Consumer

• Chongqing Hongjiu Fruit (CHF HK)  focuses on managing the entire supply chain for quality fruits grown in China, Thailand and Vietnam.
• The company has a portfolio of 49 fruit categories and has filed for an IPO on HKEx and plans to raise proceeds of US$300m.
• CHF’s earnings growth is slowing down while margins are trending downwards and the company’s cashflow burn is increasing

• Tesla will split its stock 3-1, as expected, effective August 25th.
• But investors & analysts remain split over Tesla’s falling sales & profitability
• And whether CEO Elon Musk has become its biggest liability.

• Leading into 2Q22 results (due 10th August 2022), we are short Coupang (CPNG US) with expectations of around 5% and 27% downside to consensus 2022 and 2023 revenue estimates.
• Consensus has just about reached the halfway stage of a long correction process with current revenue estimates standing significantly above the pre-COVID trend.
• Meanwhile, Coupang is under a lot of pressure to cut losses in the short term and attain the targeted long-term EBITDA margin of 7-10%.

• Last Friday, Tesla shareholders approved a 3:1 stock split set to go into effect on August 25th. The stock has already rallied on these expectations, up 44% since mid-June lows. 
• We wouldn’t be surprised if CEO Elon Musk sells into the split, given his need to shore up cash for the potential Twitter buyout in October.  
• Both Amazon and Google outperformed the market, but sold off in the days and weeks post-split. We expect Tesla to follow this pattern, but in a more augmented fashion. 

• Lifestyle International Holdings (1212 HK) announced a privatisation offer from Mr Lau, the controlling shareholder and Chairman, at HK$5.00 per scheme share, a 62.3% premium to the undisturbed price.
• The offer price is final. Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection). No shareholder holds a blocking stake.
• The offer price is unattractive for long-term shareholders and below average sell-side price targets. Nevertheless, this deal likely goes through as the headcount test is not applicable.

• 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 are Lifestyle International Holdings (1212 HK), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Yashili, ResApp.
• Lowest gross spreads are Excelpoint Technology (EXLP SP), Frasers Hospitality Trust (FHT SP),  MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), True Corp Pcl (TRUE TB), China VAST. 

• Marui Group (8252 JP) was a long-suffering Japanese retailer with generally sub-standard locations and “different” customer base, and much of its income came from consumer credit. 
• Since a decade ago, helped by the rise of foreign tourism income, Marui has been redeveloping itself. Michael Causton‘s insights are a great help to understanding the background. 
• They are aiming at non-stuff retailing. Friday saw earnings, cancellation of the yutai program, a slight div hike, and an increase in the already large buyback program. It’s interesting!

• Thomas Yau, Lifestyle International Holdings (1212 HK)‘s controlling shareholder, is offering to take the company private by way of a Scheme at HK$5/share, a 62.3% premium to last close.  
• Independent shareholders comprise 23.51% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.351% of shares out. 
• The Offer price is final. No dividends will be paid during the Offer period.

• Participate in SJM Holdings (880 HK)‘s Excess Application Auction, though one would need to bid for a fantastically large quantity of shares to get anything, because everyone else will
• At a 11% gross spread to terms, and potential 4Q22 completion, Yashili(1230 HK) IS A CLEAR BUY. The world is a bit risk averse and it shows up in spreads.
• The ‘headcount test‘ for Cayman-incorporated companies failed to move with the times and address the fact that the majority of shares of Hong Kong-listed companies were held by HKSCC Nominees.

• In this insight, we discuss our recent visit to a Haidilao restaurant in London and the listing of Super Hi International in Hong Kong. 
• On 13 July, Haidilao (6862 HK) provided the IPO prospectus of Super Hi International for a separate listing in Hong Kong bourse.
• By spinning off Super Hi and listing this newco in Hong Kong, Haidilao is capitalizing on its best known global brand for hot pots amid zero COVID policy in China.

• There are 42 – 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 on Smartkarma. Honda Tsushin Kogyo (6826 JP)‘s Tender Offer.
• Key updates took place for: Resapp Health (RAP AU), Link Administration (LNK AU), and Yashili International Holdings (1230 HK).

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Placements continued to take center stage this week, beginning with Uber’s clean-up sale of Zomato.
• Socar launched its one-day bookbuild earlier in the week. We continued looking at the upcoming deals in our pipeline. 

• SJM Holdings (880 HK) announced earnings on Monday and a HK$3bn Rights Issue last night designed to inject capital into Macau gaming licensee SJM Resorts. 
• An increase in share capital is required to pre-qualify for then tender process where the Macau Govt would allocate a 10-year gaming concession starting 1 Jan 2023. 
• 54.7% SJM Holder/Parent Sociedade de Turismo e Diversões de Macau (STDM) had previously extended a loan to SJM designed to allow SJM to inject capital to SJM Resorts.

• Alibaba’s revenue stopped growing for the first time on record.
• We still believe the revenue growth rate will recover in the December quarter.
• We believe the stock price will have at least an upside of 29% after a significant plunge.

• Giant Biogene (GB) aims to raise around US$500m in its Hong Kong IPO.
• GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
• In this note, we talk about the not-so-positive aspects of the deal.

• Toyota’s Q1 operating profit was 28% below consensus estimates, while pretax profit only undershot by 4%. Support for 2nd & 3rd-tier suppliers was the main cause.
• While full-year operating profit target was maintained & EPS slightly raised, this was due to bigger forex tailwinds. Ex-forex, FY3/23 operating profit was lowered by 28%.  
• Much of FY3/23’s negatives are one-off, which paves the way for higher profits in FY3/24. But support for suppliers while rivals grow earnings is somewhat of a concern. 

• Shenzhou Intl Group Holdings (2313 HK) is a high probability deletion in September, while JD Health (6618 HK) is currently the highest ranked non-constituent stock.
• There are a couple of other stocks that are close to the inclusion/exclusion thresholds and price changes over the next few weeks will determine if there are any more changes.
• Short interest on JD Health (6618 HK) is high in terms of days to cover and as a percentage of free float. Covering could take the stock higher.

• Chongqing Hongjiu Fruit (CHF HK), a multi-brand fruit company in China, is pre-marketing an HKEX IPO to raise US$200-300 million.
• The fundamentals are uninspiring as it is delivering profitable growth with a heavy cash burn. The rising but tiny market share suggests a lack of sustainable competitive advantage.
• Hongjiu Fruit aims to be the first HKEx-listed fruit distributor. Investors can likely avoid a bitter aftertaste by remaining on the sidelines.

• The Della Valles offer €40/share (1.8 EV/Fwd Sales, c.20% premium) to buy out the minorities (LVMH stays a 10% shareholder). Minimum acceptance condition is 90%, aiming at 60.9% of  float.
• Tod’s is in turnaround mode (my valuation assumes it’ll be successful). A DCF valuation gives €52.21/share, a break-up valuation could reach €57.12/share, while a simpler 2.0x EV/Fwd Sales throws €43.02/share.
• The shares trade above the offer and a sweetening may be needed; the offer price seems cheap on any measure. A template could be the acquisition of Creval. Long.

• Sai Silk Kalamandir (SSKL IN) is looking to raise about US$150m in its upcoming India IPO. The deal will be run by Motilal Oswal, Edelweiss and HDFC Bank. 
• Sai Silk Kalamandir (SSK) is one of the largest retailers of ethnic apparel in South India, particularly in sarees, according to Technopak. 
• Through its four store formats, it offers ethnic and value fashion products to various segments across different price points. As of 31 May 2022, it has 46 network stores. 

• Even though Q1 topped consensus through favourable FX movements, it seems inflationary pressure is starting to affect all business units of Yamaha Corp (7951 JP).
• The company raised revenue guidance due to favourable FX movements but maintained the OP at the previous level due to rising procurement and energy costs.
• However, with inflation starting to affect demand, these estimates are likely to be revised down over the next few quarters.

• The July 4 upward revision to FY Nov-22 sales and profit guidance appears to have been discounted, but the company’s long-term growth potential has not.
• Sales could more than double over the next several years as Nextage takes share in Japan’s highly fragmented and consolidating used car market. Margins also have room to expand.
• Prospective P/E ratio headed down from 18x this fiscal year to 12x and below on a medium-term view. 

• The data is largely unchanged since the Nikkei 225 Sep Annual Review Predictions – 3 In, 3 Out set of predictions published 15 days ago.
• The consultation results are out. They are as expected too. This has the hallmarks of a VERY well-signalled trade. But it’s a biggie. The funding trade alone is ¥600bn.
• Because of the data, market conditions, and the variability of choice at the edges, I believe that warrants particular strategy.

• After a disastrous April and May due to lockdowns resulting in >-50% SSSGs, the company is seeing the situation stabilize in June and July.
• We remain cautious on H1 2023, as margins and revenue will likely decline, with gross margins likely to drop 300-400 bps and revenues down 10-15% YoY.
• Expect a generous dividend with over a 100% payout. Since >50% of the market cap is in cash, a special dividend could also be expected. 

• Uber (UBER US) is looking to raise US$420m in its share sale in Zomato (ZOMATO IN). The selldown will be a clean-up sale.
• Uber had earlier inherited its stake in Zomato in 2020 when it sold UberEats India to the latter. 
• We had earlier flagged the possibility of a selldown given that most of Zomato’s investors would come off their respective one-year lockups. 

• Community group buying is starting to face multiple headwinds from funding shortages to excessive price competition.
• Even though Pinduoduo (PDD US) is yet to announce any job cuts or scaling back of operations, we think the operating environment shouldn’t be much different from competitors.
• With QoQ revenue growth at a standstill and sales and marketing cost cutting almost fully exhausted, we think the current consensus expectations are too optimistic and bound for a correction.

• Chongqing Hongjiu Fruit (CHF HK) is looking to raise up to US$300m in its upcoming Hong Kong IPO.
• Chongqing Hongjiu Fruit (CHJF) is a multi-brand fresh fruit distributor in China with an end-to-end supply chain. They have 1.0% market share as China’s second largest fruit distributor.
• It appears that CHJF had benefited from a slight increase in margins of certain core fruit products. However, we continue to remain doubtful of its long-term prospects. 

• In last week’s Compass (July 26) we discussed positive signals that we believe suggested the lows for this bear market may have already been established, or that downside is limited.
• We continue to see more evidence that supports this claim; as a result, we are upgrading our outlook to neutral.
• The SPX is reversing topside its 4-month downtrend, and the Russell 2000 (IWM), Russell Micro-Caps (IWC), and Russell 2000Growth (IWO) are each reversing topside their 9-month downtrends; the bottom’s in.

• The possibility that Ord’s current outperformance remains a structural trend is not high because of the 2P discount close to its YTD high and a price reversal with 1P.
• This price reversal has been a strong signal for reversion because 2P receives more dividends by ₩50 per share along with a liquidity premium compared to 1P.
• Also, the dividend yield difference with Ord is not small from a historical point of view. So, we should expect 2P reversion not only to 1P but Ord.

• Tesla had been in the process of carrying out upgrades which resulted in a lengthy shutdown of its Shanghai factory.
• The company faced its fair share of challenges but had a highly resilient quarter and managed to produce an all-around beat.
• The most significant accomplishment was setting production records in Shanghai and Fremont in June.

• Fardaday Future (FF) announced it lined up at least $100m in funding from two investors but gave little detail. Deal is set to close on or before August 8th. 
• Given that it’s a senior secured convert deal, we doubt more than $100m-$200m can be raised, despite FF’s release saying the deal has capacity for $600m.
• FF only had $222m in cash in April after -$173m in FCF in Q1. They need $1bn to last through 2023. Anything less than $600m in funding would be negative.

• Netflix has had a bad 2022 so far.
• The company continued with its trajectory of subscriber losses in the most recent quarter and lost another million subscribers.
• Given the current uncertainty levels, we give Netflix a ‘Hold’ rating with a revised target price.

• With the review period for the September rebalance of the Nikkei 225 (NKY INDEX) complete, we take a look at the potential inclusions and exclusions for the index.
• The conclusions of the market consultation have been announced and that will mean we switch to a semi-annual rebalance. So we take a look at potential changes in March 2023.
• The announcement of the changes for the next rebalance should be made in the first week of September and will be implemented at the close on 30 September.

• Blue Orca issued a damning short-seller report on Miniso (MNSO US) on the 25th of July 2022, stating that the company’s asset-light and high-margin franchise business is mostly a lie.
• Miniso responded rather quickly but its response lacks evidence and does not do anything to contradict the facts presented by the short seller.
• Thus, it is Miniso’s word against Blue Ocra’s facts and it is quite obvious which side investors should take.

• In this insight, we discuss a pair trade between E Mart Inc (long) and Coupang (short). At current valuations and business outlook, we like the risk/reward of this pair trade.
• The end of the mandatory shut down rules on major hypermarkets is likely to have a major positive impact on Emart and negative impact on Coupang and Kurly.
• Although this has not been made into law, we think there is relatively high probability that this will eventually be made into law sometime this year. 

• China Tourism Group Duty Free Corporation Limited (CDF) now aims to raise US$2-3bn in its H-share listing in Hong Kong.
• As per Frost & Sullivan, CDF had 92.3% market share by retail revenue in China duty-free merchandise sales in 2020.
• In this note, we will talk about the recent updates from its revised filings and revisit valuations.

• Yaoko opened a discount supermarket last year and added a second in March, using knowhow acquired from the Ave chain it bought in 2017. 
• The new store is purpose built to save costs and offer lower prices, and should prove popular as inflation rises, while delivering higher margins than supermarkets typically achieve.
• The format stands in marked contrast to other discounters such as Kobe Bussan (3038 JP)’s Gyomu Super but both formats show that discounters can make more money than other supermarkets.

• GTX has started to see order trends stabilize after renewed volatility earlier in the year. GTX reported second quarter results with adjusted EBITDA slightly better than our expectations
• There has been growing overhang on to the impact the stronger Dollar would have on the business. The decline in the Euro resulted in lower sales than we had projected.
• GTX used the second quarter earnings call to bring attention to its work with several automakers on turbochargers for H2 engines which use hydrogen

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.

• Pan Brothers
• Sino-Ocean Service
• Vedanta Resources

• Chipotle Mexican Grill has been in the news for an amazing rebound in its stock price after delivering a robust set of results surpassing Wall Street expectations in terms of earnings.
• The in-restaurant sales increased while digital sales were also up and the management added 51 new restaurants in 42 locations.
• We provide the stock of Chipotle Mexican Grill with a ‘Hold’ rating with a revision in the target price.

• Kimberly-Clark Corporation had a decent quarter and managed to surpass Wall Street expectations in terms of revenues as well as earnings.
• The company delivered an impressive 9% growth in organic sales with all segments delivered robust gains.
• The company navigates near-time headwinds based on near-time headwinds of breadth and pace of its pricing actions.

• After many months of a consistently bad performance in terms of the stock price as well as issues associated with chip shortages, General Motors has finally seen a bit of a reversal in the past few weeks.
• The company is making significant progress in various fonts, which includes its supply chain as well as Cruise Commercialization.
• We provide a ‘Hold’ rating to the stock of General Motors with a revision in the target price.

• The approval by Yashili International Holdings (1230 HK) independent shareholders of the proposed transactions at the 16 August EGM is a pre-condition to the HK$1.20 per share privatisation proposal.
• Shareholders will pass the ordinary resolutions at the EGM so that they can vote on the attractive privatisation proposal. The key risk is timing around the satisfaction of the pre-conditions.
• China Mengniu Dairy Co (2319 HK)’s offer remains attractive in the context of multiples and historical share prices. At the last close, the gross spread to the offer is 10.1%.

• Tim Horton China has bucked the recent trend of Chinese Companies, opting to list in the US through a SPAC rather than aiming for an IPO on shore.
• The company is looking to capitalize on the rapidly growing Chinese Coffee market by tapping into capital from US investors.
• However, growing geopolitical tensions and a regulatory crackdown from the SEC could dampen deal prospects.

• Given recent corporate events in S-REIT land, there could be some considerable money to be allocated to the sector near-term
• Alibaba (ADR) (BABA US) / Alibaba Group (9988 HK) issued an announcement it would pursue a primary listing on the HKEX. This will make BABA Southbound-eligible
• At 0.81x newly-lowered book value, Australian Unity Office Fund (AOF AU) is trading at a relatively low multiple. 

• Serving the masses, Dealshare (1907039D IN) is India’s social commerce company efficiently taking on e-commerce grocery giants in India. 
• Channel feedback is positive, the company is well positioned & focused on a specific part of the market and seems to be doing well. 
• The efforts are translating into growing revenues, but the profitability is yet to follow.  The model is interesting and warrants close attention. 

• In our previous insight on Kaveri Seed (KSCL IN) , Kaveri Seed: Wilting Sprouts we had predominantly highlighted the challenges faced by cotton seed players due to the external conditions.
• In this insight, we particularly dwell into the forensics checks of the company and present our takeaways.
• Key takeaways include concerns on investments, receivables, working capital cycle and some disclosures.

• Amber Enterprises India (AMBER IN)  is one of the key ODM players in the RAC and related industry.
• However, there are couple of puzzling forensic takeaways, especially in F22 where company had reported high growth in numbers.
• These primarily include the rationale behind debt increase, puzzling subsidiary numbers, discrepancy in inventory verification, etc.

• Zozo recorded its highest profit ever last year, countering the sceptics once again. 
• The company has shrugged off the uncertainties surrounding the departure of its founder and, while sticking to its core values, is looking for new growth beyond fashion e-commerce.
• While there are some headwinds, Zozo has a solid set of strategies in place to offset these and find new growth streams.

• Baijiu, the most popular liquor in China, is perhaps one of the most addictive and profitable alcoholic beverages in this planet.
• The focus of this insight is a pair trade (go long on Luzhou Laojiao and go short on Jiangsu Yanghe Brewery).
• The major reasons for this pair trade include higher sales growth rate and ROE for Luzhou Laojiao as well as capitalize on the recent share weakness of Luzhou vs Jiangsu.

• We expect a strong 2Q22 and an upgrade to annual guidance from Japan Tobacco (2914 JP) through strong Domestic and International Tobacco performance.
• It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  
• Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.

• CyberAgent Inc (4751 JP)  reported 3QFY09/22 financial results after the market closed on 27th. Revenue for the quarter decreased 10.4% YoY to JPY 172.2bn vs consensus revenue of JPY 173.2bn.
• OP declined 76.7% YoY to JPY 10.4bn vs consensus JPY 16.0bn (miss of 35%) due to decline in profits from gaming. OPM declined to 6.0% from 23.2% in 3QFY09/21.
• Though CA has proven in the past that it can turn around its business with just one hit title, it has not yet been able to launch another hit title

• Mamaearth (1652951D IN)‘s in one of foremost D2C personal care brands. Initially started with baby products, the brand now offers a full range of toxin free, natural products.  
• Channel feedback suggests good products and premium pricing, but chasing traditional retail is not easy and will test Mamaearth’s execution capabilities. 
• COVID has boosted financials. Revenues have skyrocketed and the company has become profitable. The way forward for traditional retailing and its execution will be the key.  

• Optically weak earnings and guidance due to FX and macro headwinds aren’t as bad as it seems… Meta’s ad business grew faster QoQ than Google’s Search.
• Zuckerberg downplayed the social graph as core to Meta’s LT competitive advantage. AI is the future.
• At $160, we think Meta is preposterously undervalued. 2023 revenue acceleration and margin expansion means the stock is trading 9x forward P/E ex-cash. 

• Unilever Indonesia booked a strong rebound in 1H2022 profits despite rising commodity prices with aggressive cost savings and an improving product mix. 
• The company suffered during the pandemic given that personal care does have a discretionary element but that is now being reversed with great mobility and reflected in new product launches. 
• Unilever Indonesia has the potential for a re-rating as growth momentum returns, helped by a new management team. Valuations are still well-below its 5-year average of 40x forward PER.

• Isetan-Mitsukoshi is dangerously dependent on a small number of wealthy customers for a lot of its revenue.
• Wealthy VIP customers account for around half of sales at both Isetan Shinjuku and Mitsukoshi Nihonbashi department stores
• But the wealth market is one of the few segments to continue to grow so should be a source of growth even while the rest of its market shrinks.

• This model seeks short-sale candidates among companies that use aggressive accounting and/or exhibit deteriorating quality of earnings.  
• They are typically highly idiosyncratic shorts and require thoughtful analyses of upcoming catalysts.  When the company’s issues become well-known, there is often multiple compression as well as a rerating.
• These shorts can have high or low betas, valuations based on artificial earnings and exhibit good short responses to subsequently disappointing earnings.

Tata Motors’ Q1/22-23 results continued to be weaker than expected as well as guided, mainly due to the weakness in Jaguar Land Rover (JLR), which more than offset Tata Motors India’s reasonable performance. Gross leverage remained almost stable, given the small increase in debt and minimal decline in EBITDA. However, net leverage deteriorated significantly, due to the increase in net debt. Liquidity is adequate. The debt maturity profiles for both JLR and Tata Motors India are evenly spaced out.

Despite management’s consistent guidance and hints at an improvement in the situation, retail sales continued to be materially lower on a y-o-y basis (albeit relatively flat q-o-q). We expect the semiconductor shortage to persist for at least another 18 months. The industry will need to rebuild the chip and component supply chains, which could take time. Thus, we have a cautious view on management’s persistent optimism.

• Zozo recorded its highest profit ever last year, countering the sceptics once again. 
• The company has shrugged off the uncertainties surrounding the departure of its founder and, while sticking to its core values, is looking for new growth beyond fashion e-commerce.
• While there are some headwinds, Zozo has a solid set of strategies in place to offset these and find new growth streams.