Consumer

• Giordano International (709 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code. 
• The Cheng Yu Tung family is the largest shareholder with 24.37%, as it has been since December 2015. A possible Offer ahead of a (potentially) improving retail outlook? 
• And just for some (possible) added excitement, David Webb holds 5.1%. 

• Ant Financial Services Group (6688 HK) is declaring a dividend at a time when regulators have forced the company to increase its capital base.
• Moreover, Ant’s financial performance doesn’t support a dividend payment of RMB 11.8bn in the short term.
• We think the sale of 5.0m Kakao Pay (377300 KS) shares today was forced upon Ant through the lack of usual funding sources at Alibaba Group (9988 HK)’s disposal.

• WM Motor Technology Co Ltd (WMT CH) is looking to raise about US$1bn in its upcoming Hong Kong IPO. The deal will be run by Haitong International, CMBI and BOCI.
• WM Motor is a smart EV player in China. As of the latest practicable date, it had a total of four main EV models (with various versions of each model). 
• As per the CIC, it was the first EV automaker in China to have established its own manufacturing facilities from the outset. 

• After the market close today, Lotte Chilsung Beverage Co announced that there will be a block deal sale of the company (200,000 shares), representing 2.15% of total outstanding shares.
• The discount rate range is 185,250 won to 189,150 won, which are 3% to 5% discount from the closing price today (195,000 won). 
• We have a Positive view on Lotte Chilsung Beverage and we would take this deal. 

• The Scheme Booklet for Morrison/​Brookfield/CSC’s Offer for Uniti Group Ltd (UWL AU) has now been despatched. The Scheme Meeting will be held on the 15th July. 
• The Independent Expert considers the terms to be fair and reasonable with a fair value range between A$4.65-A$5.20 compared to the Offer price of $5.00/share.
• Trading tight to terms, as it has done since parties entered into the Scheme Implementation Deed. 

• Unsurprisingly, the independent expert (IE) considers the consortium’s offer of A$5.00 per share to be fair and reasonable. We think that IE’s valuation approach is sound.  
• The key condition is approval from Uniti Group Ltd (UWL AU) shareholders and regulatory authorities (FIRB). The scheme meeting is scheduled for 9:30 am on 15 July. 
• We continue to think that offer is attractive. At the last close price and for the 4 August implementation date, the gross and annualised spread is 0.8% and 5.1%, respectively.

• Tuhu Car (2007986D HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
• Tuhu is an integrated online and offline platform for automotive services in China.   
• The firm remains loss making with no signs of being profitable in the near/medium term given its aggressive growth strategy.

• Our base case valuation of Kakao Pay is market cap of 7.1 trillion won or 53,767 won per share, which represents an additional 40% downside risk from current levels.
• Our base case valuation is based on 5x EV/Sales multiple and applying this to the consensus estimated sales of 898 billion won in 2023. 
• The fact that the share price ended 15.6% lower (much bigger than block deal discount range of 8.5% to 11.8%) suggests a lower probability of an MSCI Korea index inclusion. 

• Intel warned that conditions outlined in 1Q22 have worsened, key to see what AMD says tomorrow.
• Netflix – Roku rumor doesn’t make much sense, we think its more likely Roku cut off insider selling because it is looking to acquire Starz.
• Netflix churn is rising among longtime customers – going to ad-supported Peacock and Paramount. We think another guide down is coming in 2Q22.

• Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
• The Diamond Hill Long-Short Fund’s returns were just about flat—slightly positive— in Q1.
• After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
• From current levels, equity market returns over the next five years are likely to be below historical averages.

• Alipay aims to raise around US$386m via selling around 3.3% of outstanding shares of Kakao Pay.
• The stock more than doubled on listing, providing one of the best first day returns in 2021. However, its performance since then hasn’t been all that great.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• The June rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
• The largest inflows will be on JD.com Inc. (9618 HK), Tencent (700 HK), Baidu (9888 HK), SMIC (981 HK), Orient Overseas (316 HK), Zhongsheng Group (881 HK), Lenovo (992 HK).
• The largest outflows will be on Meituan (3690 HK), Alibaba (9988 HK), ASM Pacific (522 HK), Kuaishou (1024 HK), AIA (1299 HK), China Construction Bank (939 HK), HKEX (388 HK).

• Alipay’s return on investment is 10x, so it may be natural to realize a profit for some stakes. But the local market believes that the strategic partnership is cracking.
• Starting with this stake sale, it is highly likely that Alipay will go through a multi-phased stake sale process similar to that of Temasek/JPM’s Celltrion stake sales.
• Meanwhile, we should also pay attention to the possibility that this block deal by Alipay will likely lead to the inclusion of Kakao Pay in the MSCI August IR.

• Alipay’s stake sale raises another critical issue: Kakao Pay’s MSCI inclusion. Kakao Pay comfortably satisfies the full MC threshold but tightly exceeds the float MC hurdle.
• As for the passive flow, we should see an inflow of 6.11x ADTV, equivalent to 1.48% of SO. It represents nearly 2M shares, close to ₩210B.
• If we build up a position betting on Kakao Pay’s downward trend due to Alipay’s block deal risk, we should consider temporarily switching the position when this event is triggered.

• Given their market leadership in China’s personal care industry, Hengan International Group (1044 HK) and Vinda International Holdings (3331 HK) arguably make a valid pair trade.
• Yet Hengan’s bottom line is dominated by its sanitary napkin products; whereas Vinda’s tissue segment has a similarly high contribution to its net profit. 
• On various valuation metrics, both companies, relative to listed peers, and their historical trading numbers, appear inexpensive.

• Tuhu Car (2007986D HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
• Tuhu is an integrated online and offline platform for automotive services in China.   
• Initially starting as a pure online retail platform, the firm has over time been building its offline network with well-managed stores and technicians to deliver standardized services in-store.

• Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects of China Education Group (839 HK) are still yet to be fully reflected.
• The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.
• Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.

• Not many retailers could boast sales growth of more than 50% last year, especially a retailer from the fashion sector.
• Pal Group’s 3Coins managed this thanks to the huge success of the discount fashion to home decor format.
• Its success is one more example of the growth in discount chains.

• During the acceptance period, 73.53% of the shares were tendered or committed, below the 80% minimum acceptance threshold that allows to sideline the holdouts (Moneta and others are seeking €70/share).
• Tomorrow, 8 June, would be the last day for the offer to be declared unconditional. The minimum acceptance condition has to be waived (with prior written approval from the Boards).
• The share price has rebounded by c.11% over the last three trading sessions. Gross spread is 1.7%. 27 June would be the last day of a hypothetical post-tender acceptance period.

• MFE improves the cash component to €2.16/share, taking the package value to €4.75 (6 June). The acceptance period has been suspended; the CNMV will inform of the new acceptance period.
• The sweetened price seems more reasonable. The Board of Mediaset España is now minded to recommend the offer, but the low valuation of both companies does not help the deal.
• Holdouts may expose themselves to being trapped in a group with an even stronger control by MFE with no qualms about running its subsidiary for its own interests.

• Tunas Ridean (TURI IJ) announced a plan to change its status from an open company to a closed company. 
• In effect, TURI will undertake a buyback of its shares at Rp1,700/share, a lifetime high. Those who do not tender will be left holding unlisted scrip. 
• Jardine Cycle & Carriage (JCNC SP) and Tunas Andalan both hold 46.24%, leaving 7.52% in public hands. The proposal requires a shareholder vote. It appears no shareholder needs to abstain. 

• Back on the 25 April, PRC dairy farmer Lanzhou Zhuangyuan Pasture (1533 HK) announced a Conditional Cash Offer for all its H-shares at $10.89/share. The Offer Doc is now out.
• This two-step voluntary cash offer involves a Scheme-like vote and a 90% tendering condition. The EGM will be held on the 29 June. 
• This transaction could potentially be wrapped up late-July. The FY21 dividend should also be added to the Offer terms.

• Driven by a sharp rise in revenue and profitability over the last three quarters, Yonex Co Ltd (7906 JP) shares continue to go up in relatively choppy overall market conditions.
• We expect this strong growth momentum to continue over the medium term while Yonex builds popularity in new markets and new sports categories.
• We think there could be around 100% upside to Yonex alongside improving confidence about sustainability of Yonex’s current performance.

• Shimamura (8227 JP) is on a roll at the moment, clawing back share after a troubled few years of mis-merchandising and confused targeting.
• After a record year, Shimamura now thinks its merchandise teams are strong enough to take on urban centre consumers – without raising operating costs. This could be a worry for Uniqlo.
• Shimamura has tried this before but back then its focus was on young women and had weaker merchandising skills. This time around too urban consumers want more discount apparel.

• Over the past 2 years, customers cut back drastically on shopping and travel. Many worked in home offices in sweatpants and t-shirts.  
• But now, people are vaccinated, and lockdowns have lifted. Even Japan’s borders are starting to spring open.  
• Consumers are looking for ways to make up for lost time – we highlight 3 beneficiaries of revenge shopping. 

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• Subaru’s profitability is set to improve dramatically, driven by a weaker yen
• After two painful years, production is starting to normalise post Covid
• At 1xPBR, we think Subaru is significantly undervalued and see at least 30% upside

• The company sees the overall demand sentiment improving and is experiencing some early signs of demand recovery in both Rural as well as Urban areas.
• It expects double- digit growth in volume as all medium term and long term triggers are in place.

• Demand is recovering on the back of festive and marriage season, which is going really well, and retail volume has outdone wholesale volume, leading to correction in inventory levels, which are lower than 6 weeks now.

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• Sony’s State of Play today highlighted a variety of games headlined by Capcom’s Street Fighter 6 and Resident Evil 4 Remake and Square Enix’s Final Fantasy 16. 
• The title line-up was strong but the standout in our view was the degree of support Sony appears to be getting for PSVR2. 
• We had commented on this previously but it is increasingly looking like a key differentiating factor for PlayStation and no longer a gimmick.

• Integra Indocabinet’s recent 1Q2022 results confirmed the strong momentum in its wooden furniture and component sales to the US, which have seen even stronger growth than last year.
• Manufactured exports saw growth of +114% YoY in 1Q2022, whilst wooden building components saw growth of +194% YoY, as the company continued to gain market share in the US market.
• Integra Indocabinet trades on 8.3x FY21E PER and 8.1x FY22E PER, with consensus forecast EPS growth of +2.6% and +11.6% for FY2022E and FY2022E looking too low. 

• Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
• Overall, net inflow was ~US$0.8bn, split (roughly) US$0.2bn for Shanghai and US$0.6bn Shenzhen.
• The largest inflows were into  CNOOC Ltd (883 HK), China Mobile (941 HK), and Kuaishou Technology (1024 HK). The largest outflows were in Tencent (700 HK) and ICBC (1398 HK).

• Is Kakao Pay showing an upward trend after hitting bottom? It doesn’t seem to me yet. The NPS is the only buyer who has recently driven the share price up.
• I’d consider betting on the decline in Kakao Pay’s share price once this passive flow is completed. An ideal entry point? I would avoid the June 9 rebalancing trading day.
• However, it is unlikely that this passive flow factor will spill over after June 9. So I’d consider building up a short position from late June 9 towards the close.

• Founded in 2006 by Morty Schaja and Mitch Rubin, RiverPark manages research-driven, focused strategies in equities, fixed income and venture capital.
• Called and Tendered securities continue to be a significant component of our purchases. The supply of these bonds remained ample during most of the period.
• In an unpredictable market, RiverPark Strategic Income continues to stay conservative, with an effective maturity a fraction of the indices while maintaining comparative yields.

• Founded in 2006 by Morty Schaja and Mitch Rubin, RiverPark manages research-driven, focused strategies in equities, fixed income and venture capital.
• For our portfolio, that technical downward price pressure is abating, as the new issuance has been absorbed and as higher coupons have attracted new buyers.
• While we face challenges at home and abroad, we believe this is an excellent time to invest in the Fund.
• Inflation is our number one concern for the year ahead and ourportfolio is ideally positioned for it to maximize returns and to minimize rate driven losses.

• Longleaf Partners Funds is a suite of mutual funds and UCITS funds that Southeastern Asset Management, the investment advisor to the Longleaf Partners Funds, created in 1987 as a way for Southeastern employees to invest alongside their clients.
• Longleaf Partners International Fund declined 12.04% in the first quarter, while the MSCI EAFE Index declined 5.91%.
• New investments have a high hurdle to qualify given our conviction in our current holdings and the steep discount of the portfolio.
• We believe our companies in Asia and Europe are well positioned to navigatethe challenges facing each region today.

• Longleaf Partners Funds is a suite of mutual funds and UCITS funds that Southeastern Asset Management, the investment advisor to the Longleaf Partners Funds, created in 1987 as a way for Southeastern employees to invest alongside their clients.
• Longleaf Partners Global Fund declined 5.84% in the first quarter, roughly in line with the MSCI World’s 5.15% decline.
• In a volatile quarter for markets across the globe, we saw one of the largest disconnects between price and value per share performance that we have seen for our portfolio in a long time.
• We remain fully invested with less than 2% cash, and our on-deck list isgrowing longer amid market volatility.
• We believe our companies in Asia and Europe are well positioned to navigatethe challenges facing each region today.

• Genting Bhd (GENT MK) gains 10.3% following the completion of TauRx’s Alzheimer’s drug trial. That’s an RM1.9bn lift in its market cap, or US$0.43bn.
• Preceding my comments on Genting, Hanwha Solutions (009830 KS), and Semirara Mining And Power Corp (SCC PM) are the current setup/unwind tables for Asia-Pacific Holdcos. 
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

For our next Corporate Webinar, we are glad to welcome China Shenshan Orchard (DKNG SP) Executive Director, David Zhao.

In the upcoming webinar, David will share a short company presentation, after which he will engage in a fireside chat with Smartkarma Analyst Angus Mackintosh. A live Q&A session will follow.

The Corporate Webinar will be hosted on Tuesday, 28 June 2022, 17:00 SGT.

China Shenshan Orchard Holdings Co. Ltd. is a horticultural company in the business of planting, cultivating, and selling kiwi fruit in the People’s Republic of China (“PRC”). The Group holds forest use rights for eight strategically located orchards, spanning a total land area of 9,805 mu (approximately 6.5 million sqm), which is believed to be one of the largest domestic kiwi fruit orchards concentrated in Chibi City, Hubei, the PRC.

Corporate Webinars by Smartkarma Corporate Solutions feature discussions with IROs and Executives, discussing their companies, the challenges they face, and the opportunities in their sectors and markets.

• Founded in 2006 by Morty Schaja and Mitch Rubin, RiverPark manages research-driven, focused strategies in equities, fixed income and venture capital.
• Over this year’s first three months, the RiverPark Large Growth Fund (the “Fund”) lost 19.6%.
• Rather than follow the market’s so-called “de-risking” strategy, we “leaned in” to our higher growth positions (in some cases materially) at what we believe to be generationally attractive prices.
• While we are deeply disappointed by our recent losses, we believe thatwe are currently invested in an exceptional risk-reward portfolio and look forward to strongabsolute and relative returns in the quarters to come.

• We expect high-end musical instruments to be one of the worse affected among consumer discretionary names during a high inflationary environment.
• Although Roland Corp (7944 JP) says that demand remains strong, the numbers such as revenue and backlog suggest weakening conditions.
• In addition, there’s a risk of a recession and it appears that Roland has not made sufficient progress in streamlining operations to maintain profitability in a low revenue environment.

• Although the company implemented price hikes on May 14, the guest count continues to be solid, which gives us a positive impression.
• All-store sales of 7.384bn yen (120.3% vs. April 2021) were the record high for a single month. The company said that in-store dining sales recovered in a significant manner.
• In May, the company opened two new stores (one company-owned store and one franchised store) and closed one store (one franchised store)

• Same-store sales have been improving gradually on the back of the recovery of foot traffic, but still below the company’s target
• As the company has stores throughout Japan, there appears to be a mix of areas where the recovery has been progressing and areas where the recovery has been sluggish

• Since May 26, the company has been running aggressive promotions. We will watch closely to see if sales will recover in June.

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• Dongfeng Motor (489 HK) (DFMG) has entered into an agreement to buy back the controlling stake in Dongfeng Automobile (600006 CH) (DFAC) from Nissan Motor (7201 JP).
• DFMG and Nissan’s JV (split 50:50) holds a 60.1% stake in DFAC. Under the agreement, 29.9% of the JV’s stake in DFAC will be transferred to DFMG.
• Subsequent to the completion of the transfer, DFMG will launch a partial offer for 25.1% of DFAC, with a view to holding 55% of shares out in DFAC. 

• The correlation between Xinyi Glass Holdings (868 HK) and Flat Glass (6865 HK) has narrowed thus it is time to lock the profit while it is still possible.
• Xinyi Glass formed a JV with Xinyi Solar Holdings (968 HK) to set up a polysilicon manufacturing facility. 
• A 7% dividend with some potential growth juice from owning the shares at less than 7x PER is really quite a steal.

• The EGM to approve Dave & Buster’S Entertainment, Inc (PLAY US)‘s acquisition of Main Event is on 29 June. Ardent Leisure Group Ltd (ALG AU) will receive A$670.3 million.
• If the transaction is approved, shareholders will receive a total return of A$0.95 through capital return and special dividends. The independent expert opines that the transaction is fair and reasonable.
• At the last close price, the remaining business is valued at just 2 cents. Our SoTP valuation of A$1.65 per share is a 22% upside to the last close.

• The 18% spread suggests there the Apollo Global Management Inc (APO US) / Tenneco Inc (TEN US) transaction is fraught with risks which, we believe, are more imaginary than real
• With TEN shareholders expected to approve the merger next week, we assess regulatory obstacles low and the risk of APO reconsidering the transaction unlikely except in the most unexpected circumstances   
• Overall we believe the risk-reward for arbs skews to the attractive with the opportunity to game IRRs in excess of 30%

• Fast Retailing (9983 JP)’s share price rose 10% towards the top end of the trend channel since reporting 15.8% YoY same-store sales growth in April 2022.
• However, the growth rate was influenced by weak comps and in April 2022 domestic revenue was 9% below the pre-pandemic level.
• Meanwhile, Uniqlo’s growth drivers are faltering with China’s revenue near pandemic lows and North America, Europe and Asia affected by rising inflation.

• Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
• The Partners Value Fund’s Institutional Class returned -8.68% for the first quarter.
• Our company value estimates are mostly steady or increasing, with a few notable exceptions.
• Our team estimatesthat theportfolio trades at a price-to-valuein thelow 80s,which provides a healthycushion against near-term forecasting errors.

• United Spirits (UNSP IN) Q4F22 results have shown some good improvement.
• There is all round progress witnessed, including debt reduction, focus on gaining market share, better scope of working capital management. There is an intent of supporting premiumization as well.
• The results and strategic decision making reinforces our bullish stance on United Spirits; the cherry on top is that there is further room for improvement in the short-mid term.

• Founded by value investor Wally Weitz in 1983, Weitz Investment Management, Inc. is a boutique, employee-owned asset management firm headquartered in Omaha, Nebraska.
• The Hickory Fund returned -13.15% in the first quarter of 2022.
• Portfolio returns for the quarter and fiscal year were disappointing on both a relative and absolute basis.
• In our opinion, however, the near-term (at least) investment landscape remains fluid.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.