HK/China Equity Long-Short

Osbert Tang, CFA

Equity Capital Markets

<p>We think the 72.7% YoY plunge in gross profit at <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> in 1Q21 reflects that it lacks pricing power, even though it is the largest player in the integrated supply chain logistics services industry. Meanwhile, the express industry witnessed an overall YoY contraction in unit revenue and profitability in 1Q21, continuing a structural declining trend. With a market share of 2.7%, JDL is not expected to see material change in its profitability even if this is doubled as the industry stays fragmented and it will still be susceptible to industry price competition, in our view.</p><p>Instead, we see <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> the beneficiary of JDL's significant capital investment in logistics infrastructure over the near-to-medium term. In fact, there are other more attractive pure logistics options like <a href="https://www.smartkarma.com/entities/sinotrans-limited-h" target="_blank" data-smartkarma-citation="entities:1321:1" rel="noopener">Sinotrans (598 HK)</a> and <a href="https://www.smartkarma.com/entities/kerry-logistics-network-ltd" target="_blank" data-smartkarma-citation="entities:367:1" rel="noopener">Kerry Logistics Network (636 HK)</a> which have longer track record, better profitability and higher dividend yield. Fundamentally, we are not a big fan of JDL at its proposed valuations.</p>

We think the 72.7% YoY plunge in gross profit at JD Logistics (JDL HK) in 1Q21 reflects that it lacks pricing power, even though it is the largest player in the integrated supply chain logistics services industry. Meanwhile, the express industry witnessed an overall YoY contraction in unit revenue and profitability in 1Q21, continuing a structural declining trend. With a market share of 2.7%, JDL is not expected to see material change in its profitability even if this is doubled as the industry stays fragmented and it will still be susceptible to industry price competition, in our view.Instead, we see JD.com Inc. (9618 HK) the beneficiary of JDL's significant capital investment in logistics infrastructure over the near-to-medium term. In fact, there are other more attractive pure logistics options like Sinotrans (598 HK) and Kerry Logistics Network (636 HK) which have longer track record, better profitability and higher dividend yield. Fundamentally, we are not a big fan of JDL at its proposed valuations.

JD Logistics IPO: We Play Devil's Advocate

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Singapore Press, Tabcorp, Invesco Office, Justbon, IHH Healthcare, JD.com

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<div>
<p><a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> is the largest player in China’s integrated supply chain logistics services market, with a 2.2% revenue market share in 2019, according to CIC. JD Logistics was founded with the formation of <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>’s in-house logistics department in 2007.</p>
<p>JD Logistics is seeking to raise up to $3-4 billion at a $40 billion valuation, according to press reports. Merrill Lynch and Haitong, which are part of the syndicate, have valued JD Logistics at $30.0-45.4 billion and $42.4-44.3 billion, respectively, <a href="https://www.thestandard.com.hk/section-news/section/2/229859/JD-Logistics-gets-ball-rolling-for-US%244b-IPO" target="_blank" rel="noopener">according to press reports</a>. </p>
</div><div>
<p>In <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-initiation-the-flow-of-things" target="_blank" data-smartkarma-citation="insights:48279" rel="noopener">JD Logistics IPO Initiation: The Flow of Things</a>, we stated that JD Logistics is an indirect play on the shift of some customer behaviour permanently to online shopping, particularly in fast-moving consumer goods. We concluded that JD Logistics fundamentals are attractive and it remains well-placed to address consumers demand faster and more flexible supply chain logistics services.</p>
<p>In <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-prioritizing-market-share-gains-over-margins" target="_blank" data-smartkarma-citation="insights:50976" rel="noopener">JD Logistics IPO: Prioritizing Market Share Gains over Margins</a>,  we noted that the PHIP which discloses the 2020 results and recent developments underscore the positives which are strong growth, rising margin and cash generation. However, the outlook is mixed as JD Logistics cautions that it will pursue market share gains at the cost of profitability over the medium term. We opined that JD Logistics has the right ingredients to ride out the industry’s current price-competitive dynamics and deliver good shareholder returns over the medium term. </p>
</div><div><div><div class="content-highlight"><p>In this note, we update our forecasts and valuation presented in <a href="https://www.smartkarma.com/insights/jd-logistics-ipo-valuation-first-look" target="_blank" data-smartkarma-citation="insights:48384" rel="noopener">JD Logistics IPO: Valuation First Look</a> for the latest set of results and the margin guidance. Overall, based on valuation analysis, we think that the rumoured $40 billion valuation target is fair, particularly in the context of JD Logistics' positioning and higher than peers forecasted growth. </p></div></div></div>


JD Logistics (JDL HK) is the largest player in China’s integrated supply chain logistics services market, with a 2.2% revenue market share in 2019, according to CIC. JD Logistics was founded with the formation of JD.com Inc (ADR) (JD US)’s in-house logistics department in 2007.
JD Logistics is seeking to raise up to $3-4 billion at a $40 billion valuation, according to press reports. Merrill Lynch and Haitong, which are part of the syndicate, have valued JD Logistics at $30.0-45.4 billion and $42.4-44.3 billion, respectively, according to press reports. 

In JD Logistics IPO Initiation: The Flow of Things, we stated that JD Logistics is an indirect play on the shift of some customer behaviour permanently to online shopping, particularly in fast-moving consumer goods. We concluded that JD Logistics fundamentals are attractive and it remains well-placed to address consumers demand faster and more flexible supply chain logistics services.
In JD Logistics IPO: Prioritizing Market Share Gains over Margins,  we noted that the PHIP which discloses the 2020 results and recent developments underscore the positives which are strong growth, rising margin and cash generation. However, the outlook is mixed as JD Logistics cautions that it will pursue market share gains at the cost of profitability over the medium term. We opined that JD Logistics has the right ingredients to ride out the industry’s current price-competitive dynamics and deliver good shareholder returns over the medium term. 
In this note, we update our forecasts and valuation presented in JD Logistics IPO: Valuation First Look for the latest set of results and the margin guidance. Overall, based on valuation analysis, we think that the rumoured $40 billion valuation target is fair, particularly in the context of JD Logistics' positioning and higher than peers forecasted growth. 

JD Logistics IPO: Valuation and Forecast Update


For the month of April, nine new deals were discussed on Smartkarma with an overall announced deal size of ~US$36bn.


Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow-up discussions, or simply click on the insight link(s) below the name.






New Deals


Industry


Size (US$bn)


Type


Premium




Australia




Galaxy Resources (GXY AU) / Oroco Resource Corp (OCO CN) 
Lithium mining
3.0
Merger
N/A



Orocobre - Galaxy: Merger of Equals
Orocobre/Galaxy Resources: On A Charge



Primewest Group Ltd (PWG AU) 
Real estate
0.5
Merger
N/A


Primewest (PWG AU): Centuria's Off-Market Takeover Bid Could Trigger ASX/S&amp;P 200 Index Inclusion


 



Hong Kong



Zhejiang Cangnan Instrument (1743 HK) 
Gas Meters
0.1
Cash Offer
15.2%


Zhejiang Cangnan (1743 HK): H-Share Buyback


 



India



Mphasis Ltd (MPHL IN) 
 IT Services
1.1
Partial Offer
26.0%


Blackstone Sells Mphasis Stake To.... Blackstone and Investors Get a CHEAP Option 


 



Japan



Fuji Kosan Company (5009 JP) 
Petroleum-related
0.1
Tender Offer
12.5%


Aslead Capital Hostile Offer for Fuji Kosan (5009)


Hitachi Metals (5486 JP) 
Advanced metals
4.0
Tender Offer
15.1%



Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas
Bain Bids Up BIG For Hitachi Metals (5486) - Now We Wait



Invesco Office J Reit (3298 JP) 
REIT
1.5
Tender Offer
13.3%



Starwood Hostile REIT Tender Launched
Invesco Office J-REIT Responds to Starwood's Hostile Offer
Starwood Rejection of Extension Means Full Hostile Tender



Toshiba Corp (6502 JP) 
Conglomerate
20.0





Toshiba – CVC Capital Partners Bid Highlights Value
Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger
Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast
Toshiba - The King Is Dead, Long Live the King
How Much of Toshiba Is Owned By "Activists"?
CVC Suspending Its Bid Is Just That - The Cat Is Still Out Of the Bag
Toshiba – CVC Turns Tail but You Shouldn’t




 




Thailand



Intouch Holdings (INTUCH TB) 
Telco
5.4
VTO
11%


Intouch Holdings: Gulf's Inexplicable Offer


Source: Smartkarma Insights





Arguably, there is no firm Offer for Toshiba Corp (6502 JP).
The average premium for the new deals announced (or first discussed) in April was ~16%, with a year-to-date average of ~30% (66 deals). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 




Summary of News in April of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation)






Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

19-Apr: Merger docs despatched




Asaleo Care Ltd (AHY AU) 

24-Apr: Asaleo Care Ltd (AHY AU)'s Scheme Doc has been released. The Scheme Meeting will be held on the 1 June. IFA says fair &amp; reasonable. 




Bingo Industries (BIN AU) 

23-Apr: Bingo Industries (BIN AU) says CPE Capital and MIRA's due diligence has completed, but arrangements remain to be finalised.  27-Apr: Bingo Industries (BIN AU): Macquarie Cleans Up




Coca Cola Amatil (CCL AU) 

6-Apr: Coca Cola Amatil (CCL AU): This Is It 16-Apr: Coca Cola Amatil (CCL AU)'s independent shareholder approved the Scheme. 81.55% of independent shareholders we in attendance, of which 99.03% approved the Scheme Resolution.




Crown Resorts (CWN AU) 

19-Apr: Crown Resorts (CWN AU) has announced that it has received an "unsolicited, preliminary, non-binding and indicative proposal from a company on behalf of funds managed and advised by Oaktree Capital Management, L.P., to provide a funding commitment of up to ~A$3.0bn to Crown via a structured instrument with the proceeds to be used by Crown to buy-back some or all of the Crown shares which are held by Consolidated Press Holdings Pty Limited (“CPH”) on a selective basis. CPH currently has a shareholding of ~37% in Crown." Crown has not yet formed an opinion on the proposal. That stake is worth almost exactly A$3bn at the current price.




Link Administration Holdings (LNK AU) 

26-Apr:  Link Admin (LNK AU): PEXA Bidding




Mainstream Group Holdings Ltd (MAI AU) 

15-Apr: Mainstream (MAI AU): Massive Overbid by SS&amp;C, Now Vistra Has to Respond 27-Apr: Mainstream (MAI AU): More Competition Forces SS&amp;C to Bump  29-Apr: Mainstream (MAI AU): Three-In-A-Row! Bullseye!




McPherson's Ltd (MCP AU) 

29-Apr: McPherson (MCP AU): Arrotex Derails Kin's Offer




Mortgage Choice (MOC AU) 

No April Update




Think Childcare (TNK AU) 

6-Apr: Think Childcare (TNK AU): Busy Bees Delivers a Knock-Out Bid:




Vitalharvest Freehold Trust (VTH AU) 

7-Apr: Roc bumps Offer for Vitalharvest Freehold Trust (VTH AU) to A$1.16.  MAFM now has until the 14 April to match.
16-Apr: Roc bumps its Offer for Vitalharvest Freehold Trust (VTH AU) to A$1.18/unit. MAFM has matching rights until the 22 April.  23-Apr: Vitalharvest (VTH AU): Bumpity Bumpity Berry Bidding




Vocus Communications (VOC AU) 

No April Update




WPP AUNZ (WPP AU) 

21-Apr: WPP AUNZ (WPP AU) shareholders approved the Scheme. 87.5% of minorities turned up at the meeting, and 96.45% approved the Scheme resolution. Shares to be suspended at the close on the 26 April. Implementation to occur on 18 May. The special dividend has been approved.










Hong Kong


Comments (with links to announcements &amp; insights)




Beijing Digital Telecom (6188 HK) 

12-Apr: Beijing Digital (6188 HK): Zhuhai SASAC's MGO On Track
18-Apr: Beijing Digital Telecom (6188 HK)'s Composite has been delayed again until 30 April - on or before. 




China Machinery Engineering (1829 HK) 

2-Apr: PRC approval, a pre-condition, to the Offer remains outstanding in a monthly update from China Machinery Engineering (1829 HK).




China Youzan Limited (8083 HK) 

19-Apr: The Scheme Doc is out for China Youzan Limited (8083 HK) - the SGM will be held on the 6 May. IFA says fair &amp; reasonable.




HKC Holdings (190 HK) 

27-Apr: HKC Holdings (190 HK): Quorum Quibbles




I.T Ltd (999 HK) 

16-Apr: Independent shareholders of I.T Ltd (999 HK) overwhelmingly approved the scheme resolution. Cheques are expected to be despatched on the 7 May. Last day of trading is the 29 April.




Kerry Logistics Network (636 HK) 

9-Apr: Kerry Logistics Network (636 HK) has announced that the antitrust approval has been received from the State Administration for Market Regulation with respect to the Partial Offer.




New Century REIT (1275 HK) 

12-Apr: Shareholder approval received




Polytec Asset Holdings (208 HK) 

16-Apr: The Scheme Document together with the respective notices of the Court Meeting and the EGM to be held on Monday, 10 May 2021 and the relevant proxy forms will be despatched to the Polytec Asset Holdings (208 HK)'s shareholders on 16 April. I don't see it on HKEx though.




Rivera Holdings (281 HK) 

No April update




Sichuan Languang Justbon Service Group (2606 HK) 

2-Apr: The Sichuan Languang Justbon Service Group (2606 HK) / Country Garden Services Holdings (6098 HK) transaction is understood to be under SAMR simple case review. 
16-Apr: Sichuan Languang Justbon Service Group (2606 HK)'s Composite Doc has been delayed until the 3 May, on or before. This was wholly expected - I have the 5 May in my timetable above. 
16-Apr: Country Garden Services Holdings (6098 HK) completed the second tranche - the first tranche of 750k domestic shares was completed the day before -and now holds 65.04% of Sichuan Languang Justbon Service Group (2606 HK). 
19-Apr: The % held by Country Garden Services Holdings (6098 HK) in Sichuan Languang Justbon Service Group (2606 HK) is now 71.17%.




China Traditional Chinese Medicine (570 HK) 

10-Apr: In its monthly update regarding a potential, China Traditional Chinese Medicine (570 HK) says there is no update.




Zhejiang New Century Hotel Management Group (1158 HK) 

16-Apr: Offer unconditional in all respects. closes on the 14 May.




Zhuhai Holdings Investment (908 HK) 

21-Apr: Zhuhai Holdings (908 HK): SGM On The 18 May










India


Comments (with links to insights)




Vedanta Ltd (VEDL IN) 

5-Apr:  Vedanta (VEDL) Offer Coming To A Close: Watch For Antics 7-Apr: Final result appears to be 374.229mm shares confirmed and 3.291mm shares not yet confirmed for 377.52mm shares tendered in across 6,106 orders. This is a pro-ration of 100%. It tells you a LOT of people did not tender their Vedanta Ltd (VEDL IN) shares.










Japan


Comments (with links to announcements &amp; insights)




BeNEXT Group (2154 JP) 
6-Apr: Just for kicks, Travis checked the Bloomberg download of TOPIX constituents and weights and noted that the number of shares of BeNEXT Group (2154 JP) is now 40.8119463mm shares against the level of 19.317465mm shares as of mid-March. That told him the TSE included the shares at month-end despite the index team telling us (Janaghan communicated on this but Travis was CCed) they would not make the share change at delisting if the notice was so short.Turns out they did. 



Cocokara Fine (3098 JP) 
28 April: The two companies (including Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) announced all the corporate reorganisation measures which would be voted upon at the AGMs



Dynac Holdings Corporation (2675 JP) 
15 April: The tender offer is completed. Suntory reaches 93.51%.  23 April: Suntory executes Demand for Share Cash-Out and announces delisting for 28 May. 



Honshu Chemical Industry (4115 JP) 

No April update




IGNIS Ltd (3689 JP) 

20-Apr: It may have been too light but in the end, people sold their shares of IGNIS Ltd (3689 JP) to Bain.  This is now done and the combination of Bain and the principals own two-thirds or more. This will get delisted and minorities will be squeezed out.




Japan Asia (3751 JP) 

Throughout the month:  JAG and CIE joust in court, eventually the court sides with Murakami-san and the rights offer is cancelled.  27-Apr: City Index Eleventh OFFICIALLY Launches Next Japan Asia Group (3751) Hostile Tender Offer




Maeda Road Construction Co (1883 JP) 

14-Apr: Maeda Road Construction Co (1883 JP) shareholders, as expected, approved the Special Dividend of JPY 650/share (record date March 6th). This is on top of the 100 yen/share of regular plus special commemorative dividend which went ex- on March 30th. 




Shoko Co Ltd (8090 JP) 

16-Apr: The Shoko Co Ltd (8090 JP) deal had a minimum hurdle of 5.663mm shares.  It got 6.069mm shares, which is very low "clearance" vs the minimum. Lots of people obviously did not like this one. Combined with Showa Denko K.K. (4004 JP)'s remaining 14.97%, that gets them to about 70.4% of shares out. This is enough to push a squeezeout, but it may also be enough outstanding to be worthwhile thinking about an Appraisal Rights case. 




Takeei Corp (2151 JP) 

2-Apr: Takeei Corp (2151 JP) today announced it had bought back 19,600 shares for 23.5mm yen during the month of March. The company bought back 153,600 shares or about 0.7% of shares out in the program meant to buy back as much as 2.1% of shares out. The program is now ended










New Zealand


Comments (with links to insights)




Tilt Renewables Ltd (TLT NZ) 

19-Apr: Tilt Renewables: Mercury/PowAR's Bump Heads Off Third-Party Bidders









Philippines


Comments (with links to announcements)




2GO Group Inc (2GO PM) 

15-Apr: Tender Offer Report. The closing date is the 5 May.











Singapore


Comments (with links to announcements &amp; insights)




CEI Limited (CEI SP) 

26-Apr: Offer closes




Jardine Strategic Holdings (JS SP) 

12-Apr: At the Jardine Strategic Holdings (JS SP) Special General Meeting today, 92% of shares were voted in favour of the acquisition by Jardine Matheson Holdings (JM SP). The SGX announced is here, and a Jardines infographic is here. Jardine Matheson: Strategic Buyout Done
29-Apr: Jardine Matheson: Lessons in Dissent




Penguin International (PBS SP) 

21 April: final level of acceptances take the Controlling Shareholder to 80.05%




Procurri Corporation (PROC SP) 

Throughout April, there have been a number of letters from shareholders who hold non-negligible quantities that they intend to vote against the Partial Offer. Link here.




Singapore Reinsurance (SRE SP) 

21 April: Offer declared unconditional.








Taiwan


Comments (with links to insights)




Jih Sun Financial (5820 TT) 

5-Apr: The Squeezeout of the Remaining 46% of Jih Sun Financial








Thailand


Comments




Vinythai Public Co (VNT TB) 

No April update






Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

Hong Kong

KLN Logistics Group Limited is a global third-party logistics (3PL) provider offering integrated logistics and international freight forwarding services, including air, ocean, road, and rail freight, as well as e-commerce and supply chain solutions. The company serves various industries such as fashion, electronics, food & beverage, and pharmaceuticals. Founded in 1981, KLN Logistics Group is headquartered in Kwai Chung, Hong Kong.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

KLN Logistics (636 HK)

JD Logistics IPO: We Play Devil's Advocate

We think the weak 1Q21 gross profit and margin at JDL reflect its lack of pricing power in the industry despite its largest market share position....

Osbert Tang, CFA

Last Week in Event SPACE: Singapore Press, Tabcorp, Invesco Office, Justbon, IHH Healthcare, JD.com

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

JD Logistics IPO: Valuation and Forecast Update

JD Logistics is set to launch its IPO to raise $3-4 bn in May. The rumoured $40 bn valuation is fair, particularly in the context of its...

Arun George

(Mostly) Asia M&A: April 2021 Roundup

The average premium for the new deals announced (or first discussed) in April was ~13%, with a year-to-date average of ~30% (66 deals).

David Blennerhassett

Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)