MNI China Daily Summary: Thursday, May 16

MNI BRIEF: China To Take Necessary Measures Following Tariffs

MNI BRIEF: Aussie Unemployment Rises To 4.1% In April

MNI: PBOC Conducts CNY2 Bln Via OMO Thurs; Liquidity Unchanged

MNI: PBOC Sets Yuan Parity Lower At 7.1020 Thurs; -3.70% Y/Y

CHINA PBOC INJECTS CNY2 BILLION VIA 7-DAY REVERSE REPOS THURS

MNI: US APR INDUSTRIAL PROD +0.0%; CAP UTIL 78.4%

Homebuilding Activity Transitioning From Plateau To Pullback

MNI: US JOBLESS CLAIMS -10K TO 222K IN MAY 11 WK

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

MNI BRIEF: Poilievre Calls QE 'Scam' And Would Limit BOC Remit

MNI: Growth Drag From Net Zero Carbon Goal Can Be Offset-OECD

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Kering (NR, A- Stable) 1Q24 Results & Earnings Call

CONSUMER CYCLICALS
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Kering should be priced for a 1-notch downgrade/BBB+ ratings for now given little signs of turnaround and rough 1H guidance. S&P saw little BS headroom after its recent downgrade with its adj. leverage>2.5x by year-end/above rating threshold...but mgmt seems more sanguine on BS...guiding to M&A and potential leasebacks makes net impact hard to pin. S&P saw adj. EBITDA at €6-6.2b for FY24 (from €6.5b in FY23) - we see it needing to revise that well down.

  • The -10% (cc) yoy sales fall for group & -18% fall in Gucci (~50% of sales) was already foreshadowed in earlier guidance. Asia (largest at 34% of sales) fell -19%, WE -9%, NA -11% & Japan +16%. Numbers at group & by region (outside shared Japan strength) clearly weaker than LMVH - co's pointing to its brands targeting of aspirational buyers causing the weakness.
  • Disappointment was new guidance for -(40-45%) fall in 1H EBIT - consensus was at -25%.* Analyst were scrambling for 2H colour in call - only info we got was EBIT margin improvement of 100-150bps in 2H (vs. 1H). Co didn't seem to indicate any turnaround evident in current Asia trading conditions.
  • On BS mixed comments - does seem to indicate leaseback is on the cards (which is what S&P said mgmt was guiding to it); " We are currently working to proactively set up real estate vehicles with financial coinvestors to reduce the weight of real estate assets on our balance sheet."
  • But is also guiding to M&A; "Now our balance sheet is quite healthy and would allow for incremental M&A. Regarding Marcolin, we never comment on future M&A, so I will not comment that point."
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Kering should be priced for a 1-notch downgrade/BBB+ ratings for now given little signs of turnaround and rough 1H guidance. S&P saw little BS headroom after its recent downgrade with its adj. leverage>2.5x by year-end/above rating threshold...but mgmt seems more sanguine on BS...guiding to M&A and potential leasebacks makes net impact hard to pin. S&P saw adj. EBITDA at €6-6.2b for FY24 (from €6.5b in FY23) - we see it needing to revise that well down.

  • The -10% (cc) yoy sales fall for group & -18% fall in Gucci (~50% of sales) was already foreshadowed in earlier guidance. Asia (largest at 34% of sales) fell -19%, WE -9%, NA -11% & Japan +16%. Numbers at group & by region (outside shared Japan strength) clearly weaker than LMVH - co's pointing to its brands targeting of aspirational buyers causing the weakness.
  • Disappointment was new guidance for -(40-45%) fall in 1H EBIT - consensus was at -25%.* Analyst were scrambling for 2H colour in call - only info we got was EBIT margin improvement of 100-150bps in 2H (vs. 1H). Co didn't seem to indicate any turnaround evident in current Asia trading conditions.
  • On BS mixed comments - does seem to indicate leaseback is on the cards (which is what S&P said mgmt was guiding to it); " We are currently working to proactively set up real estate vehicles with financial coinvestors to reduce the weight of real estate assets on our balance sheet."
  • But is also guiding to M&A; "Now our balance sheet is quite healthy and would allow for incremental M&A. Regarding Marcolin, we never comment on future M&A, so I will not comment that point."