In today’s briefing:
- JD.com (9618 HK): Index Implications of Walmart Placement
- Thoughts On Webjet (WEB AU)’s Demerger
- LG Electronics’ Value-Up Disclosure Today: Impact on Initial Flow Sizing for the Value-Up Index
- 99 Speed Mart IPO: The Bear Case
- 99 Speedmart Holdings IPO – Digestible Valuation
- SM Entertainment: Disposal of Non Core Assets – SM C&C and KeyEast
- Expedia Group Inc.: A Bear’s Perspective! – Major Drivers
- China East Education (667 HK): Rock Solid Improvements
- Cash on Hand Has Built up to a Level Where Small Shareholder Returns Are No Longer Sufficient
- Dexelance: An Emerging Serial Acquirer of Luxury Brands
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JD.com (9618 HK): Index Implications of Walmart Placement
- Media reports indicate that Walmart (WMT US) is looking to sell 144.5m shares of JD.com (JD US) to raise up to US$3.74bn. That would be substantially all of its stake.
- There will be passive buying from global index trackers at the time of settlement of the placement shares and could absorb around 12% of the placement shares.
- There will be no passive buying from HSI, HSCEI, HSTECH and HSIII trackers in the short-term. An increase in CCASS holdings should result in passive buying in December.
Thoughts On Webjet (WEB AU)’s Demerger
- Back on the 22 May, global travel outfit Webjet (WEB AU) announced it was exploring the separation of its two divisions – Webjet and Webjet B2C – via a demerger.
- If the demerger is implemented, shareholders will receive one Webjet B2C share for every Webjet share; plus retain their existing shares in Webjet (to be renamed WEB Travel Group).
- A demerger booklet has been dispatched, with a 17th September vote on the in-specie distribution. If approved, WEB Travel (ex-entitlement) and Webjet B2C commence trading on the 23rd September.
LG Electronics’ Value-Up Disclosure Today: Impact on Initial Flow Sizing for the Value-Up Index
- LG Electronics aims for 7% growth, a 7x EV/EBITDA multiple, and a ₩1,000 DPS with a 25% payout ratio, likely disclosing details by late October or early November.
- LG Electronics’ value-up disclosure highlights major non-financial companies’ participation before the value-up index launch, driven by regulatory pressure and concerns about index inclusion.
- Samsung and Hyundai are likely to disclose value-up plans by early September, prompting an upward revision of flow size predictions for the value-up index launch.
99 Speed Mart IPO: The Bear Case
- 99 Speed Mart Retail Holdings (99SPD MK), a leading grocery retailer in Malaysia, is seeking to raise US$530 million at RM1.65 per share.
- In 99 Speed Mart IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on lacklustre outlet KPIs, indications of margin pressure, significant pre-IPO dividends and a significant secondary offering.
99 Speedmart Holdings IPO – Digestible Valuation
- 99 Speed Mart Retail Holdings (99SPD MK) is looking to raise US$530m in its Malaysia IPO. The IPO will be a mix of primary and secondary shares.
- 99 Speed Mart Retail Holdings (99 Speedmart) operates the “99 Speedmart” chain of mini-market outlets, retailing daily necessities across Malaysia.
- In our previous notes, we looked at the firm’s past performance. In this note, we undertake a peer comparison and discuss our thoughts on valuation.
SM Entertainment: Disposal of Non Core Assets – SM C&C and KeyEast
- On 21 August, SM Entertainment announced that it will sell its non-core assets including its controlling stakes in SK C&C and KeyEast.
- The combined sales amount could be about 110 billion won or more, representing 7% or more of SM Entertainment’s market cap.
- Sale of SM C&C and KeyEast is likely to have a positive impact on SM Entertainment by selling its non-core assets and improving its balance sheet for higher shareholder returns.
Expedia Group Inc.: A Bear’s Perspective! – Major Drivers
- Expedia Group, in its second-quarter 2024 earnings, exhibited a dual-faced performance characterized by significant achievements and emerging challenges that mirror the broader complexities of the travel industry.
- The management has focused on revitalizing core brands, particular emphasis on enhancing execution within the company’s consumer segment, and fine-tuning their long-term strategic direction.
- Under her leadership, Expedia Group has seen a robust growth in room nights and gross bookings indicating a strong recovery trajectory from previous downturns.
China East Education (667 HK): Rock Solid Improvements
- China East Education (667 HK)‘s 1H24 result is impressive with a 58% YoY increase in adjusted net profit. Good cost control is a key contributing factor.
- Profitability has improved in all business segments. Its strategy to focus on higher-value courses has led to further improvement in annualised tuition per student.
- The 1H24 result equals 68% of the full-year consensus, implying an upside in market expectations. Its net cash, at 35% of market capitalisation, is unmatched by peers.
Cash on Hand Has Built up to a Level Where Small Shareholder Returns Are No Longer Sufficient
- The increase in net profit from the previous year outpaced the growth in dividends, which increased cash on hand for listed companies to a record high level.
- Since the equity ratio of manufacturing sector is over 40% and there’s little room for debt repayment, there’s room for a considerable increase in dividends in conjunction with share repurchases.
- If free cash flow isn’t used to invest in growth and return profits to shareholders, rather than to pay small dividends to shareholders, cash on hand will continue to increase.
Dexelance: An Emerging Serial Acquirer of Luxury Brands
I recently spoke with Bogumil Baranowski, a fellow value investor and friend of mine, who shared his approach to finding attractive investments in industries facing temporary challenges but benefiting from long-term positive trends.
The luxury goods industry exemplifies this strategy. While short-term concerns such as potentially weakening consumer demand due to recessionary fears exist, these are outweighed by the long-term rise in global income and wealth levels.
Dexelance, the company I am discussing today, is currently attractively priced and stands to benefit from the enduring growth of the luxury goods sector.