In today’s briefing:
- Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
- Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
- Why Adani Enterprises Shareholder Will Receive Share of Adani Wilmar?
- China Consumption Weekly (5 Aug 2024): BYD, Tesla, Seres, Alibaba, New Oriental, TAL
- Ola Electric IPO: Forecasts and Valuation
- The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 2)
- Narrative and Numbers | Alcoholic Beverages | FY24
- MDL Wholesale Pre-IPO Tearsheet
- Multi Bintang Indonesia (MLBI IJ): Q2 2024 Mediocre, But Dividend Yield At 8% for 70% ROCE Company
- Kalyan Jewellers:1QFY25-Glittering Performance. David Outshines Goliath in Growth
Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
- Today, Itochu Corp (8001 JP) announced it would launch a Tender Offer when approvals were received, to buy out minorities in Descente Ltd (8114 JP) at ¥4,350/share.
- Itochu was buying at that price or higher, in the market, in October 2023. Earnings and book are up since then. Outlook for the Descente China Holdings affiliate? Great.
- The valuation transparency is disappointing. Activists would have 3mos or so to push for more. But with friendly holders, they get very close to the minimum anyway.
Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
- Descente Ltd (8114 JP) has recommended a pre-conditional tender offer from Itochu Corp (8001 JP) at JPY4,350, 16.6% premium to the undisturbed price.
- The pre-condition is approval under the competition laws of Japan and China. The offer is anticipated to commence in early November. In January 2019, Itochu completed a hostile partial offer.
- While the offer is attractive vs peer multiples, it is light vs historical trading ranges. Securing the required acceptance rate could prove challenging as the price is light.
Why Adani Enterprises Shareholder Will Receive Share of Adani Wilmar?
- Adani Enterprises (ADE IN) demerged its stake in its Food FMCG business of Adani Wilmar (AWLTD IN) to its shareholder.
- The demerger aims to comply with SEBI’s minimum public shareholding requirement, reducing promoter stake and enhancing public stake.
- This strategic move positions Adani Wilmar for focused growth, unlocking value for shareholders and reducing promoter selling pressure.
China Consumption Weekly (5 Aug 2024): BYD, Tesla, Seres, Alibaba, New Oriental, TAL
- In July, BYD’s deliveries increased by 31% YoY and Tesla’s deliveries in mainland China increased by 47% YoY.
- Alibaba Taobao will soften its “refund only” rule, but Alibaba Hellobike raised its usage price.
- New Oriental revenue increased by 32% YoY and TAL revenue increased by 50% YoY in the May quarter.
Ola Electric IPO: Forecasts and Valuation
- Ola Electric (1700674D IN) plans to raise INR55bn through fresh issue of shares while existing shareholders will offer 84.9m shares at an indicative IPO price band of INR72-76 per share.
- We expect the company’s revenues to continue to expand and grow at much higher rates during the next few years compared to competitors in the Indian two-wheeler market.
- Our valuation analysis suggests that Ola Electric’s IPO is attractively priced compared to peers and we would suggest subscribing for the company’s IPO.
The Heat Is On: News Flow and Sentiment in CHINA / HONG KONG (August 2)
- China ETF flows were steady for the week, however Southbound Connect flows were negative for the first time since February.
- Prada S.P.A. (1913 HK) shares standout in the luxury brand sector as Miu Miu sales surged. WuXi AppTec (2359 HK) slightly beat estimates but still have BioSecure Act overhang.
- Property development firms Hang Lung Properties (101 HK) and Wharf Holdings (4 HK) were hurt by poor results, while New Oriental Education & Techn (9901 HK) saw earnings miss estimates.
Narrative and Numbers | Alcoholic Beverages | FY24
- In an attempt to cover more companies, we shift gears from individual companies to sectoral analysis, focusing on alcoholic beverages in this insight.
- Companies in focus are United Spirits (UNSP IN), Radico Khaitan (RDCK IN) , Sula Vineyards (SULA IN) & United Breweries (UBBL IN).
- UNSP remains the best among the pack in terms of earnings quality, and SULA occupies the other extreme. RDCK is chasing growth, and UBBL is facing challenges.
MDL Wholesale Pre-IPO Tearsheet
- MDL Wholesale (WMHGCZ CH) is looking to raise about US$100m in its upcoming Hong Kong IPO. The deal will be run by UBS, CMS, CMBI, Deutsche Bank, BOCI, and China Galaxy.
- MDL Wholesale is a leading food and FMCG distribution solution provider in China, providing a broad range of customers and retailers with high-quality merchandise and convenient solutions
- Its solutions mainly include (i) food service and distribution, (ii) welfare and gifting, (iii) retailer distribution (comprising product sales to retailers and supply chain services) and (iv) merchandise wholesale.
Multi Bintang Indonesia (MLBI IJ): Q2 2024 Mediocre, But Dividend Yield At 8% for 70% ROCE Company
- Multi Bintang Indonesia (MLBI IJ) reported Q2 2024 revenues/profits of -4.4%/-5.4% YoY. Q2 FY24 was a significant improvement over Q1 FY24, when revenues were down 10.7% YoY.
- The company is controlling costs by keeping SG&A down by 100 bps to maintain EBITDA margins over 50%. Net cash is now at 8% of the market capitalization.
- We believe that the company will be able to pay 500/Rph of dividends in FY24, implying an 8.3% dividend yield. Trading at 12x PE, we find this idea compelling.
Kalyan Jewellers:1QFY25-Glittering Performance. David Outshines Goliath in Growth
- Kalyan Jewellers (KALYANKJ IN) reported strong 1Q2025 sales and earnings growth, driven by robust same-store sales growth (SSSG) and new store additions.
- Titan Co Ltd (TTAN IN), the incumbent market leader, had a lacklustre performance for the quarter, highlighting Kalyan’s rapid growth.
- Expect Kalyan Jewellers (KALYANKJ IN) to outperform Titan Co Ltd (TTAN IN) , narrowing the steep relative valuation discount as it ramps up growth, improves performance metrics.
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