Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Renesas Electronics / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/renesas-electronics-corp" target="_blank" data-smartkarma-citation="entities:15933:1" rel="noopener">Renesas Electronics (6723 JP)</a> shares priced at ¥1174/share on the 9th - the first day of Pricing, meaning the issuance would be completed on the <a href="https://disclosure.edinet-fsa.go.jp/E01EW/download?uji.verb=W0EZA104CXP001003Action&amp;uji.bean=ee.bean.parent.EECommonSearchBean&amp;PID=W1E63011&amp;SESSIONKEY=1623555011053&amp;lgKbn=2&amp;pkbn=0&amp;skbn=1&amp;dskb=&amp;askb=&amp;dflg=0&amp;iflg=&amp;preId=1&amp;mul=6723&amp;oth=on&amp;cal=1&amp;era=R&amp;yer=&amp;mon=&amp;pfs=4&amp;row=100&amp;idx=0&amp;str=&amp;kbn=1&amp;flg=&amp;syoruiKanriNo=&amp;s=S100LHP9" target="_blank" rel="noopener">15th</a> and settlement one day later.Outwardly, the Offering appears to have been less well-placed than one would have expected or hoped. On the last day of the domestic investor subscription period, shares traded down to be pasted at the Stabilisation Price line in the last hour of trading on Friday.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/212/826/original/Screenshot+2021-06-13+at+8.44.07+PM.png?1623588287" class="editor-image img-responsive" data-smartkarma-image-id="212826"></figure></section>This is well off the post-announcement lows and investors, traders, and even I expected that the Pricing Date would see a lower close as long-only funds sold through Broker A to buy through Broker B to increase their ownership but by less than advertised. Market micro-dynamics and investing biases are fascinating subjects of study. I received a number of comments Friday which tell me that given the market price, had the Pricing been 1% lower compared to where shares closed Thursday, peoples' outlook would be quite different. This is despite 151 million shares (40% of the maximum Offering size) having traded in the last 3 days. Taking a step back is worthwhile.

Renesas Electronics (6723 JP) shares priced at ¥1174/share on the 9th - the first day of Pricing, meaning the issuance would be completed on the 15th and settlement one day later.Outwardly, the Offering appears to have been less well-placed than one would have expected or hoped. On the last day of the domestic investor subscription period, shares traded down to be pasted at the Stabilisation Price line in the last hour of trading on Friday.This is well off the post-announcement lows and investors, traders, and even I expected that the Pricing Date would see a lower close as long-only funds sold through Broker A to buy through Broker B to increase their ownership but by less than advertised. Market micro-dynamics and investing biases are fascinating subjects of study. I received a number of comments Friday which tell me that given the market price, had the Pricing been 1% lower compared to where shares closed Thursday, peoples' outlook would be quite different. This is despite 151 million shares (40% of the maximum Offering size) having traded in the last 3 days. Taking a step back is worthwhile.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/renesas-electronics-corp" target="_blank" data-smartkarma-citation="entities:15933:1" rel="noopener">Renesas Electronics (6723 JP)</a> on 8 February 2021 announced that they had signed an agreement to acquire <a href="https://www.smartkarma.com/entities/dialog-semiconductor-plc-664a1f83-2a21-4690-a91f-fb971832e7ad" target="_blank" data-smartkarma-citation="entities:21607:1" rel="noopener">Dialog Semiconductor (DLG GR)</a> for an equity value of €4.9bn. The company on the same day <a href="https://www.renesas.com/eu/en/about/press-room/notice-concerning-filing-shelf-registration-statement-issuance-new-shares" target="_blank" rel="noopener">announced</a> a shelf registration to issue up to ¥270bn of shares to pay for the deal.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/211/854/original/Screenshot+2021-06-08+at+10.38.41+AM.png?1623120032" class="editor-image img-responsive" data-smartkarma-image-id="211854"></figure></section>Renesas shares fell on the news, bounced, then fell, and have traded in a range of ¥1,100-1,300/share since then. In the interim (it will take until the end of 2021 to get the Dialog deal past foreign review boards and anti-trust regulators), the company experienced <a href="https://www.renesas.com/eu/en/node/1509341" target="_blank" rel="noopener">a fire at its Naka Factory</a> which will cost a ¥24bn impact in H1, there is an ongoing global chip shortage affecting both semiconductor makers and their customers, and the end of May saw the company finally <a href="https://www.renesas.com/eu/en/about/press-room/renesas-announces-issuance-new-shares-and-secondary-offering-shares" target="_blank" rel="noopener">announce</a> its equity offering - large at nearly US$4bn. This seemed like an overhang, but has ended up not being so much of one.The interim period, while showing a sideways trend for Renesas, saw its Peers outperform dramatically. The announcement of the equity offering and its size looked like it would present significant overhang. It has not turned out to be the case. There has been a "buy the news" reaction. It is a big offering. There are a bunch of moving parts. And lots of index flow.

Renesas Electronics (6723 JP) on 8 February 2021 announced that they had signed an agreement to acquire Dialog Semiconductor (DLG GR) for an equity value of €4.9bn. The company on the same day announced a shelf registration to issue up to ¥270bn of shares to pay for the deal.Renesas shares fell on the news, bounced, then fell, and have traded in a range of ¥1,100-1,300/share since then. In the interim (it will take until the end of 2021 to get the Dialog deal past foreign review boards and anti-trust regulators), the company experienced a fire at its Naka Factory which will cost a ¥24bn impact in H1, there is an ongoing global chip shortage affecting both semiconductor makers and their customers, and the end of May saw the company finally announce its equity offering - large at nearly US$4bn. This seemed like an overhang, but has ended up not being so much of one.The interim period, while showing a sideways trend for Renesas, saw its Peers outperform dramatically. The announcement of the equity offering and its size looked like it would present significant overhang. It has not turned out to be the case. There has been a "buy the news" reaction. It is a big offering. There are a bunch of moving parts. And lots of index flow.

Renesas Equity Offering - Priced To Go With Index Demand Now and Later

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 8 February, <a href="https://www.smartkarma.com/entities/renesas-electronics-corp" target="_blank" data-smartkarma-citation="entities:15933:1" rel="noopener">Renesas Electronics (6723 JP)</a> <a href="https://www.dialog-semiconductor.com/sites/default/files/danube_full2.7announcement_final.pdf" target="_blank" rel="noopener">announced an agreement</a> to acquire <a href="https://www.smartkarma.com/entities/dialog-semiconductor-plc-664a1f83-2a21-4690-a91f-fb971832e7ad" target="_blank" data-smartkarma-citation="entities:21607:1" rel="noopener">Dialog Semiconductor (DLG GR)</a>, supplier of Apple.
Consideration. €67.5 per share, in cash, adjustable for dividends or capital distrubutions at the discretion of Renesas. To be conducted though a scheme of arrangement (document to be published on or before 8 March).
<ul>
<li>This values 100% of the equity capital of Dialog at €4,886 mn (as reported), for an implied EV of €4,556.5 mn.</li>
<li>This represents 3.7x EV/Fwd Revenue (vs. historic average of c 1.6x), 17.4x EV/Fwd EBITDA and 22.2x P/Fwd E (vs. historic average of 8x), (please see other recent transaction multiples further down).</li>
</ul>
The shares of Dialog shot up by 16% vs. the prior day, with c. €353 mn traded.
I believe the deal makes strategic sense, as the offer underlines the relevance of both power and low power connectivity to the automobile and industrial semiconductors.
The median implied valuation across multiples is €65.07 per share. On this basis, the price offered by Renesas seems fair.
Bloomberg has reported the interest of STM in Dialog, nevertheless, STM has already exposure to Apple and I doubt it would be willing to pay up to increase it.
Gross spread is c. 3.3%, with a high volume traded on today's (9 March session). The deal is expected to become effective in H2 2021.
With high chances for the deal to complete, recommendation is Long DLG GR.

On 8 February, Renesas Electronics (6723 JP) announced an agreement to acquire Dialog Semiconductor (DLG GR), supplier of Apple.
Consideration. €67.5 per share, in cash, adjustable for dividends or capital distrubutions at the discretion of Renesas. To be conducted though a scheme of arrangement (document to be published on or before 8 March).

This values 100% of the equity capital of Dialog at €4,886 mn (as reported), for an implied EV of €4,556.5 mn.
This represents 3.7x EV/Fwd Revenue (vs. historic average of c 1.6x), 17.4x EV/Fwd EBITDA and 22.2x P/Fwd E (vs. historic average of 8x), (please see other recent transaction multiples further down).

The shares of Dialog shot up by 16% vs. the prior day, with c. €353 mn traded.
I believe the deal makes strategic sense, as the offer underlines the relevance of both power and low power connectivity to the automobile and industrial semiconductors.
The median implied valuation across multiples is €65.07 per share. On this basis, the price offered by Renesas seems fair.
Bloomberg has reported the interest of STM in Dialog, nevertheless, STM has already exposure to Apple and I doubt it would be willing to pay up to increase it.
Gross spread is c. 3.3%, with a high volume traded on today's (9 March session). The deal is expected to become effective in H2 2021.
With high chances for the deal to complete, recommendation is Long DLG GR.

Dialog Semiconductor - Renesas Electronics Recommended Cash Offer

David Blennerhassett

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This week in StubWorld ...
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<ul>
<li>
<a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> outperforms as global carmakers face a chip shortage;</li>
<li>
<a href="https://www.smartkarma.com/entities/gulf-energy-development-public-company-limited" target="_blank" data-smartkarma-citation="entities:26038:1" rel="noopener">Gulf Energy Development Public Company (GULF TB)</a> increases its questionable stake in <a href="https://www.smartkarma.com/entities/intouch-holdings-pcl" target="_blank" data-smartkarma-citation="entities:17638:1" rel="noopener">Intouch Holdings (INTUCH TB)</a>; and</li>
<li>
<a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a>'s ramps up its buybacks.</li>
</ul>
</div>
<hr>
<div>
Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.
</div>
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These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.
</div>


This week in StubWorld ...




Tokyo Electron (8035 JP) outperforms as global carmakers face a chip shortage;

Gulf Energy Development Public Company (GULF TB) increases its questionable stake in Intouch Holdings (INTUCH TB); and

Jardine Matheson Holdings (JM SP)'s ramps up its buybacks.




Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: TBS/Tokyo Electron, Intouch/Gulf, Jardines' Buybacks

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Automakers are starting to struggle with chip shortages as the Nikkei reports <a href="https://asia.nikkei.com/Business/Automobiles/Global-chip-shortage-threatens-automakers-worldwide" target="_blank" rel="noopener">here</a>, <a href="https://asia.nikkei.com/Business/Automobiles/Nissan-to-cut-car-production-due-to-lack-of-chips" target="_blank" rel="noopener">here</a> and <a href="https://asia.nikkei.com/Business/Automobiles/Honda-cuts-car-production-on-massive-chip-shortage" target="_blank" rel="noopener">here</a>. This is an extension of a broad chip shortage globally as WFH demand, the launch of new consoles, GPUs and CPUs and rapidly recovering auto sales pour some short-term fuel on the long-term fire of expanding electrification and digitalisation. No wonder then that TSMC is up 134% from its March lows, but Renesas is up an even more impressive 248% since its lows of 2020 and could continue to outperform.

Automakers are starting to struggle with chip shortages as the Nikkei reports here, here and here. This is an extension of a broad chip shortage globally as WFH demand, the launch of new consoles, GPUs and CPUs and rapidly recovering auto sales pour some short-term fuel on the long-term fire of expanding electrification and digitalisation. No wonder then that TSMC is up 134% from its March lows, but Renesas is up an even more impressive 248% since its lows of 2020 and could continue to outperform.

Renesas – Auto Chip Shortage Could Drive Further Gains

Germany

Infineon Technologies AG designs, manufactures, and markets semiconductors. The Company offers products include power semiconductors, microcontrollers, security controllers, radio frequency products, and sensors. Infineon markets its products to the automotive, industrial, communications, and consumer and security electronics sectors.

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Infineon Technologies (IFX GR)

Renesas - The Aftermath of the Offering

Renesas is at the Offering Price. Rather than selling the break I would be inclined to buy any major dip on break price vs global peers. There is a...

Travis Lundy

Renesas Equity Offering - Priced To Go With Index Demand Now and Later

Renesas will offer up to 373mm shares or what should be ~$4bn of new and used stock. Pricing (with pushing and shoving before) should be 9 June....

Travis Lundy

Dialog Semiconductor - Renesas Electronics Recommended Cash Offer

I believe the deal makes strategic sense, the price offered seems fair. Gross spread is c. 3.3% (complexion exp. H2 2021). With high chances for...

Jesus Rodriguez Aguilar

StubWorld: TBS/Tokyo Electron, Intouch/Gulf, Jardines' Buybacks

Tokyo Electron (8035 JP) outperforms as global carmakers face a chip shortage; Gulf Energy increases its questionable stake in Intouch; and Jardine...

David Blennerhassett

Renesas – Auto Chip Shortage Could Drive Further Gains

Renesas could continue to outperform despite a 248% rally from its 2020 lows as automotive electrification joins work from home demand to create a...

Mio Kato

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