In today’s briefing:
- JD.com (9618 HK): CCASS Share Increase Driver & Potential Prosus Selldown
- Taste Gourmet: Multibagger Reopening Play
- JD.com’s Musical Shares – Less Than You Think
- HK Connect: March ’22 Inclusion Post-Event Analysis
- Water Oasis: A Double From Here, Brace for the Re-Opening of Hong Kong
- Tri-Stage (2178 JP) MBO by Bain – Another Lowball Takeover Likely To Get Done
- Sony – An Epic Funding Round
- Sido Muncul (SIDO): The Dawn of New Era
- Lawson: Profitability Held Back by Growth Investments
- Goldwin Expecting Record Sales
JD.com (9618 HK): CCASS Share Increase Driver & Potential Prosus Selldown
- There has been an increase of 700m shares held in HK CCASS for JD.com Inc. (9618 HK) on 11 April.
- The largest part of 421.5m shares is likely the conversion of Class B to Class A shares following Richard Liu stepping down as CEO of the company.
- The rest is unknown at this point but could be Prosus (PRX NA) moving their shares to HK to sell-down and use the cash to buy back their own stock.
Taste Gourmet: Multibagger Reopening Play
- The relaxing of restrictions by Hong Kong makes Taste Gourmet Group Ltd (8371 HK) a great reopening play, trading at 8.8x FY22e and 5.6x FY23e.
- Despite a challenging environment, the company has executed well, maintaining net margins north of 7-8%, which are far superior to other listed competitors.
- With >60% payout ratios, it trades at a dividend yield of 6.7%/11.4% FY22e/FY23e. Since 29% of the market capitalization is cash, we are confident in the dividend payments.
JD.com’s Musical Shares – Less Than You Think
- Today, CCASS data showed that 700,000,047 Class A Shares of JD.com Inc. (9618 HK) popped into existence in CCASS (from outside of CCASS the day before). Poof!
- They showed up in Deutsche Bank’s CCASS Participant account. Just like the 600,000,000 Class A Shares which popped in on 15 December 2021.
- There’s a thing here, and there are things going on in the background, but the things in the foreground are not as menacing as they appear. I explore and explain.
HK Connect: March ’22 Inclusion Post-Event Analysis
- After one month from the March batch of Hong Kong Connect inclusion, we provide an analysis on the stock inclusion for 19 stocks.
- We analysed the inclusion by performance post announcement, performance post inclusion, inflows and analyst coverage.
- We observed outperformance post the HSCI announcement but not the actual inclusion despite the fact that southbound inflows has a significant impact on the trading volume.
Water Oasis: A Double From Here, Brace for the Re-Opening of Hong Kong
- Beauty services in Hong Kong will pick up from the 21st of April 2022 post the reopening, due to pent-up demand and the disbursement of Consumption Vouchers by the government.
- Despite losing three months of H1 2022 and a month of H2 2022, we believe that Water Oasis (1161 HK) is still trading at 5.4x PE FY22e.
- With an 80% payout ratio, the dividend yield is alluring at 16.4%. Net cash represents 38% of market capitalization. A year of uninterrupted operations implies a 3.8x PE.
Tri-Stage (2178 JP) MBO by Bain – Another Lowball Takeover Likely To Get Done
- Bain is getting the major execs to tender, and rolling Sojitz Corp (2768 JP)‘s 23% into the post-Tender EGM vote. That gets them to 57+%. No majority of minority here.
- But the equity check appears to be about 0.06x revenue, 4-5x PER, and takeover price EV at 4+ish years of forecast EBITDA. It’s a good rollup for its ads business.
- Too cheap, but not much you can do about it. Foreigners and financial holders own less than 0.5% of shares out.
Sony – An Epic Funding Round
- Sony and LEGO’s investment in Epic comes shortly after the official release of Unreal Engine 5 which promises to significantly improve efficiency for game designers and visual effects artists.
- We had predicted that Sony and Epic would continue to drift closer and would eventually dominate the metaverse and this does nothing to change that view.
- We discuss below the impact on some popular metaverse plays which investors seem to fail to realise are only metaverse plays because they can be shorted.
Sido Muncul (SIDO): The Dawn of New Era
- Launched 30 new SKUs during COVID-19 in multiple areas of health that can transform the company from herbal remedies into a bigger conglomerate of health providers.
- PE firm that backed SIDO in the earlier years reduced its holdings but it should not be seen as a vote of negative confidence in the company.
- Sido Muncul (SIDO IJ) can be compared to Blackmores Ltd (BKL AU) which has a wide range of health products but trades at a 100% premium to SIDO.
Lawson: Profitability Held Back by Growth Investments
- The fourth quarter was again a disappointing one for Lawson Inc (2651 JP) with operating income falling short of consensus by 14.6%.
- The next year’s OP guidance of ¥53.0bn (12.5% YoY) is around ¥10.0bn below the pre-COVID level, but Lawson’s lower profitability could be due to heavy upfront investments.
- Further out, there is substantial upside to Lawson’s profitability and consensus could be unjustly penalizing Lawson’s growth investments by valuing the company at a discounted FY+2 OP multiple.
Goldwin Expecting Record Sales
- Goldwin Inc (8111 JP) has risen to hold a leading share in outdoor wear retailing on the back of the success of The North Face.
- It has developed considerable retail and marketing skills in the process and is now applying these to its own brand with hopes of going global.
- Demand for new forms of sports and outdoor brand remain strong in Japan and globally and Goldwin’s mix of technical fabrics and quality could give it an edge.
Before it’s here, it’s on Smartkarma
