 JP). 
• Sekisui House is larger cap, and will see big dollars added. H&M IC is much smaller and will see less, but has had a huge run-up, outright and relative.
• Trading impact will be significant on both tickers in terms of days of ADV.

• Kadokawa announced yesterday that subsidiary From Software would conduct a third-party allocation of shares to Sony and Tencent. 
• The allotment values From Software at about ¥120bn with Tencent acquiring 16.25% and Sony acquiring 14.09% of the company. 
• This creates opportunities for both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat later than we had anticipated.

• Leapmotor (LM) aims to raise around US$1.5bn 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 our previous note, we spoke about the company’s past performance,  PHIP updates and undertook a peer comparison. In this note, we will talk about valuations.

• While its peers in Japanese e-commerce are losing momentum, Tokyo-listed B2B e-commerce company, Raccoon Holdings, Inc. (3031 JP) continues to march forward from the COVID elevated levels.
• With the advertising cost no longer growing at the same rate as before, we expect around 60% upside to Raccoon’s FY+2 consensus OP of ¥1.6bn.
• This would put Raccoon on 9.5x FY+2 OP with an OP CAGR of close to 50% and seems reasonably cheap in our opinion.

• TBO Tek (0395045D IN) is looking to raise approximately US$285m in its upcoming India IPO.  
• TBO Tek is a global travel distribution platform. Its two-sided technology platform serves companies involved in the travel industry such as hotels, airlines, travel agencies and travel management companies. 
• The firm’s profitability recovery is underway post-COVID. However, the implied take rate of its largest revenue contributor (Hotel and Ancillary) appears to be declining despite the overall increase in GTV.

• Colgate-Palmolive had a splendid quarter and surged past Wall Street expectations on all counts by delivering growth over all of its categories as well as its divisions.
• The company has built up its innovation capabilities to deliver more transformational innovation and breakthroughs that can drive both market share and category market.
• Organic sales growth has been seen in four of its categories Home Care, Personal Care, Pet Nutrition, and Oral Care.

• Leapmotor (2007699D HK) is said to be looking to raise between US$1bn-US$1.5bn by selling 290.9m shares in its IPO. At the top end, the company will be valued at HK$53bn.
• The performance of its peers over the last year leaves a lot to be desired and could lead to lower demand in the IPO.
• Leapmotor (2007699D HK) should be added to the HSCI and the Hang Seng Tech Index, though timing depends on when the stock lists on the HKEX (388 HK). 

• Leapmotor (2007699D HK), a Chinese EV manufacturer, is pre-marketing a US$1.5 billion HKEx IPO, according to press reports.
• We previously discussed the IPO in Leapmotor IPO: The Bull Case and Leapmotor IPO: The Bear Case. This note updates our view for the PHIP and recent developments.
• While the 1Q and truncated 1H numbers outline rapid growth and declining loss margin, key metrics continue to lag peers over comparable periods. We would pass on the IPO. 

• Ace Hardware Indonesia (ACES IJ) 1H2022 results continued to reflect a hangover from COVID-19 in terms of slower growth although the company continues to demonstrate its resilience.
• The company’s store expansion continues with plans for 15 stores in total for 2022, whilst SSSG have seen a sharp recovery recently bringing YTD SSSG into positive territory.
• Ace Hardware is one of Indonesia’s top quality retailers with the potential for a sharp recovery and valuation looks attractive on 15x FY2023E PER versus 27x 5-year average PER.

• Pinduoduo (PDD US)’s 2Q22 was rather strong with revenue of RMB 31.4bn (consensus: RMB 23.6bn) and OP of RMB 8.7bn (consensus: RMB 3.6bn).
• However, the management was quick to dismiss the pretence that piduoduo would be able to maintain these elevated growth/margin numbers throughout the rest of the year and over the medium-term.
• This creates a lot of downside to consensus 2H22 and medium-term revenue and OP estimates in a time when valuation multiples have expanded over 70% from the March 2022 bottom.

H&H International’s H1/22 results were adequate in our view, despite the challenging operating conditions in China. The company is gradually diversifying its businesses, with ANC and PNC accounting for 48% of total H1/22 revenue. Moreover, demand for PNC products is increasing, and H&H is focused on leveraging this to expand in the US and China. The Swiss brand under ANC is also growing steadily. Going forward, these would allow the company to balance any revenue decline from the intensified BNC business. H&H has a moderate financial risk profile overall, with sound liquidity.

• Leapmotor (LM) aims to raise around US$1.5bn 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 our previous notes, we spoke about the company’s past performance and its PHIP updates. In this note, we will undertake a peer comparison.

• The NFT bubble has popped. You only have to look at the volumes to know this is true.
• But regardless of the bubble popping — I can tell you for certain — NFTs are still a HUGE talking point at almost every consumer facing company.
• CMOs and strategy directors will be asked in boardrooms; what is our Web3 strategy?

• If stock price is high, then a stock split is the way to go, and stockbrokers have provided a mechanism for trading shares in less than single-unit in the past.
• The issue isn’t “the trading unit should be lowered because people can’t buy shares with high stock prices” but “let’s improve so that people can become shareholders with one share.
• If Japanese companies are reluctant to increase the number of diverse shareholders, this would be in line with their slower progress in solving issues: diversity, human rights, and environment.