Brief Consumer: What’s Down with Muji (7453 JP)? and more

In this briefing:

1. What’s Down with Muji (7453 JP)?
2. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels
3. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
4. Korean Stubs Spotlight: Close the Pair Trade Between BGF Co. & BGF Retail
5. TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise

1. What’s Down with Muji (7453 JP)?

Ryohin Keikaku (7453 JP) has downgraded full-year forecasts for its Muji retail chain but still expects record sales and solid profit growth in FY2018.

Overseas sales have been going from strength to strength, but previously stellar results at home have weakened, particularly in the home and accessories category which is under pressure from competitors, including even Nitori (9843 JP).

Muji is responding and also has big plans to grow food retailing, a big potential market.

2. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels

This week in StubWorld …

• Can One Bhd (CAN MK)‘s gets shareholder approval to launch a Mandatory General Offer for 33%-held Kian Joo Can Factory (KJC MK). (note, both legs are illiquid)
• Curtis Lehnert sees Mahindra & Mahindra (MM IN)‘s discount to NAV at its widest since 2015.

Preceding my comments on Can One/Kian Joo, Mahindra and other stubs 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 – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

3. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

4. Korean Stubs Spotlight: Close the Pair Trade Between BGF Co. & BGF Retail

On January 8th, 2019, we wrote a report on initiating a pair trade of going long BGF Co Ltd (027410 KS) and going short Bgf Retail (282330 KS). (Korean Stubs Spotlight: A Pair Trade Between BGF Co. & BGF Retail) This trade has worked out well and now we think this is a good time to close this trade.

The return on this pair trade was 7.5%. (This assumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of January 8th to February 19th, 2019. This trade was made over a period of 42 days so the annualized returns would be nearly 65%. 

It appears that many traders and investors agreed that BGF was excessively undervalued versus BGF Retail early in 2019. Among the factors cited above, the excessive NAV discount to its intrinsic value as well as the market’s overt concerns about the size of the tender offer between BGF and BGF Retail in 2018 appear to be the key factors that drove the share prices of these two firms diverging excessively in 2H 2018 but then converging back to their norms so far in 2019. 

5. TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise

The company that brought the off-road vehicle to post-war India in the 1940s has grown into a leading personal vehicle manufacturer covering land, air and sea. Merely making cars, planes and boats wasn’t ambitious enough for this company though, the conglomerate wouldn’t be complete without a financial services and tech consulting business under the corporate umbrella. 

Indian holding companies typically trade a wider discount to NAV than their East Asian counterparts, however the 42% discount to NAV that Mahindra & Mahindra (MM IN) currently trades at, is a trough level historically for the company. In the body of this insight I will present my case for a stub trade on the company, detailing the business structure, performance and the unlisted stub businesses.

In this insight I will cover:

I. The Trade

II. Group Overview and Stub Business Review

III. My Track Record with Stub Trades