Daily Brief Consumer: Suzuki Motor, China Tourism Group Duty Free Corp Ltd, Shiseido Company, JD.com Inc., Weilong Delicious Global, JD.com Inc (ADR), Dat Bike, Wynn Macau Ltd and more

• Suzuki is our top pick in the auto sector in Japan as a key beneficiary of strong demand for autos in India
• Suzuki reported better-than-expected 2Q earnings – but the stock price has not reacted
• Suzuki remains mispriced. Suzuki’s market cap is negative if we strip out the value of Maruti

• China Tourism Duty Free (CDF) is the largest travel retail operator in the world primarily focusing on sales of high-quality duty-free and duty-paid merchandise to domestic and international travelers.
• As per Frost & Sullivan (F&S), it had 86.0% market share by retail sales revenue in China duty-free merchandise sales in 2021.
• With signs emerging of China finally looking to relax its COVID restrictions over the coming months, this will lead to a sales revival at its airports.

• The success of domestic brands in the low-cost cosmetics segment seems to be cascading into mid and high-price segments within the Chinese cosmetics market.
• This could be bad news for Shiseido Company (4911 JP), whose investors are expecting the company to maintain its historical superiority in the Chinese cosmetics market.
• We think that there’s a good chance for FY+2 EV/OP to return to the 12-20x range once the market price-in Shiseido’s weakening competitive position in the mainland China market.

• JD.com should have an outsized benefit from a recovery in Chinese retail sales as further macro stimulus and a gradual easing of China’s covid-zero policy stimulates demand throughout 2023.
• Following a return to margin expansion this year, due to economies of scale and curbing operating expenses during a challenging macro environment, the longer-term margin expansion trend remains on track.
• JD.com Inc. (9618 HK) trades on extremely attractive valuation multiples (PE, PEG, FCF yield) with net cash on its balance sheet equal to 32% of its market cap.

• Weilong Delicious Global (WDG HK), a spicy snack food company in China, aims to raise around US$200m in its Hong Kong IPO.
• According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
• In this note, we will talk about the updates from the recently re-refiled PHIP.

• Alibaba and JD stock prices have rallied around 20-30% in the past month, which was the low-hanging fruit for the investors.
• With the full re-opening in 2023 in China, there is still upside for the sector. 
• Ecommerce players will enjoy GMV growth acceleration and margin improvement next year. 

• Weilong Delicious Global (WDG HK) has refiled (again) its PHIP with an aim to raise US$200 million, materially below its original ambition to raise US$1 billion. 
• We have previously discussed the IPO in Weilong Delicious IPO: In a Pickle, Weilong Delicious IPO: Mixed Update and Weilong Delicious IPO Initiation: Tasty Bite.
• The latest PHIP highlights Weilong’s floundering attempt of putting in price increases to protect margins but without tanking demand. We would pass on the IPO.  

• Weilong Delicious is a leading spicy snack food company in China with a market share of 6.2%. The company plans to raise proceeds of about US$500m through a HKEx IPO.
• This insight focuses on the new data points from the company’s latest PHIP release (dated 23rd Nov) which includes the company’s 1H2022 results.
• Weilong Delicious Global (WDG HK)’s top line growth has slowed down during 1H2022 and margins have come under pressure due to increased S&M spending and lower utilisation.

• Dat Bike, a Vietnam-based electric motorbike startup, has raised US$8 million in a funding round.

• The deal pushes the total funding Dat Bike has raised to date to US$16.5 million.

• Founded in 2019, Dat Bike said that its electric motorcycles have 4x the range (200 kilometers versus 50 kilometers) and faster charging time (3 hours versus 6 hours) compared to most alternatives.

We view Wynn Macau as “High Risk” on the LARA scale. The company has a good operating track record in the Macau gaming market, supported by two high-quality assets (Wynn Macau and Wynn Palace). Conversely, our view also takes into account the company’s geographical concentration and exposure to Chinese regulatory changes. Moreover, we consider the risks associated with the ownership by Wynn Resorts, given Wynn Macau’s history of paying large dividends to the parent company. Over the medium to long term, the Macau gaming industry should benefit from the rising affluence and discretionary income of China’s growing middle class. That said, the industry is facing challenges from the impact of the COVID-19 pandemic on tourism and consumers’ discretionary spending.

Our fundamental Credit Bias on Wynn Macau is “Negative”, on account of its severely weakened leverage and the uncertain recovery trajectory. In addition, we are concerned that the company might resume dividend payments too quickly (before being able to generate and sustain positive FCF), which would be highly credit negative. Still, the company has adequate liquidity for now, with no debt maturities until October 2024. We also anticipate that Wynn Macau will successfully renew its concession agreement in December 2022.

Controversies are “Immaterial”. In February 2018, founder Steve Wynn resigned as Chairman and CEO of Wynn Resorts, after he was accused of sexual misconduct. Mr Wynn sold his 11.8% stake in the company in March 2018. The Board also made major changes and removed directors with past links to Mr Wynn. In our view, Wynn Resorts acted promptly to limit reputational damage. We also deem Wynn Resorts’ corporate governance to have improved, as it is now run by professional managers and no longer has direct ties to its founder. Mr Wynn’s ex-wife, Elaine Wynn, is currently the largest shareholder of Wynn Resorts (8.4% stake).

Some ESG-compliant funds may be prohibited from investing in Wynn Macau, due to the nature of its core business (casinos). That said, Macau’s gaming industry is established, transparent and highly regulated. We believe the curtailment of junket activities would help to further raise operators’ transparency. Moreover, the authorities are seeking to reduce the city’s reliance on gaming and promote leisure tourism in the medium term. These factors should mitigate ESG-related risks. Overall, the ESG Impact on Credit is “Neutral”.