Daily Brief Consumer: Zhongsheng Group, NIO , Tongcheng Travel Holdings , Sapporo Holdings, Zomato, Rakuten Group , 888 holdings, Deliveroo, paragon AG, Games Workshop Group PLC and more

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
• In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in March 2024.
• Based on the current data, I see only one low-conviction ADD and one low-conviction DEL.

• Electric-vehicle (EV) startup Nio Inc. looks set to begin building its cars independently, announcing plans to acquire two manufacturing assets shortly after a subsidiary was added to a government database for companies approved to produce vehicles.
• Nio on Tuesday entered into “definitive agreements” to buy equipment and assets from two “advanced manufacturing” bases from state-owned automaker Anhui Jianghuai Automobile Group Corp. Ltd. (JAC) (600418.SH +1.67%) for approximately 3.16 billion yuan ($443 million), excluding tax, according to a Hong Kong Stock Exchange filing accompanying its third quarter results the same day.
• JAC has been producing all of Nio’s cars on a contract basis since 2018.

• The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
• In this insight, we take a look at the rankings of potential ADDs and potential DELs for the March 2024 index rebalance.
• Based on the current numbers, our estimate shows there could be one ADD and one DEL but there are some question marks due to the past index review outcomes.

• Buoyed by strong post-pandemic domestic consumption and the return of inbound visitors to Japan, Sapporo Holdings (2501 JP) has been firing on all cylinders in recent quarters.
• Business fundamentals for next year look strong, with the company positioned to benefit the most from Japan’s liquor tax revisions.
• Additionally, activist investor 3D Investment Partners could successfully advance their proposals to divest the Real Estate business.

• Softbank Group (9984 JP) is looking to raise US$135m from selling its remaining stake in Zomato (ZOMATO IN).
• Since receiving shares from Zomato’s acquisition of 91% of Blinkit’s outstanding shares, Softbank has been busy trimming its stake in Zomato. The stake sale now will be a cleanup one.
• Representing just 1.2 days of Zomato’s three month ADV, the deal here would be easily digested by the firm.

• By canceling the IPO of Rakuten Securities, it is assumed that Rakuten Group wanted to generate cash on schedule even if it was 10 billion yen less than originally planned.
• Although Rakuten Group could generate cash in the predetermined time. it remains unclear whether the company has secured a path to improve cash flow in the pending cell phone business.
• If Rakuten Securities went to public, another parent-subsidiary listing would have been created, so the cancellation of the IPO can be evaluated as positive for the quality of the market.

The Europe HY Trade Book for December 2023 includes current trade recommendations drawn from our European HY coverage universe, along with relative-value scatter plots and tables by industry.

Deliveroo’s (ROO’s) November capital markets day (CMD) saw its leadership team present initiatives aimed at progressing the customer value proposition (CVP) to drive revenue growth and improve profitability. ROO’s strategy is to unlock growth through greater market penetration and by growing customer loyalty via a hyperlocal approach, hosting both national and local brands on its platform. The shares are down 65% since the IPO in 2021, with trading affected by the weaker consumer environment amongst other factors. ROO trades at a discount to its peers, although delivery on financial targets and the tailwind of an improving consumer environment could enable the discount to narrow.

While we believe H223 represents a pause in growth at paragon’s ongoing automotive operations, we are cutting our near-term EBITDA margin contribution from the Electronics segment. As a result, we lower our FY23e and FY24e sales estimates by 2% and 3% and EBITDA by 25% and 17% respectively, reducing our DCF valuation to €9.4/share.

Games Workshop Group’s (GAW’s) H124 trading update indicated a robust start to the year in line with management’s expectations. The launch of the new edition of Warhammer 40k in Q1 helped to boost core year-on-year revenue growth in the first half by an expected 11% to no less than £235m (H123: £212.3m). Licensing revenue is expected at £12m (H123: £14.3m), taking total group revenue to c £247m (H123: £227m). There was an implied slowdown in core revenue growth in Q2 versus Q1, although this is expected following a new edition of Warhammer 40k. PBT is expected to grow 12% to ‘not less than’ £94m (H123: £83.6m). We have left our estimates unchanged, anticipating broadly a 50:50 H1:H2 split for both revenue and profit. The H124 results are scheduled for 9 January 2024.