Daily Brief Consumer: S.M.Entertainment Co, Kirin Holdings, Shimano Inc, Rakuten Inc, NagaCorp Ltd, Autogrill SpA, Manchester United, Dentsu Inc, Altria Group, REPT BATTERO Energy and more

• In a move to counter Lee Soo-man’s influence, S.M.Entertainment Co (041510 KS) intends to issue new shares (9.05% on a fully diluted basis) to Kakao Corp (035720 KS).
• Lee, with 18.4% in SM, responded by selling 14.8% to SM’s rival HYBE (352820 KS). HYBE concurrently announced a tender offer for an additional 25%, at ₩120,000/share, a 22% premium.
• Kakao and SM are less than impressed. But these developments are a power grab for the pioneer of K-pop.

• A trade idea involving Kirin Holdings (2503 JP) from a Holdco perspective, which we suggested last year outperformed Topix by more than 30% in the first 9 months of 2022.
• Since November 2022, Kirin has underperformed Topix by 18% (driven by input cost inflation) to push the Holdco discount yet again to an attractive level.
• The price hike announcement yesterday could change the cost inflation narrative and help Kirin to keep on unwinding the Holdco discount.

• Shimano’s Q4 results were on track, but management is guiding for a GFC-level slump in 2023
• Management cites macro concerns, but these are well-known, discounted, and already recovering…probably
• Shimano’s stock price is trading at 23x bearish guidance versus its historical average of 25x. 

• Q4 results largely met our expectations with modest improvements QoQ for mobile operating losses and decent growth for eCommerce and fintech
• A meaningful rebound for the mobile segment is more likely to fall in H2 as cost reductions take time to kick in 
• Results for eCommerce and fintech were more encouraging but less relevant as long as the mobile segment struggles.  We remain at Neutral

• We have been bullish on Nagacorp for over three years. We long expected it to recover from covid damage on a pace propelled by rapidly easing travel bans.
• Annual results show dramatic increases in GGR across almost all customer segments.
• We see a return to double digit sales growth sustainable through the end of 1H this year.

• Following conversion, the Benettons became the top Dufry’s shareholders (27.5%). There’ll be a mandatory offer for the minorities. The conversion ratio is 0.1583 DUFN/AGL with a cash alternative of €6.33.
• A +1.1% share swap spread vs. +3.3% cash alternative spread means an all-share deal is most likely (with a 67% dilution to Dufry’s shareholders). Still, minorities could refuse to tender.
• The deal is not expensive. It resembles a debt for equity swap, with Autogrill’s balance sheet rescuing Dufry’s (rated B+) and the Benettons happily paying a nil control premium.

• This is a special one-time report on Manchester United, the third most valuable football club in the world.
• This has sparked a bidding war, with Sheikh Tamim bin Hamad al-Thani, the Emir of Qatar, reportedly emerging as a top candidate to purchase the club from the Glazers.
• In this one-time report, we will analyze the different revenue streams and assess the potential value of Manchester United in light of the ongoing bidding war, considering the current market conditions, and the club’s financial performance.

Dentsu reported record full-year headline results in FY22, which were bolstered by a final quarter in which the company delivered organic net revenue growth of 3.5%. Good progress continues to be made in Customer Transformation and Technology (CT&T), which grew 17.5% y-o-y and constituted 32% of revenues in the year. Management forecasts 4% organic revenue growth for FY23, reflecting the tougher macroeconomic environment. Guidance on the underlying operating margin in FY23 is for a retrenchment to 17.5% as investment is made to drive CT&T and support the One dentsu initiative. This is set to rebound to 18.0% in FY24 as the benefits start to flow through. Year-end net cash of ¥71.3bn and an appetite for leverage of 1.0–1.5x provides ample resource for both capex and M&A. Our FY23 estimates are under review.

• Altria delivered mixed set of results for the last quarter.
• Although there was significant regulatory uncertainty, volumes decreased by an estimated 1% year over year.
• Volumes of old tobacco increased by an estimated 1.5%, largely due to the ongoing use of all nicotine pouches.

• REPT BATTERO Energy (REPT HK) is looking to raise US$1bn in its upcoming Hong Kong IPO.
• REPT BATTERO Energy (REPT) is a lithium-ion battery manufacturer in China, focusing on R&D, production, and sales of EV/ESS lithium-ion battery products such as battery cells, modules and packs. 
• In this note, we will talk about the not-so-positive aspects of the deal.