Daily Brief Consumer: Midea Group Co Ltd A, Prosus NV, Samsonite, Tata Motors DVR, Wheat, Health And Happiness (H&H), Viacom Inc Class B, Lear Corp, Sysco Corp, Domino’s Pizza and more

• Midea Group Co Ltd A (000333 CH) could raise between HK$35-54bn (US$4.5-6.9bn) in its H-share listing depending on the H-shares discount and exercise of the overallotment option.
• The H-shares could get Fast Entry to some global indices depending on the number of shares that are allotted to cornerstone and/or strategic investors.
• The H-shares will be added to Southbound Stock Connect following the end of the price stabilisation period. Inclusion in the Hang Seng Composite Index will come later.

• Bob van Dijk, CEO of both Naspers (NPN SJ) and Prosus NV (PRX NA), has stepped down, effective 18 September. 
• Van Dijk was instrumental in the 2019 listing of Prosus and the creation (and subsequent unwinding) of the highly-criticised Prosus/Naspers cross-holding structure. 
• His departure should have minimal impact. Everything else basically stays the same. Continue to be long Prosus vs. NAV – that is, Prosus vs. Tencent (700 HK).

• The move from 80 index constituents to 100 could take most of next year (and possibly even the year after that) to manage turnover and add profitable companies.
• Foreign companies will be eligible for inclusion in the index from the December rebalance. That makes Samsonite (1910 HK) a high probability inclusion candidate.
• We highlight 8 potential inclusions to the index with passive trading impact varying from 1.6-4.3 days of ADV. There are large shorts on some of the stocks.

• Tata Motors DVR (TTMT/A IN) now trades at a 32.9% discount to Tata Motors Ltd (TTMT IN) and there is another 4.4% in the trade following the scheme of arrangement.
• Tata Motors DVR (TTMT/A IN) could be added to global indices in November and that will bring significant inflows to the stock.
• The pre-positioning and passive buying could lead to the DVR discount narrowing further and provide trading opportunities for the next few weeks.

• Global wheat trade is imbalanced with few exporters and many importers. This means a few nations’ trade policies affect supply during shortages as they restrict exports to prioritize domestic needs.
• El Niño generally causes wheat production to decline among key exporters as well as most importers. This increases the likelihood of shortages in the wheat export market.
• Currently diminished global wheat inventories increase the likelihood of supply shocks and price surges in global wheat markets.

We view H&H International as “Medium Risk” on the LARA scale. The company has a sound business profile, with stable branded products in the Baby Nutrition & Care (BNC) and Adult Nutrition & Care (ANC) markets. The acquisition of Zesty Paws in 2021 allowed H&H to expand into the Pet Nutrition & Care (PNC) market. The company’s strong distribution channels support cross-border and e-commerce sales strategies. That said, the positive factors are balanced by risks associated with penetration into new markets and products, along with the fragmented and competitive Chinese market.

We view positively H&H’s solid business fundamentals and strong market positions. We highlight the company’s sound liquidity profile and stable CFO. Negatively, the Zesty Paws acquisition affected H&H’s financial profile, weakening the leverage metrics. That said, PNC is part of the company’s sustainable growth plan. We expect H&H to work on deleveraging in the near term, in order to maintain a healthy credit profile.

Bondholders of the 2026 USD notes suffer from small degree of structural subordination, as the company’s PRC subsidiaries do not guarantee the notes, but certain PRC subsidiaries are likely to be guarantors for the term loan.

Our Credit Bias on H&H is “Stable”, given the company’s solid business fundamentals, strong market positions and moderate financial profile. ANC and PNC are expected to deliver better numbers going forward, while BNC should remain challenging. As a result, ANC and PNC will likely be H&H’s key growth segments, offsetting high competition in the BNC business. The company aims to expand into other business segments and markets outside China, in order to compensate for muted growth in the country.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• Paramount Global managed to exceed analyst expectations in terms of revenue and earnings, demonstrating sustained focus on corporate spending containment and good momentum in its D2C sector.
• Affiliate and subscription revenue increased by a healthy 12% in Q2 and again showed how the combination of traditional and streaming led to net growth for the business.
• Paramount’s 47% increase in D2C subscription revenue was mostly attributable to Paramount+, where the company saw subscriber growth, increased ARPU, and lower churn rates.

• Lear Corporation managed to exceed analyst expectations in terms of revenue and earnings.
• With a 61% increase from the previous year, core operating earnings were the greatest in over two years.
• Adjusted earnings per share rose by 86% while operating cash flow for the quarter grew dramatically to $311 million.

• Sysco Corporation delivered mixed results in its recent quarter, with revenues falling short of analysts’ expectations but above-par earnings.
• Their U.S. food service business’s Q4 case volume increased significantly, enhancing their market share and solidifying their top spot in food service distribution.
• This partnership aims to devise customized strategies that will assist Sysco Corporation in mitigating its environmental impact by reducing its carbon emissions.

• Domino’s Pizza Inc. delivered a mixed result in the recent quarter, with revenues below market expectations, but it surpassed the analyst consensus regarding earnings.
• Despite challenges in the US delivery business, Domino’s achieved positive same-store sales growth in the US and international markets for the third consecutive quarter, driving improvements in operating income.
• However, Domino’s management remains optimistic about its ability to return to a more robust growth trajectory in 2024, supported by powerful new openings and more robust international same-store sales.