Daily Brief Consumer: Tsuruha Holdings, Toei Animation, Li Auto , APR, Booking Holdings, Hope Education Group Co Ltd, Rakuten Group , The Gym Group PLC, US Foods Holding Corp and more

• Over the weekend there was an article in the Nikkei saying that Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) were considering a merger. Other media outlets followed.
• This has been a possible outcome. Aeon Co Ltd (8267 JP) owns 51% of Welcia, 13.6% in Tsuruha, and is negotiating to buy another 13% in Tsuruha from Oasis.
• This would create a behemoth. ¥2.2trln in revenues vs ¥1trln for MatsukiyoCocokara (3088 JP). It would be 25% of the market. Questions will be asked about concentration. 

• Since the US$550 million secondary placement announcement, Toei Animation (4816 JP)’s shares are down 7.0% from the undisturbed price of JPY18,560 per share (14 February).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Toei Animation’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 27 February. Investors participating in previous large Japanese placements tend to secure positive returns.

• The possible merger between Welcia and Tsuruha under Aeon has been talked about for years despite concerns from both drugstores, but may now happen.
• But calling these retailers drugstores is increasingly a misnomer: FMCG-drugstores is better because they and many others in the sector, increasingly compete with FMCG retailers like supermarkets and even CVS.
• This evolution is rapid so the merits of a deal make more sense when we view it from a sector five years in the future than how it is today.

• In 4Q23, revenue grew by 136% and operating profit was significantly higher than the market consensus.
• Li Auto grew the most rapidly among the top-ten Chinese NEV sellers.
• We believe Li Auto will be one of the winners after the market gets more concentrated. Upgrade to Hold.

• In this insight, we discuss a trading strategy for APR (278470 KS) which starts trading on 27 February. APR is the most anticipated IPO in Korea so far in 2024.
• Our base case (6 months – 1 year) target price of APR is 370,809 won, which is 48% higher than the IPO price. 
• We recommend investors to take some profits off the table (30%-50%) if the share price shoots higher by 100% to 200%+ from the IPO price on the first day. 

• 4Q23 results beat expectations with record revenues and profits and announced a maiden cash dividend of USD8.75/share (0.35% yield)
• But, share price plunged by 10% on soft guidance of 4-6% YoY growth in room-night booked in 1Q24, due to the impact of high-interest rates and the ongoing wars 
• Good opportunity to buy on dips, stock trading at ~20x FY24 PE, ~18% discount to LT mean. Plus, there is a balance USD7.5b (6.1% shares in issue) of share buybacks  

• Some global investors are urging Chinese private education giant XJ International Holdings Co. Ltd. to redeem half of its $350 million in bonds before maturity, as the creditors fear the Hong Kong-listed firm may intentionally default on repayments.
• The bonds are due in 2026, but the creditors asked for the early redemption to be completed by March 2 in a letter sent to the Chinese company last month by their legal adviser, Chicago-headquartered global law firm Kirkland & Ellis LLP.
• The creditors are a group of large international investors who collectively hold no less than $154 million, or about 50%, of the bonds’ outstanding principal amount, according to the letter seen by Caixin.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Rakuten Group

• Gym Group is a low-cost gym chain based in the UK, with 230 gyms and trading at six times EBITDA.
• The company hit a rough patch during COVID but is expected to improve with new management and the ramp up of new gyms.
• Public markets may be mispricing the sector due to potential earnings, energy cost normalization, and growth opportunities in the European market.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• This is our first report on food product manufacturer, US Foods.
• The company reported solid performance in the fourth quarter and full year 2023, demonstrating strong execution of its strategy and operational discipline.
• For the entire fiscal year of 2023, the company achieved record adjusted EBITDA of $1.56 billion driven by strong case growth, independent case growth of almost 7% and increased market share with targeted customer types.