Brief Consumer: BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely and more

In this briefing:

1. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely
2. European Apparel, Accessory & Luxury Goods Stocks Are Heating Up — Add Exposure
3. Tesla. Autopilot Safety Claims Roundly Debunked As Deafening Silence Follows Latest Fatality
4. Severgroup Puts in a Cheeky Bid for Lenta – TPG and EBRD Bail
5. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

1. BabyTree(1761.HK) FY18 Results: E-Com Further Hit by ‘integration’ with Alibaba; India Foray Timely

BabyTree (1761.HK)’s reported results for FY2018 continues to be impacted by the ‘shift in e-commerce strategy’ post collaboration with Alibaba Group Holding (BABA US) (also a key investor).  China’s leading parenting community platform that went public in November 2018 has announced a revenue decline of 4% during 2H2018; its e-commerce revenues were down 70% as its being ‘integrated’ with Alibaba. This is expected to be completed by 2Q2019. While the details of the collaboration (and revenue share, if any) are not given, Management has stated that Alibaba will manage the back-end e-commerce at a reduced cost and better efficiency while it will ‘manage’ users. Despite the fall in revenues, gross profits were up 18% helped by growth in advertisement revenues which now account for 85% of the total. Advertising as a revenue source has limited long term growth and valuation potential compared to e-commerce. The stock is up 25% since results announcement on March 27th, likely enthused by Net profit for FY2018 at Rmb526.2 mn and EPS of Rmb0.29 (implied current Year P/E of 23x). Key risk will be failure to revive e-commerce revenues post ‘integration’.

BabyTree also announced its first global foray – it has invested USD8mn in Healofy, amongst the top 3 leading parenting apps in India currently. India’s online Parenting app segment has numerous players and revenue generation/growth may not be easy in the near term for Healofy. However,  our analysis suggests that India’s overcrowded parenting app segment is now witnessing consolidation and this funding could probably help Healofy solidify its ranking amongst top 3 parenting platforms in India. In this context, BabyTree’s foray into India seems well timed. Healofy could potentially follow BabyTree’s operating model and fit into Alibaba Group Holding (BABA US) ‘s India e-commerce strategy (Refer our earlier report Alibaba’s India Game Plan – More than Meets the Eye; Investor Day Analysis (Part II) ).  

In the detailed report that follows, we briefly comment on BabyTree’s reported 2018 results and also present a quick overview of India Parenting App segment – key players, investors and why we think it may be on a consolidation mode. 

2. European Apparel, Accessory & Luxury Goods Stocks Are Heating Up — Add Exposure

We continue to believe that equities in Europe and the UK are bottoming with the STOXX Europe 600 index breaking topside its 14-month downtrend. Helping lead the turnaround is the Personal & Household Goods supersector. We believe outperformance is set to continue and several stocks are actionable at current levels within our int’l Group CD-28 Apparel, Accessory & Luxury Goods, Europe: LVMH Moet Hennessy Louis Vuitton SE (MC-FR), Christian Dior SE (CDI-FR), Kering SA (KER-FR), Hermes International SCA (RMS-FR), adidas AG (ADS-DE), Moncler SpA (MONC-IT), PUMA SE (PUM-DE), and Bjorn Borg AB (BORG-SE). Add exposure.

3. Tesla. Autopilot Safety Claims Roundly Debunked As Deafening Silence Follows Latest Fatality

In its final report into a fatal accident involving a Tesla Model S being driven in Autopilot Mode by one Joshua Brown, the NHTSA included the controversial finding that having Autopilot engaged reduced accident rates by 40%. Now, after battling both the NHTSA and Tesla for almost two years to get access to the underlying dataset, independent US-based consulting firm QCS has published a detailed report casting serious doubt on the methodology, statistics and science behind this 40% safer claim. 

Meanwhile on March 2’nd 2019, in a carbon copy of the circumstances which claimed the life of Joshua Brown almost three years ago, another Tesla driver lost his life when his Model 3 crashed into a semi-trailer as it legitimately crossed his line of travel to make a right-hand turn at an uncontrolled intersection. At the time of the accident, it was unknown whether Autopilot was engaged or not. If it transpires that it was engaged, it will represent a serious blow to Tesla’s credibility not least in part due to the company’s claims that its self-driving technology is continuously learning and improving based on the experiences and data collected on a daily basis from its ever-growing fleet of vehicles on the road.

Until now, on the one-month anniversary on this latest fatality, Tesla’s silence on the matter remains deafening.  

4. Severgroup Puts in a Cheeky Bid for Lenta – TPG and EBRD Bail

In the middle of last week, Russia’s largest chain of hypermarkets Lenta Ltd (LNTA LI)  announced that it was aware that there were ongoing discussions between Luna (TPG’s holding entity, which owns 34.13% of Lenta’s capital) and Alexey Mordashov’s Severgroup, for Luna to sell its stake in Lenta to the Russian conglomerate. A day later, Lenta announced the company was aware of discussions between Severgroup and the EBRD (7.40% holder). 

Reuters reported last night that Severgroup had reached an agreement to buy a 41.9% stake, excluding treasury shares, in Lenta from those two sellers, for a total of US$721mm, or US$18 per share or US$3.60 per GDR. That implies a price of US$1.75bn for the whole company. 

Later last night, Lenta announced on its website (full press release here) a cash offer for all the shares had been proposed. The Offer has a pre-condition dealing with the above-mentioned transactions being approved by those who need to approve.

The Offer Price is an 8.11% premium to the last trade on 26 March – the undisturbed price, and a premium of 9.76% to the 6mo average price of US$3.28 for the GDRs. 

There may be something interesting to do here.

5. Map Aktif Follow-On Offering – Lace up for a Potential Long Run

CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.

Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ).  The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.