In today’s briefing:
- Pacific Textiles (1382 HK): Material Benefits
- Naspers (NPN) X Prosus (PRX): A Look Back at 2023, Regulatory Risk Back in Spotlight
- Xtep International (1368 HK): Strong Headline Retail Sales Growth In 4Q23 But Quality Is Still Low
- [Counting Beans #4]: Soybean Price Tumbles as Headwinds Prevail
- Amer Sports IPO: The Bear Case
Pacific Textiles (1382 HK): Material Benefits
- Back in June 2017, Toray Industries (3402 JP) acquired a 28.03% stake in Pacific Textiles (1382 HK) (@ HK$10/share). Rumours that Toray would take this stake to 50% never unfolded.
- Pacific Textiles is currently trading at HK$1.30/share, its lowest level outside of the GFC.
- Relatively inexpensive, high digit yield and M&A angle, Pacific Textiles remains attractive. This is supported by the recent Offer for Weiqiao (2698 HK) and David Webb taking a 5% stake.
Naspers (NPN) X Prosus (PRX): A Look Back at 2023, Regulatory Risk Back in Spotlight
- Regulatory risks back in the spotlight, dampening decent year for both counters.
- At the end of last year, China’s regulator released a proposal to introduce spending and time limits on gaming (22 Dec).
- Tencent was down 12% on the day, Naspers and Prosus followed suit with more aggressive selling, sending both stocks down 17% for the half day of trading.
Xtep International (1368 HK): Strong Headline Retail Sales Growth In 4Q23 But Quality Is Still Low
- Xtep International (1368 HK) announced an operational update for 4Q23, with retail sales growing more than 30% for the Xtep brand (off of a low base in 4Q22).
- The overall quality of the retail sales growth is low, as the growth was mainly driven by higher discount level (around 30% compared to 25-30% in the previous quarter).
- I still prefer Anta over Xtep at this stage, as Xtep is more of a beta play if the consumer sentiment turns around in China.
[Counting Beans #4]: Soybean Price Tumbles as Headwinds Prevail
- US Soybean futures have tumbled 4% from their close in 2023 due to favourable weather in Brazil as well as fading demand outlook in US.
- Rainfall in Brazil has arrived in droves and remains strong this week but forecasts point to inconsistent rain next week.
- CONAB and USDA reports this week should be watched for potential downward revisions in Brazil’s production, following Safras e Mercado’s lead.
Amer Sports IPO: The Bear Case
- Amer Sports (AS US) is a global iconic sports and outdoor brand group. According to press reports, it has filed for a NYSE IPO to raise US$2 billion.
- In Amer Sports 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 ball & racquet sports’ deteriorating performance, EBIT margin not materially improving under the consortium’s ownership, cash burn and high leverage.
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