Daily Brief Consumer: Varun Beverages Ltd, Shidax Corp, Mitsubishi Motors, Pan Pacific International Holdings, Tokyo Stock Exchange Tokyo Price Index Topix, Health And Happiness (H&H), Tuesday Morning and more

• Less than halfway through the review period, we see 6 stocks moving from MidCap to LargeCap and vice versa, and 7 stocks moving from SmallCap to MidCap and vice versa.
• There are a bunch of stocks that are close to the cutoff ranks and there will be more change as we move deeper into the review period.
• Over the last 6months, stocks expected to migrate upward have outperformed stocks that are expected to migrate downward. Given the large divergence, there will be a pullback at some point.

• Shidax Corp (4837 JP) is under offer for a partial tender by Oisix ra daichi (3182 JP). Unison Capital is expected to tender their shares.  
• Unison may not want to go against the board but a direct transfer (i.e. not tender offer) is still possible. 
• Some Independent Board Members have suggested the company buy Unison’s shares back. This might work BUT the end game is still the same. 

• The stock price of Mitsubishi Motors has been driven by exposure to the weak Japanese yen and the sharp recovery in ASEAN auto sales 
• The valuation at 1x book is now at a premium versus the sector and its historical average
• We believe that the 2H could be an uphill battle against rising petrol prices and weakening consumer confidence in the core markets

• After beating the Q4 consensus OP by more than 26%, Pan Pacific International Holdings (7532 JP)’s share price has bounced back towards the mid-point of its long-term trend channel.
• With inbound demand set to return to further boost PPIH’s profitability, we are expecting additional upside to consensus FY23 OP, which is based on conservative company guidance.
• Based on the FY+1 consensus OP to share price trend, our annual run-rate OP estimate of ¥160bn suggests that there could be an additional 50% upside to Pan Pacific International.

• The reason for this criticism is that the performance of mutual funds with ESG investing in their names have not differed from or underperformed stock market indices.
• The FSA report indicates that some investment management companies that manage mutual funds with ESG names do not have sufficient specialized ESG departments and professionals.
• Nissay Asset Management’s guidelines seem reasonable. How to reflect them in investment performance in the future is a very difficult and key issue.

We view Health and Happiness International (H&H) as “Medium Risk” on the LARA scale. The company has a sound business profile, with stable branded products in the Baby Nutrition and Care​ (BNC) and Adult Nutrition and Care (ANC) markets. The acquisition of Zesty Paws in 2021 allowed H&H to expand into the Pet Nutrition and Care ​(PNC) business. The company’s strong distribution channels support cross-border and e-commerce sales strategies. That said, the positive factors are balanced by the risk of entering new markets and selling new products, along with the fragmented and competitive Chinese market. We like H&H’s solid business fundamentals, strong market positions and healthy financial profile. In particular, it has a sound liquidity profile and steady CFO.

We note that the acquisition has impacted H&H’s financial profile and weakened its leverage metrics. That said, PNC is part of the company’s sustainable growth plan. We expect it to work on deleveraging in the near term, in order to maintain a healthy credit profile.

The USD bondholders suffer material structural subordination. The issuing entity is a Cayman Islands company with no operating assets, and the PRC operating subsidiaries do not guarantee the USD notes. The level of priority creditors is high at the Australian subsidiary. Bondholders would have very limited access to assets in a liquidation scenario.

Our Credit Bias on H&H is “Stable”, given the company’s solid business fundamentals, strong market positions and moderate financial profile. The ANC and PNC segments are expected to deliver stronger performance, while BNC should continue facing challenges. As a result, ANC and PNC will likely be H&H’s key growth segments, offsetting the competitive BNC business. The company aims to expand into other business segments and markets outside China, in order to compensate for muted growth in the country.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• TUEM disclosed a new financing round underscoring the financial distress the business has been under since reporting March quarter financials.
• TUEM is raising $35 million in convertible debt financing. The debt is convertible at a material discount to TUEM’s closing price prior to the news
• TUEM requested a financial viability exception from NASDAQ to bypass a shareholder vote asserts the turmoil the business has been under in recent months