Daily Brief Consumer: Korea Stock Exchange Kospi Index, MGM China Holdings, ZJLD Group , Advance Auto Parts, Estee Lauder Companies Cl A, Guess? Inc, Ford Motor Co, Kintetsu Department Store, Mcdonald’s Corp, Chipotle Mexican Grill and more

• Local sources confirm government’s focus on strengthening stock market for April election. Market expects aggressive policies for share cancellations, including corporate defense mechanisms.
• Chosun Ilbo, a government-friendly and influential media outlet,  advocates for corporate defense mechanisms to boost share cancellations, shaping a political atmosphere.
• This theme is likely to emerge in Korea’s market. We must consider political dynamics and screen companies with high treasury shares for potential stock boosts.

• MGM China Holdings (2282 HK)‘s FY23 top line surpasses pre-Covid levels. MGM Resorts International (MGM US) figures hit by union strike at MGM Grand Detroit.
• Preceding my comments on MGM are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Many China consumer stocks, including ZJLD Group (6979 HK), have been sold off heavily in the past 6 months, primarily driven by a fear of deflation and weak consumer sentiment. 
• ZJLD Group is one of the exceptions, with fundamentals intact while share price heavily sold off. 
• Shares look attractive vs. its high growth rate and strong management team, and especially with the return of Southbound connect post holidays. 

Key points

• Advance Auto Parts (AAP) is currently undervalued and presents a favorable investment opportunity.
• Despite perceived issues, AAP has a strong profitability history and is trading at a significantly lower valuation than its peers.
• Assuming AAP can achieve historical levels of free cash flow, there is potential for attractive value creation. The new CEO and CFO appointments and the sale of non-core assets are seen as positive developments that could further enhance AAP’s operations and potentially lead to a recovery in 2024.

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• Estée Lauder Companies presented their fiscal 2024 second quarter earnings with a mix of performance trends.
• The earnings per share surpassed expectations, although an organic sales decline occurred of 8%.
• One of the significant challenges faced by the company was a decline of 28% in their global travel retail business, largely influenced by the impact of Covid-19 on international travel.

• We are reiterating our Buy rating, $32.50 price target and raising our projections to reflect the announced acquisition of leading premium ($195+) denim player rag & bone by Guess?
• and a joint venture with leading brand licensor WHP Global.
• We view this acquisition, Guess?’ first, as an accretive winner, offering multiple (and material) expansion opportunities which leverage Guess?’ strong international presence, infrastructure, category expansion and licensing ability and position as a leading global lifestyle brand retailer.

• Ford Motor Company’s fourth-quarter 2023 earnings call highlights several significant achievements.
• CEO Jim Farley describes the past year as foundational for the company, with an increased focus on hybrid and electric vehicles proving advantageous.
• Ford’s hybrid sales were up 20% in the previous year and are expected to rise another 40% in the upcoming year.

• Kintetsu has been expanding the number of direct franchises in its stores for the past five years.
• It now plans to open as many as 100 franchises both in its own properties and in third-party locations, including new franchises from overseas.
• The department store has set a target for nearly 40% of sales from this source by 2026.

• McDonald’s Corporation recently reported its fourth quarter earnings for 2023.
• Despite ongoing macroeconomic pressures throughout 2023, the company managed to deliver strong growth, reporting global comp sales growth of 9% and guest count performance of nearly 3% globally.
• Furthermore, positive traffic was reported across all segments, and the company maintained its leading market share across most of its major markets.

• In Q4 FY2023, Chipotle Mexican Grill, Inc.
• (Chipotle) reported a 15% YoY increase in sales, reaching $2.5 billion, driven by an 8.4% comp sales growth on the back of a 7% transaction growth.
• Over the fiscal year, sales increased 14% to reach $9.9 billion backed by a 7.9% comp sales growth.