In today’s briefing:
- Seven & I Holdings (3382 JP): State of Play
- Midea Group HK IPO Valuation Analysis
- Joban Kosan (9675) – Fortress Buys Out a Fukushima Tourism Asset
- LG Electronics India IPO: Potential Big Gains. Booming Demand, Buoyant Valuations
- Itochu’s Big Plans for Descente – Shame Investors Won’t Get a Look In
- Midea HK Listing: Valuation Insights
- [NIO Inc. (NIO US, SELL, TP US$1) Target Price Change]: Who Is Going to Give in a Slowing EV Market?
- Disclosure Is Important, but Walk the Talk Is More Important
- CTG Duty Free (1880 HK): Where Is the End of the Tunnel?
Seven & I Holdings (3382 JP): State of Play
- Despite Seven & I Holdings (3382 JP)‘s rejection, Alimentation Couche-Tard (ATD CN) remains prepared to enter collaborative and friendly discussions to focus on finding greater value for 7&i shareholders.
- Couche-Tard’s options are to return with a revised offer, go hostile or walk away. Couche-Tard will likely test the Board’s resolve by returning with a higher offer.
- The Board’s options are to go through the motions (appointing IFAs), conduct a market check or launch a more aggressive action plan to placate restive shareholders.
Midea Group HK IPO Valuation Analysis
- We would subscribe to the HK offering of Midea Group due to its attractive valuations, strong fundamentals, and meaningful price discount relative to the A shares.
- We believe a premium valuation relative to the comps is appropriate for Midea Group due to its higher sales growth, EBIT margin, and ROE.
- Pricing of this offering is expected to be completed on 13 September and listing on 17 September.
Joban Kosan (9675) – Fortress Buys Out a Fukushima Tourism Asset
- In the annals of foreign buyers of Japanese tourism-related real estate assets, there have been a few good examples, and several disasters. Yesterday, we got a new suitor for assets.
- Fortress SPV Ontario GK will attempt to buy out Fukushima-based Joban Kosan (9675 JP) through a double Tender Offer.
- There is a history here of a bump on an MBO on an associated company. That may have caused it to trade at a premium on Day 1. It’s unrelated.
LG Electronics India IPO: Potential Big Gains. Booming Demand, Buoyant Valuations
- LG Electronics’s India business IPO could be valued above USD 7 billion, exceeding market expectations, driven by its dominant position in India’s growing home appliances market and strong sector valuations.
- Favourable market conditions and robust sector growth make now an ideal time for LG Electronics (066570 KS) to launch its India IPO, securing high investor interest and compelling valuations.
- In a recent interview, LG Electronics(066570 KS) CEO William Cho mentioned that an Indian market debut is one of several options being considered to revitalise the company’s consumer electronics business.
Itochu’s Big Plans for Descente – Shame Investors Won’t Get a Look In
- Itochu’s Textile division continues to execute the directive from its CEO to expand reach and coverage in the fashion and lifestyle sectors, with sports one of the major target categories.
- It will completely absorb Descente as part of this plan, meaning the brand is likely to become one of the largest in the portfolio.
- The ongoing tender offer will likely succeed giving Itochu a bargain and investors no stake in the future.
Midea HK Listing: Valuation Insights
- Chinese home appliance maker Midea has announced the terms for its IPO. The company plans to raise $3.46bn at an indicative price range of HK$52.0-54.8 per share.
- The company has a diversified product portfolio, well-balanced exposure to domestic as well as overseas markets and a growing robotics business.
- As we expected, the HK offering is priced at around 25% discount to it’s A-shares and our analysis suggests that Midea’s HK offering is priced attractively.
[NIO Inc. (NIO US, SELL, TP US$1) Target Price Change]: Who Is Going to Give in a Slowing EV Market?
- NIO Motors (NIO) reported C2Q24 top line, non-GAAP operating loss and GAAP net loss in-line, narrower and narrower vs. our estimate, and in-line, narrower and in-line vs. consensus.
- The brightest spot of the result is gross margin due to both vehicle and service gross margin improvements.
- We keep rating at SELL and raise TP to US$1 to reflect better OPEX control.
Disclosure Is Important, but Walk the Talk Is More Important
- If a company seeks immediate effects to improve capital profitability, it’ll return cash to shareholders because it’ll be years before the company can recoup it by making more investments now.
- Even companies that have increased valuations by raising their capital profitability can improve it by reducing their cash on hand and policy shareholdings, which are still too large.
- Companies with low capital profitability and low valuations have to gain investor confidence through quarterly earnings disclosures by demonstrating that their disclosed goals are achievable.
CTG Duty Free (1880 HK): Where Is the End of the Tunnel?
- Market consensus is unrealistic as it expects China Tourism Group Duty Free (1880 HK) to record 32.1% YoY and 14.6% HoH earnings growth in 2H24. More downgrade risk ahead.
- Average per-customer duty-free sales in Hainan dropped by 19.2% YoY in Jul, indicating the negative wealth effect and deteriorating middle-class spending appetite.
- Overseas duty-free sales to Chinese residents surged by almost 50% YoY in Aug, implying a diversion effect which is also detrimental.
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