F&B/Leisure:Overseas marketing takeaways
WHAT’S THE STORY
Our picks vs investor darlings: We undertook an overseas marketing trip over Mar28-Apr 1 that showcased our top picks—CJ CGV and CJ CheilJedang (CJCJ) in the leisureand F&B sectors, respectively—as they continue to enjoy growth in China and since theirongoing M&As activities should augment existing operations and become growth engines.Meanwhile, overseas investors prefer firms that: 1) have been oversold; 2) are easy tounderstand; and 3) lack corporate governance issues, such as F&B players Orion andBinggrae along with Paradise and travel stocks in the leisure sector.
Trend-following products of interest: Value funds believe Korea’s hit products areephemeral, but most mutual and hedge funds likely companies that produce trendfollowingproducts. Interest has therefore increased for small caps capable of rapiddecision making, including Crown Confectionery, Bohae Brewery, and Sempio. Inaddition, some investors attribute the low operating margins of Korean firms to corporategovernance issues (as well as stiffening competition).
Lotte Chilsung in the spotlight: Investors have never shown a greater interest in thisnation’s corporate governance, so we believe Lotte Chilsung warrants attention, given its:1) high asset value; 2) share ownership structure that is more attractive than that of HotelLotte; and 3) sufficient room to improve profitability and ROE via product price hikes.Although the timing might appear tricky, we would expect buying shares in the beveragemaker at 1x 2016 P/B to offer a solid long-term investment.
CJ Group: CJ Group constituents should show share-price upside if they release solid1Q results, while all should benefit from CJCJ’s promising outlook and if CJ CGV gainsoverseas growth momentum by acquiring Turkey’s leading cinema chain, MarsEntertainment.