Daily Brief Consumer: China Feihe, Nitori Holdings, Luckin Coffee, China Dongxiang, Lookers PLC, Xiamen Yan Palace Bioengineering, paragon AG, Tokyo Stock Exchange Tokyo Price Index Topix, Big C Supercenter and more

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stock mentioned in this regular insight is China Feihe (6186 HK)

• Nitori, Japan’s largest furniture retailer, once again grew consolidated revenues in its extended financial year to March.
• Despite the increased costs of imports, profits also rose, although net profits saw a rare decline.
• The group still has strong growth potential: it continues to diversify, including into apparel, expand its omnichannel operations and is now building more stores overseas. 

• We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .
• Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. 
• We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.

• China Dongxiang (3818 HK) posted good FY22/23 result, supporting by sharp recovery in its investment portfolio contribution. Its apparel business also witnessed narrowing losses.
• It trades on 0.2x P/B, with most of book value being cash and investment portfolio. It is true that it deserves a discount but this is just too deep.
• Fading pandemic impact should be positive to CNDX’s apparel business – it has already witnessed a 5.6pp increase in offline sales. More brand promotion should be a positive driver.

• Long expected consolidation is arriving to UK car retailers. Alpha Auto agreed to acquire  Lookers PLC (LOOK LN) via scheme at 120p/share, c.£465.4 million, 35.3% premium, 8.4x Fwd P/E.
• The sector appears materially undervalued, with Lookers before announcement on 6.2x Fwd P/E, 4% FY23e yield (4x cover). My fair value estimate is 143p/share (multiples and DCF), 19% above offer price. 
• Spread 1.17%/4.32% (gross/annualised, assuming settlement around 1 October). Top shareholders have only signed letters of intent (40% aggregate). I’d be long in case of sweetening. VTU LN could be next.

• Xiamen Yan Palace Bioengineering (1951686D CH) is looking to raise around US$200m in its upcoming Hong Kong IPO. The deal will be run by CICC and GF Securities.
• Xiamen Yan Palace Bioengineering focuses on the development, production and marketing of high-quality modern edible bird’s nest (EBN) products.
• According to Frost & Sullivan (F&S), the firm is the largest EBN product company globally in terms of retail value between 2020-2022, with a market share of 4.1%.

So far in 2023 paragon has sold its semvox subsidiary, fully redeemed its Swiss franc (CHF) bond and is preparing for the remainder of the accelerated €25m Eurobond partial redemption, while delivering positive Q123 results. Once the Eurobond payment is complete, investors’ focus should return to the equity investment case. Risk reduction of the business model and a clear growth strategy still appear underrated by the market.

• There is concern about how well one female board director’s opinion will be respected in management discussions among the large number of male board members.
• Since the pool of female managers in companies hasn’t grown, Corporate Governance Code will remain an “effort target” rather than a specific numerical standard for the ratio of female executives.
• The government does not want to spark discussion of a “quota system” in the “political” field, so discussions of introducing a “quota system” for female board members are not realistic.

• Big C Supercenter (BIGC TB)  is looking to raise around US$1bn in its upcoming Thailand IPO. 
• Big C is engaged in modern retail business and wholesale and trade support business. As of Dec 22, it had 1,651 retail stores in Thailand
• In this note, we talk about the not-so-positive aspects of the deal.