Daily Brief Consumer: Rakuten, Dongwon Industries, China Shenshan Orchard, Invocare Ltd, Oriental Watch, Alibaba Group, JD Health, Tata Motors Ltd, Tokyo Stock Exchange Tokyo Price Index Topix and more

• Rakuten (4755 JP) is considering raising around US$2.2bn (JPY300bn), as per Reuters reports. The company hasn’t confirmed or denied the same in its press release.
• The company has been listing some of its subsidiaries and monetising investments to raise cash and has recently hinted at a possible equity issuance.
• While there is no guarantee that the deal will ever materialize, in this note, we take an early look at the possible deal dynamics.

• It is highly likely that Dongwon Industries will be removed from the KOSPI 200 index in this June review.
• Additionally, based on the confirmed cancellation timeline, the possibility of reinstatement during the December review seems unlikely.
• As a result, it would be wise to maintain shorting position strategies that factor in this information.

For our next Corporate Webinar, we are glad to welcome China Shenshan’s Executive Director, David Zhao.

In the upcoming webinar, David will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. The Corporate Webinar will include a live Q&A session

The webinar will be hosted on Tuesday, 23 May 2023, 17:00 SGT/HKT.

About China Shenshan Orchard

China Shenshan Orchard Holdings Co. Ltd. is a horticultural marketing company in the business of planting, cultivating and sale of kiwifruits in the People’s Republic of China (“PRC”). The Group holds forest use rights for 8 strategically located orchards, spanning a total land area of 9,805 mu (approximately 6.5 million sqm), which is believed to be one of the largest domestic kiwifruit orchards concentrated in the Chibi City, Hubei, the PRC.

• On the 7 March, PE outfit TPG took a 17.8% stake in InvoCare (IVC AU), Australia’s leading funeral services provider, and also pitched a A$12.65/share non-binding Offer via a Scheme.
• The Indicative proposal was subject to the completion of due diligence. InvoCare rejected the proposal on the 27 March. On the 24 April, TPG withdrew its NBIO.
• TPG has returned with a revised A$13/share, inclusive of a A$0.60/share fully franked dividend. If the proposal becomes a binding transaction, InvoCare’s Board intends to unanimously recommend it.

• Q1 CY23 watch and jewelry sales for HK were up 88% YoY. HK sales for Oriental Watch (30% of revenues but less volatile) will benefit from the recovery in HK.
• We estimate China sales will continue to remain resilient as cross-border travel is yet to pick up in a big way. 
• Trading at 7.5x FY23e and a 14.2% dividend yield, with more than 50% of the market capitalization in cash, the company can pay solid future dividends despite weaker earnings.

• On 28th Mar 2023, Alibaba Group (9988 HK) announced that it would adopt a new organizational and governance structure, splitting into six major business groups and other investments.
• Alibaba also stated that each of the business groups would be set up as an independent entity with its own board and the groups will eventually seek to list.
• Having looked at the past performance of its division, some appear more worthy than others of undertaking a listing in the next year or two.

• The previously stockpiled drugs/medical devices require a long cycle of digestion. As the industry beta brought by COVID-19 dividend would fade away, JD Health’s performance growth could slow down accordingly.
• Although JD Health divides its buiness into product revenue and service revenue, drug/product sales are still the underlying logic and business model, which is difficult to maintain high growth expectations.
• Current valuation is in reasonable range. Since JD Health will be added to HSI INDEX, it could help boost share price. However, if business transformation fails, high valuation is unsustainable. 

• Invocare Ltd (IVC AU) disclosed a revised non-binding indicative proposal from TPG at A$13.00 per share, a mere 2.8% above the previously rejected proposal of A$12.65 per share.
• TPG Inc (TPG US) has secured a five-week exclusive due diligence. The Board intend to unanimously recommend a binding proposal at no less than A$13.00 per share. 
• The Board’s capitulation for a marginal bump reflects the lack of a Plan B. While, not a knockout bid, the offer is reasonable. The gross spread stands at 4.6%. 

In our view, Tata Motors’ Q4 and FY 2022-23 results were stronger than expected, with all business segments performing well. Most importantly, JLR improved strongly on the back of the easing semiconductor shortage situation. It is encouraging to see a solid and consistent improvement from the company throughout the year, from a very weak Q1 to a robust Q4. Earnings and cash flows were better than expected. We view positively the company’s efforts to rebrand itself into the sub-brands of Range Rover, Defender and Discovery. We note that Range Rover is viewed positively in the luxury space in emerging markets.

• Revisions to the Corporate Governance Code have increased the ratio of independent directors, and more companies have established voluntary nominating and compensation committees.
• On the other hand, the transition to a Company with US type 3 committees and an independent director chairing the board of directors has been slow in coming.
• Substantive improvements regarding the transition to a company with an audit committee and the establishment of a voluntary nominating and compensation committee should be carefully examined.