In today’s briefing:
- Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger! [Redux]
- BAT’s Possible US$2.5bn ITC Selldown – Will Be Well Flagged but Still Won’t Be an Easy One to Digest
- Aeon (8267 JP), Tsuruha (3391 JP) And Welcia (3141 JP)’s Long-Dated Plan
- HYBE Invests Additional 104 Billion Won in SM Entertainment – Why?
- Astra International (ASII IJ) – Indonesia’s Mirror Image
- Elon Musk Can’t Be Trusted. He Also Can’t Be Stopped, Apparently.
- Aeon (Maybe) Gets Tsuruha, Could Trigger Wave of Mergers in the Sector (And Beyond)
- [Li Auto Inc. (LI US, BUY, TP US$52) TP Change]: What Can Go Wrong & Go Right in LI Becoming BYD #2
- Alibaba Group Holdings: EM Fund Positioning Update
- Sido Muncul (SIDO IJ) – Iconic Modern Jamu
Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger! [Redux]
- The first piece had a question mark in the title. This one has an exclamation point. The exclamation point has value for one investor. Other people? Not so much.
- Today post-close we got the deal. I was a little surprised it came this fast, but it’s now mostly done it appears – largely as predicted in the last piece.
- There are things one can probably read into the details. It is probably worth thinking about those, and how those details affect the industry.
BAT’s Possible US$2.5bn ITC Selldown – Will Be Well Flagged but Still Won’t Be an Easy One to Digest
- Earlier this month, British American Tobacco (BATS LN)’s management stated that they were reviewing their stake in ITC Ltd (ITC IN) to enhance its balance sheet flexibility.
- BAT has owned its stake in ITC for over a century and remains its largest shareholder.
- In this note, we talk about the possible deal structure and dynamics.
Aeon (8267 JP), Tsuruha (3391 JP) And Welcia (3141 JP)’s Long-Dated Plan
- Aeon Co Ltd (8267 JP), Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) have announced an alliance to establish the largest drugstore alliance in Japan by December 2027.
- Aeon will carry out several Tsuruha transactions – buy Oasis 13.58% stake at JPY15,500 per share and, on receiving regulatory approval, reach 27.17% of the voting rights.
- The agreements involve merging Tsuruha and Welcia through a share exchange offer and Aeon subsequently increasing its Tsuruha voting rights from 27.17% to less than 51%.
HYBE Invests Additional 104 Billion Won in SM Entertainment – Why?
- After the market close, it was announced that HYBE (352820 KS) acquired a 3.7% stake (868,948 shares) in SM Entertainment Co (041510 KS) for 104.3 billion won.
- HYBE’s acquisition of shares was accomplished through the exercise of a put option by SM Entertainment’s founder Lee Soo-Man. After this purchase, HYBE will own 12.6% stake in SM Entertainment.
- We like SM Entertainment at current levels. Valuations are attractive and there is a strong pipeline of new music/songs to be launched by its artists in 2Q 2024.
Astra International (ASII IJ) – Indonesia’s Mirror Image
- Astra International booked record earnings for 2023 despite some softening of commodities, driven by strong performance from the auto division and financing plus the strong performance from motorcycles.
- Astra has continued to invest in growth areas of the Indonesian economy with investments last year in the EV battery ecosystem, increased exposure to healthcare, and investment in data centres.
- Management flagged a potential 2H cyclical downturn but it is well-diversified enough to weather this. Valuations look attractive on 6.8x FY2024E PER and with a 6.6% dividend yield.
Elon Musk Can’t Be Trusted. He Also Can’t Be Stopped, Apparently.
- Tesla Q1 must be tracking even worse than I expected based on the uptick in Elon Musk’s erratic behavior—his tell when bad news spirals out of control.
- Wacko conspiracies, Putin propaganda, National security threat! At least he has his self-flattering alter ego Adrian Dittmann to boost his spirits.
- Musk’s companies continue to rack up safety violations, government investigations, and lawsuits, while he loses his massive pay package and tries to dodge the SEC investigation into his Twitter acquisition.
Aeon (Maybe) Gets Tsuruha, Could Trigger Wave of Mergers in the Sector (And Beyond)
- Aeon will almost definitely increase its stake in Tsuruha Holdings, which on its own will catalyse drugstore competitors to consider their mergeable options.
- Tsuruha MAY merge with Welcia under Aeon and just talk of this will catalyse drugstore competitors even more.
- But the ongoing fusion of drugstore retailing and FMCG formats like supermarkets and convenience stores, will also spur the entire FMCG sector to respond to Aeon’s massive potential dominance.
[Li Auto Inc. (LI US, BUY, TP US$52) TP Change]: What Can Go Wrong & Go Right in LI Becoming BYD #2
- LI Auto reported C4Q23 top line, non-GAAP operating profit and GAAP net income (6.2%), 13% and 81% vs. our estimates and 4.9%, 52% and 102% vs. consensus.
- We believe LI can beat our delivery estimate on exports, but can also miss the consensus on gross margins if its 2024 volume target is met by sedans;
- We raise our TP by US$5 to US$52 and reiterate BUY.
Alibaba Group Holdings: EM Fund Positioning Update
- Despite average weights falling from over 6% in 2020 to under 2% today, 73% of EM funds remain invested in Alibaba.
- The make up of the investor base has changed, with a rotation between high growth investors (out) and Value investors (in).
- Of the 73% of current holders, the core portfolio weight range sits between 1.5% and 3%, with the most bullish topping out at 5%+
Sido Muncul (SIDO IJ) – Iconic Modern Jamu
- Sido Muncul‘s recent results reflect a sharp recovery in its core herbal and F&B business as increased sales volumes have brought scale benefits to its iconic products.
- The company saw recovery in both sales and profits, with margins improving considerably in 4Q2023 due to increased volumes and lower raw material prices.
- Tolak Angin remains an iconic brand catering to all demographics with 70% leadership of its category, with Kuku Bima being the leader in powdered energy drinks. Valuations appealing versus history.
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