Daily Brief Consumer: Melco International Development, Southern Cross Media, Sichuan Baicha Baidao Industrial, Skylark Co Ltd, Cisarua Mountain Dairy, China Mengniu Dairy Co, NagaCorp Ltd, Water Oasis, Pu’er Lancang Ancient Tea, Adeia and more

• Digital Garage (4819 JP) is coming up “cheap” versus Kakaku.com Inc (2371 JP); and Melco International Development (200 HK) is trading “rich” to Melco Resorts & Entertainment (MLCO US).
• Preceding my comments on DG and Melco 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%.

• Back on the 18 October, media play Southern Cross Media (SXL AU) announced a non-binding indicative proposal from ARN Media (A1N AU) and Anchorage.
• SXL shareholders are being offered, by way of a Scheme, 0.83 ARN shares and A$0.296/share in cash. SXL considers the terms to be “complex, and highly conditional”. 
• Reportedly SXL has now signed a confidentiality agreement to gather more info on ARN, possibly leading to a firm deal. 

• Sichuan Baicha Baidao Industrial (SBBI) is looking to raise up to US$300m in its upcoming HK IPO.
• SBBI sells new-style tea drinks through its ChaPanda stores. According to F&S, SBBI ranked third in China’s new-style tea shop market with a market share of 6.6%.
• In this note, we talk about the not so positive aspects of the deal.

• If Skylark Co Ltd (3197 JP)‘s pricing and footfall growth trend persists, it’s likely the company and consensus will revise annual revenue targets upward.
• The OP is also expected to exceed Q3 estimates with an OP of ¥7.9bn, prompting a necessary upgrade of annual guidance by ¥5.0-6.0bn.
• Yet, we’ll approach Skylark’s earnings trade cautiously, considering its current valuation.

• Cisarua Mountain Dairy (CMRY IJ) stands out from the overall FMCG space in Indonesia, with 21% revenue growth versus a flat to negative performance for the overall market.
• The company’s growth in 3Q2023 was predominantly driven by premium consumer foods at +46% YoY but dairy was also positive, with the company increasing promotional spending but maintaining margins.
• The outlook for 4Q2023 looks promising driven by increased distribution outlets, especially general trade plus the launch of new products for both consumer food and dairy. 

• The read-across for Inner Mongolia Yili Industrial Group (A) (600887 CH)‘s 3Q23 results and briefing to China Mengniu Dairy Co (2319 HK) was overall positive.
• For 3Q23, Yili’s sales grew 3% yoy and net profit increased 59% yoy, mainly due to lower raw milk prices, better product mix, cost savings and low base.
• China Mengniu Dairy Co (2319 HK) continues to be a good value play, with reasonable valuation (15x 2024E PE), stable growth (above 10% net profit growth), and proactive shareholder returns.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Meituan
• Melco Resorts & Entertainment
• NagaCorp Ltd
• Yanlord Land
• Yuexiu Property

• We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
• Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
• Post a sharp correction, stocks trade at appetizing valuations, and with results seasons around the corner, we will provide updates for all names. 

• Traditional tea companies are rarely seen in China’s secondary market. The most significant issue in the domestic tea industry is product standardization, leading to obvious bottlenecks in future revenue/profit scale. 
• Despite increasing investment in sales/marketing, financial results of Lancang haven’t shown much improvement. Sales of 1966 products would continue to be under pressure due to weak demand during economic downturn.
• Lancang’s financial performance is unsatisfactory, with declining revenue growth and profit margin. We are not optimistic about the Company’s prospects. Valuation should be lower than Nayuki Holdings (2150 HK).

• ADEA ) reported quarterly results since reporting it had a contract dispute with Shaw Communications. Third quarter revenue was better than expected with ADEA having several renewals in the period
• The ongoing pace of renewals should allow ADEA to generate free cash flow to reduce debt at a faster pace in 2024.
• ADEA reported third quarter revenue of $101.4 million compared to our estimate of $89.6 million. timing of renewals was a factor in ADEA’s revenue surpassing our forecast