Daily Brief Consumer: Luzhou Laojiao Co Ltd A, Japan Tobacco, CyberAgent Inc, Mamaearth, Meta Platforms (Facebook), Unilever Indonesia, Isetan Mitsukoshi Holdings Ltd, Fox Factory Holding, Tata Motors Ltd, ZOZO Inc and more

• Baijiu, the most popular liquor in China, is perhaps one of the most addictive and profitable alcoholic beverages in this planet.
• The focus of this insight is a pair trade (go long on Luzhou Laojiao and go short on Jiangsu Yanghe Brewery).
• The major reasons for this pair trade include higher sales growth rate and ROE for Luzhou Laojiao as well as capitalize on the recent share weakness of Luzhou vs Jiangsu.

• We expect a strong 2Q22 and an upgrade to annual guidance from Japan Tobacco (2914 JP) through strong Domestic and International Tobacco performance.
• It also seems that investors are starting to move on from JT’s Russia exposure-related fears.  
• Based on Japan Tobacco’s earnings potential, we think that there’s around 50% further upside to shares in the short term.

• CyberAgent Inc (4751 JP)  reported 3QFY09/22 financial results after the market closed on 27th. Revenue for the quarter decreased 10.4% YoY to JPY 172.2bn vs consensus revenue of JPY 173.2bn.
• OP declined 76.7% YoY to JPY 10.4bn vs consensus JPY 16.0bn (miss of 35%) due to decline in profits from gaming. OPM declined to 6.0% from 23.2% in 3QFY09/21.
• Though CA has proven in the past that it can turn around its business with just one hit title, it has not yet been able to launch another hit title

• Mamaearth (1652951D IN)‘s in one of foremost D2C personal care brands. Initially started with baby products, the brand now offers a full range of toxin free, natural products.  
• Channel feedback suggests good products and premium pricing, but chasing traditional retail is not easy and will test Mamaearth’s execution capabilities. 
• COVID has boosted financials. Revenues have skyrocketed and the company has become profitable. The way forward for traditional retailing and its execution will be the key.  

• Optically weak earnings and guidance due to FX and macro headwinds aren’t as bad as it seems… Meta’s ad business grew faster QoQ than Google’s Search.
• Zuckerberg downplayed the social graph as core to Meta’s LT competitive advantage. AI is the future.
• At $160, we think Meta is preposterously undervalued. 2023 revenue acceleration and margin expansion means the stock is trading 9x forward P/E ex-cash. 

• Unilever Indonesia booked a strong rebound in 1H2022 profits despite rising commodity prices with aggressive cost savings and an improving product mix. 
• The company suffered during the pandemic given that personal care does have a discretionary element but that is now being reversed with great mobility and reflected in new product launches. 
• Unilever Indonesia has the potential for a re-rating as growth momentum returns, helped by a new management team. Valuations are still well-below its 5-year average of 40x forward PER.

• Isetan-Mitsukoshi is dangerously dependent on a small number of wealthy customers for a lot of its revenue.
• Wealthy VIP customers account for around half of sales at both Isetan Shinjuku and Mitsukoshi Nihonbashi department stores
• But the wealth market is one of the few segments to continue to grow so should be a source of growth even while the rest of its market shrinks.

• This model seeks short-sale candidates among companies that use aggressive accounting and/or exhibit deteriorating quality of earnings.  
• They are typically highly idiosyncratic shorts and require thoughtful analyses of upcoming catalysts.  When the company’s issues become well-known, there is often multiple compression as well as a rerating.
• These shorts can have high or low betas, valuations based on artificial earnings and exhibit good short responses to subsequently disappointing earnings.

Tata Motors’ Q1/22-23 results continued to be weaker than expected as well as guided, mainly due to the weakness in Jaguar Land Rover (JLR), which more than offset Tata Motors India’s reasonable performance. Gross leverage remained almost stable, given the small increase in debt and minimal decline in EBITDA. However, net leverage deteriorated significantly, due to the increase in net debt. Liquidity is adequate. The debt maturity profiles for both JLR and Tata Motors India are evenly spaced out.

Despite management’s consistent guidance and hints at an improvement in the situation, retail sales continued to be materially lower on a y-o-y basis (albeit relatively flat q-o-q). We expect the semiconductor shortage to persist for at least another 18 months. The industry will need to rebuild the chip and component supply chains, which could take time. Thus, we have a cautious view on management’s persistent optimism.

• Zozo recorded its highest profit ever last year, countering the sceptics once again. 
• The company has shrugged off the uncertainties surrounding the departure of its founder and, while sticking to its core values, is looking for new growth beyond fashion e-commerce.
• While there are some headwinds, Zozo has a solid set of strategies in place to offset these and find new growth streams.