Consumer

• LG Energy has the second-largest market cap on KOSPI. For Fast Entry to fail, the price must lose 90% of its current value. So, Fast Entry is a foregone conclusion. 
• The review period ends on February 21. The implementation date is March 11, and the announcement will likely be made public around February 24-25.
• The stock with the lowest market cap from May to October last year will leave the Index. The victim is Dongwon F&B, beating Nexen Tire by a very narrow margin.

• Sony has not taken long to respond to Microsoft’s purchase of Activision Blizzard. 
• It is being reported that Sony will acquire Bungie, original developer of the Halo franchise as well as Destiny for $3.6bn.
• The cost effectiveness of this move stands in stark contrast to Microsoft’s acquisition and is significantly more targeted in its apparent goals, as usual.

• Oriental Land (4661 JP) positively surprised the market with 3QFY22 revenue surpassing the consensus estimate by more than 13% through gradual easing of limits imposed on park attendance.
• FY22 revenue and OP guidance were raised by ¥22.9bn and ¥16.6bn respectively despite expecting Q4 attendance to fall short of the original forecast through the new state of emergency measures.
• Nonetheless, we think Oriental Land is too expensive at 33.6x FY24 OP, especially considering that attendance is expected to fall short of the original forecasts in the fourth quarter.

• Vedant Fashions, owner of India’s leading homegrown brand for premium ethnic wear for men – Manyavar, will launch its IPO on Feb 4th at a price range of Rs824-866/share.
• The USD420 mn IPO suggests an equity valuation of USD2.8 bn implying forward P/E of around 70X at a premium to apparel peers but in line with consumer good companies.
• The rapid growth in demand for premium ethnic-branded-wear for men have helped Vedant Fashions emerge as a segment leader with a pan India presence and attractive growth outlook.

• Comcast and Charter have seen their share prices cut 30% since the fall when we thought broadband risks were overstated.
• We don’t think now is the time to buy cable though due to rising competitive intensity from telco.
• Prefer Charter over Comcast due to their faster growing wireless business and pure play business model vs. Comcast’s increased streaming content spend.

• Colgate Palmolive (India) (CLGT) reported an in-line quarter vs our estimates across key performance metrics
• Reported Revenue growth was 3.8% yoy at Rs. 1,271 Cr (our estimate Rs. 1,285 Cr) led by volume growth of 3% in our view (3% our estimate) and ~1% price/mix growth.
• Maintain BUY with revised TP of Rs. 1,650 (earlier Rs. 1,765) at 39x FY24E EPS.

• TUEM is scheduled to report fiscal second quarter (December) results on February 3, 2022 in what could become a binary event for the stock price
• TUEM built up inventory levels heading into the holiday shopping season. Expectations are TUEM would have been able to capitalize on having well stocked stores while other retailers were struggling.
• The wrench in the quarter was the effects the Omicron variant had on shoppers going to stores. TUEM relies on foot traffic to generate sales

Nippon Life India Asset Management: NAM printed core revenue, in line with our estimates. However, revenue yields, in line with industry trends, continued to shrink. Market share in the high-margin equity segment moderated further (-13bps QoQ) and continues to remain a concern in medium- to long-term. We expect NAM to focus on improving its performance to recoup its lost market share. We trim our FY22E/23E/24E revenue estimates by 1.4/2.8/3.3% to build in the impact of a sharp correction in capital markets and lower admin expenses in FY22E.

• United Spirits (USL) is India’s leading alcoholic beverage company and subsidiary of global leader Diageo plc
• . It manufactures, sells premium liquor brands such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff and Captain Morgan.
• Target Price and Valuation: We value USL at Rs 1050 i.e. 52x P/E on FY24E EPS

• 1-3Q progress rate 72% for OP and 88% for RP, after special allowances.

• 3Q sales and profits increased QoQ due to normalization of operating hours.

• In-store dining sales improved significantly in 3Q.

• LG Energy Solution (373220 KS) listed today and closed 68.3% above its IPO price to become the second largest stock in Korea with a full market cap of US$98.22bn.
• The stock will be added to a bunch of indices via Fast and Regular entry over the next few months. There will be liquidity squeezes on a few of them.
• LG Energy Solution (373220 KS) will become short sell eligible on 11 March after its inclusion in the Kospi 200 Index. That and lock-up expiry is something to watch for.

• Following its 12.8% fall last Wednesday Sony is now getting hit for 7.7% today thanks to Jay Powell. 
• This is an excellent opportunity to resize positions in our view as the long-term outlook remains excellent. 
• We had been worried about potential volatility due to the name becoming consensus but since that has been realised we are back to being uber bulls here.

• Fujitsu General’s 3QFY22 results saw solid revenues of ¥63.7bn (+20.3% YoY) but weak OP of just ¥35m (0.1% OPM). 
• Cost inflation is a concern here but we are most concerned with the top line and we see few issues there which leaves us encouraged. 
• There is also the possibility of a buyout offer from parent Fujitsu though we are concerned about any premium being too light.

• 530.8mn shares of Ausnutria (1717 HK) crossed at the close yesterday at HK$10.06/share. That is the exact number of shares under the SPAs and the stated price under the agreements.
• China’s NDRC approval,  a condition to the SPAs, was obtained earlier this month, leaving MoC and SAFE approvals outstanding. They appear to have been received. 
• Expect confirmation shortly. The completion of the SPAs triggers an MGO, which is conditional on Inner Mongolia Yili Industrial Group (600887 CH) holding 50% of the voting rights.  

• MSCI announced LG Energy’s Fast Entry. The effective date is February 15. As a result, rebalancing trading will take place on February 14.
• FTSE Fast Entry failed. As a result, LG Energy will be included in the FTSE AW in June, the first index review after the 3-month minimum listing period.
• LG Energy’s share price fluctuations are highly likely to occur in multiple phases until the inclusion of the KOSPI 200 on March 10.

• Rakuten Inc (4755 JP) and ZOZO Inc (3092 JP) are in a battle for share in online fashion with both companies increasingly aping the other to attract both merchants and consumers. 
• Amazon.com Inc (AMZN US) and Z Holdings (4689 JP) aren’t standing still either but the competitive pressures between Rakuten and Zozo may put them ahead of their rivals.
• This competitive edge now encompasses both physical stores and online platforms for physical retailers, with the aim to bind them ever closer to the platform.

• We reiterate BUY rating for GLOBAL with a lower target price of Bt27.0 (-7% from previous TP) based on 35xPE’22E, average of the Thailand home-improvement subsector
• We expect GLOBAL to report 4Q21 net profit at Bt687m (+82%YoY, +4%QoQ), supported by (1) a solid SSSG at +15%YoY,and (2) gross profit margin expansion from a higher revenue contribution 
• YoY decrease in gross profit margin caused by a higher revenue contribution from low margin products and an increase in marketing promotion.

Full orders with high demand for e-bikes; upgrade to BUY. Merida posted FY21 revenue of NTD29.404bn (+8.61% YoY). FY21 EPS is estimated at NTD13.87.. Merida’s FY22 revenue/earnings may grow by double digits, we upgrade Merida to BUY with TP of NTD350 (21x FY22 PER).

• Maruti Suzuki (MSIL) is the market leader in the domestic passenger vehicle (PV) space
• Market leader in each sub-segment – cars (62.2%), UV (21.6%), vans (96.6%)
• Target Price and Valuation: Introducing FY24E, we roll over our valuations and now value MSIL at Rs 8,760 i.e., 30x P/E on FY24E EPS (previous target Rs 6,000)

• Wilmar International (WIL SP) is coming up “expensive” on my stub monitor, yet still trades at a material 65% discount to NAV. 
• Preceding my comments on Wilmar are the weekly setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold of at least 20%.

• The 25% premium, €58/share offer implies an equity value of €1,556.5mn and EV of €1,712mn, which represents 12.4x EV/Fwd EBITDA (vs. 12.2x EV/LTM EBITDA comparable transactions) and 18.3x Fwd P/E. 
• Minimum acceptance level of at least 95%, automatically adjusted to 80% in case GM approves it. The offeror intends to squeeze-out/delist as soon as practicable.
• Median implied share price across multiples is €56.37/share. On this basis, the offer price seems full. Gross spread is 0.34%, a bit tight. The market does not expect any counteroffer.

• We normally write a “What’s Working in Equities” report at the end of every month.  
• Today, we publish a “What’s not working” a/k/a “What’s working on the short side.”   
• In one line, what’s working on the short side are expensive, smaller cap, unprofitable, growth stocks.

• Seven & I Holdings (3382 JP) has climbed above the June 2021 peak for the first time in seven months despite weaknesses in the overall market.
• Meanwhile, the Financial Times reported yesterday that 3 of the top 30 long term investors have requested Seven & I to get rid of underperforming businesses.
• Although the company brushed off previous attempts by activist investors, the pressure from long term investors could tip the scales and force Seven & I to focus on convenience stores.

• Adani Wilmar (6596700Z IN) is looking to raise up to US$482m in its upcoming India IPO.
• In our view, we doubt that the firm would be able to trade close to its blue chip FMCG peers, given its small FMCG component combined with overall weaker margins.
• In this note, we will look at updates since our last note, undertake a peer comparison, and share our thoughts on valuation.

• Tesla beat CapIQ consensus for 4Q slightly, beating by 3.3% at the OP level and 6.5% at the top line. 
• Despite this, the reaction after hours was negative pointing to excessive froth in the name. 
• With the collapse in momentum for low quality small caps it seems reasonable to us to expect Tesla to be next.

• We interact with Channels of Symphony Ltd (SYML IN) , Sheela Foam Ltd (SFL IN) , Relaxo Footwears (RLXF IN) to understand the demand environment and competitive positioning.
• Symphony Ltd (SYML IN) channels are reporting some market share loss, Sheela Foam Ltd (SFL IN) ‘s operating and competitive positioning is encouraging. 
• For Relaxo Footwears (RLXF IN) , school reopening could be possible upside catalysts. 

• The 42% collapse in share price of China Education Group (839 HK) (CEG) seems to be overreaction to the speculated regulatory measures which we think many of them are counter-intuitive.
• These measures center around the legality of Variable Interest Entity, ban on future M&As, ownership of school assets and prohibition of increase in tuition fee at will.
• Higher education, unlike after school tutoring, supports government policy, lightens governments’ financial pressure and enhances common prosperity; and CEG remains the best play on this angle. 

• In this insight, we provide an analysis of a pair trade idea between BGF Co Ltd (027410 KS) and Bgf Retail (282330 KS).
• Our strategy is to be long BGF Co & short BGF Retail and achieve net gains of 5-8% on this pair trade over the next several weeks.
• Our NAV analysis suggests BGF is vastly undervalued as compared to its NAV. BGF’s 30% stake in BGF Retail is 819 billion won, which is 184% of BGF’s market cap.

• CyberAgent reported 1QFY09/2022 results on Wednesday. Revenue for the quarter increased 30.6% YoY to JPY171.1bn (vs consensus revenue of JPY173.4bn) while OP increased 11.6% YoY to JPY19.8bn (vs consensus JPY24.5bn).
• Games business reported strong growth in revenue, however, OPM continues to decline with increased advertising cost. Some of the older titles which performed strong have started to decline.
• Internet advertising and Media continue to grow, with resurgence of Covid-19 cases, it seems internet ad business will take longer to bounce back to pre-Covid levels.

• LG Energy Solutions priced its IPO at the top of the range amid massive oversubscription numbers. 
• If anything it was slightly surprising that pricing was not raised above the range. 
• Nevertheless, we feel prospects here are mixed even if slightly tilted positive.

• The KOSPI inclusion will be officially implemented on January 28. As a result, local active funds benchmarking the KOSPI will compete to buy LG Energy on the listing date.
• Passive Inflow appears one week after listing, particularly MSCI and KODEX/TIGER battery ETFs. The KODEX/TIGER rebalancing effective date is virtually confirmed on February 10, meaning rebalancing trading on February 9.
• Another two weeks later, the KOSPI 200 and KRX BBIG rebalancing await us. Combined with KRX BBIG, there will be a passive inflow of about 0.5% of SO.

• Alibaba Group (9988 HK) backed B2B e-commerce business, Huitongda (1566215D CH) is looking to go public to raise $500m to save the business.
• With churn rates as high as 50%, things could get ugly rather quickly if customer acquisition falls below sub optimal levels.
• We fear this is an attempt to save a failing business that could be worthless in few years.

• In February 2022, Vivendi will file a public tender offer for all Lagardère shares at €24.10/share, identical to the price per share paid to Amber Capital.
• Assuming some recovery in travel retail, the implied multiple of the publishing division would be 5.5x EV/22e EBITDA, which is cheap in my view. Comparables are trading at 6.6x.
• The share price has gone below the offer price for the first time since 9 December. The 0.2% gross spread is still tight, but worth monitoring in case it widens.

• VST Industries (VST) is among the oldest cigarette players in India, involved in manufacturing and marketing cigarettes as also trading unmanufactured tobacco
• The company has two cigarettes manufacturing facilities in Hyderabad, AP. 
• Target Price and Valuation: We arrive at a revised target price of Rs 3425, valuing the business at 14x FY24 earnings.

• Bajaj Auto (BAL) Q3FY22 results stood slightly ahead of our expectations, particularly on the margin front.
• The company reported net revenues of Rs 9,022 Cr (our estimate – Rs 8,928 Cr) v/s Rs 8,910 Cr in Q3FY21, posting a flattish growth YoY
• We maintain our BUY rating on the stock with a revised TP of Rs 4,250/share (Rs 4,500 earlier) (which includes Rs 320/share for the company’s stake in PMAG) as we value the stock at 17x its FY24E EPS.

The Europe HY Trade Book for January 2022 includes high-conviction trade ideas drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

Premium valuation justified by the premium profitability and strong earnings growth trajectory

• We believe RS’s 2022E target revenue at Bt5.1bn (+31% from our 2021E forecast) is a bit optimistic given a slower-than-expected recovery in people purchasing power during post-COVID-19. However
• Our expectation over earnings recovery in 2022E will be driven by 1.) an absence of heavy SG&A expense allocation after key product launch(Camu- C) in 2021, 2.) equity income recognition
• Expect earnings in 4Q21 to reach bottom at Bt10m loss due to slower-than-expected recovery in MPC sales and Ads spending.

• Shoppers Stop (SSL) is one of India’s leading departmental stores and has undergone various structural changes
• Operates 83 departmental stores and 163 beauty format stores spread across 4.2 million sq ft and present in 47 cities
• Reasonable valuations prompt us to remain positive on the stock and maintain BUY: We value SSL at Rs 480 i.e. 8.5x FY24E EV/EBITDA.

• Adani Wilmar (6596700Z IN) is a leading FMCG food company in India. It is set to launch an IPO to raise Rs36,000 million ($483 million) at a price of Rs218-230.
• The business is navigating the high commodity prices by delivering high growth (price increases) and creditable margin performance in face of higher raw material costs. 
• Overall, this IPO is worth a closer look. The offer period is from 27 to 31 January. The shares will be listed on 8 February.   

• ESOP marginally undersubscribed, retail investors were allocated 25.8% of the IPO while institutions got 55%. Post IPO, LG Chem Ltd (051910 KS) owns 81.84% of LG Energy Solution (373220 KS). 
• Around 58% of the institutional allocation is subject to voluntary lockups. For Fast Entry, MSCI will use a FIF of 9%, while FTSE will use an investability weight of 4.16%.
• LG Energy Solution (373220 KS) needs to rally 84% by the close on 27 January to get FTSE Fast Entry. MSCI Standard and KOSPI200 index inclusions are a near certainty.

• Foreign institutions received 60% of the total institutional allocation. They only accounted for 0.58% of the orders applied. Many of these are large foreign institutions with long-term holding tendencies.
• The fact that they rarely make lockup pledges due to internal policies is in line with LG Energy’s need for an immediate float rate of 10% while having long-term investors.
• As a result, the nominal float rate is 8.85%. quite exquisite results as it is just enough to satisfy KOSPI 200’s 10% minimum float rate rule.

• Shockingly poor 1Q subscriber guidance implies 9M net adds for 2022, well below the ~25M level investors are accustomed to, implying saturation, competition, or both. (We think both)
• Operating Margin guidance cut blamed on FX, we think more likely the demand for heightened content spend due to competition.
• Netflix valuation always built on a long term DCF…very sensitive to downward revisions in subscribers and ARPU…we think Netflix settles around $400 until it can disprove bear thesis.

• A positive earnings surprise for Fast Retailing and Microsoft’s acquisition of Activision Blizzard hitting Sony have hurt the performance of our skew trade. 
• Despite this, the dramatic fall in the Nikkei means it is now outperforming the Nikkei since we first suggested the trade. 
• Looking forward we expect recent volatility to be absorbed over time and we retain conviction on our picks.

• Following an improvement in the financial performance, The FT reported that Luckin Coffee (LKNCY US) is plotting to relist its shares in the US sometime this year.
• Although financials have improved, relisting seems a bit premature, especially since Luckin is still not a completely clean house.
• This relisting feels a bit like another attempt by the ex-chairman to deceive minority investors to get the best possible exit price.

• PT Metrodata Electronics (MTDL IJ) continues to be an increasingly interesting play on the growth in Indonesia’s digital economy and digitalisation, especially for banks and fintech.
• The company’s distribution business saw strong growth in 2021, offsetting the slower growth in Solutions & Consulting, which was impacted by project delays but will rebound in 2022.
• Management remains optimistic on the growth outlook for 2022, driven by strong momentum behind digitalisation and economic recovery driving ICT demand. Valuations are attractive given its exposure to growth segments.

The task (ahead) is a tough one – eye on mid-to-long-term while navigating multiple near-term challenges. Firstly, supply-side inflation of such scale amidst demand slowdown is a tough situation to be in – any price hikes (RM inflation-led) will have a visible impact on demand volume.

• Bajaj Auto (BAL) is the second largest motorcycle manufacturer and largest 3-W OEM domestically (FY21 market share at 18%, 50.6% respectively)
• Exports comprised ~52% of FY21 volumes; >125 cc motorcycles constituted ~28% of FY21 volumes with Pulsar 125 enjoying good success
• We value BAL at Rs 3,460 on SOTP basis (17x PE on FY23-24E average standalone EPS, stake in PMAG; previous target Rs 4,220)