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.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/pt-avia-avian" target="_blank" data-smartkarma-citation="entities:35034:1" rel="noopener">PT Avia Avian (AVIA IJ)</a> is a market leader in the decorative paints and coatings industry in Indonesia, with around a 20% market share based on sales revenue in 2020. </li>
<li>Avia is seeking to raise up to $405 million at an IPO price range of IDR780-930. Selling shareholders will also raise up to $364 million through a private placement.</li>
<li>The fundamentals are attractive as Avia is delivering strong growth in both its segments, rising group margins and strong cash generation. Overall, we believe that Avia is worth a look.</li>
</ul>



PT Avia Avian (AVIA IJ) is a market leader in the decorative paints and coatings industry in Indonesia, with around a 20% market share based on sales revenue in 2020. 
Avia is seeking to raise up to $405 million at an IPO price range of IDR780-930. Selling shareholders will also raise up to $364 million through a private placement.
The fundamentals are attractive as Avia is delivering strong growth in both its segments, rising group margins and strong cash generation. Overall, we believe that Avia is worth a look.


Avia Avian IPO Initiation: Painting by Numbers

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 18 January <a href="https://www.smartkarma.com/entities/akzo-nobel-nv" target="_blank" data-smartkarma-citation="entities:21093:1" rel="noopener">Akzo Nobel NV (AKZA NA)</a> made a non-binding proposal to acquire <a href="https://www.smartkarma.com/entities/tikkurila-oyj" target="_blank" data-smartkarma-citation="entities:21786:1" rel="noopener">Tikkurila Oyj (TIK1V FH)</a> for €1.4 billion, at €31.25 per share.
<ul>
<li>The offer is 13% higher than that made by PPG on 5 January.</li>
<li>Tikkurila's shares closed at €32.55, 16.5% higher than the prior trading session and 4.1% above Akzo Nobel's non-binding proposal.</li>
</ul>
Tikkurila was already the subject of a <a href="https://www.smartkarma.com/entities/ppg-industries-inc" target="_blank" data-smartkarma-citation="entities:8775:1" rel="noopener">Ppg Industries (PPG US)</a>'s voluntary recommended public cash tender offer for all shares, at €27.75 per share (increased from €25 per share).
<ul>
<li>PPG increased its bid after Tikkurila said it had received a competing offer (from Hempel AS).</li>
<li>The tender offer period started on 15 January.  </li>
</ul>
The bid is relatively high and could lead to a bidding war with PPG.
<ul>
<li>It happens in the midst of a bidding war, offering over a 113% premium vs. where Tikkurila was trading three months prior to when it became in play</li>
<li>There's the risk of a winning curse.</li>
</ul>
Both PPG and Akzo Nobel seems willing to pay dearly for market share in Scandinavia, the Baltic region and beyond (China and Russia). Cost synergies do not seem to be the main reason for the bid
<ul>
<li>Cost synergies could be relevant in raw metals and logistics, and would probably  be higher for Akzo Nobel, about 5% of gross sales, than for PPG.</li>
<li>Bidders seem to focus on revenue synergies.</li>
</ul>
In spite of the latest consolidation moves, the industry remains very fragmented with c. 50% of global revenues coming from small producers.
<ul>
<li>Acquisitions are generally under 10x EV/EBITDA with synergies. Targets  typically can be brought in a relatively short time-frame to the higher margins of the larger scale acquirers.</li>
<li>Tikkurila is already trading at 17.4x EV/2020e EBITDA.</li>
</ul>
Putting Tikkurila on the same EV/EBITDA multiple of PPG, 16.55x EV/2020e EBITDA, I obtain an equity value of €30.87. Adding €2.5 per share worth of synergies (lower for PPG than in the case of Akzo Nobel), gives €33.38 per share,
<ul>
<li>c. 7% higher than the offer by Akzo Nobel and 2.5% higher than the last close price on 18 January.</li>
<li>Another raise could be the next move for PPG. Akzo Nobel is watching closely and surely is counting on it.</li>
<li>Like in the case of G4S, Tikkurila seems to be a scarce asset (at least for both bidders), that was undervalued and attracting plenty of courtship right now.</li>
</ul>
Recommendation is LONG Tikkurila, TP  33.38.

On 18 January Akzo Nobel NV (AKZA NA) made a non-binding proposal to acquire Tikkurila Oyj (TIK1V FH) for €1.4 billion, at €31.25 per share.

The offer is 13% higher than that made by PPG on 5 January.
Tikkurila's shares closed at €32.55, 16.5% higher than the prior trading session and 4.1% above Akzo Nobel's non-binding proposal.

Tikkurila was already the subject of a Ppg Industries (PPG US)'s voluntary recommended public cash tender offer for all shares, at €27.75 per share (increased from €25 per share).

PPG increased its bid after Tikkurila said it had received a competing offer (from Hempel AS).
The tender offer period started on 15 January.  

The bid is relatively high and could lead to a bidding war with PPG.

It happens in the midst of a bidding war, offering over a 113% premium vs. where Tikkurila was trading three months prior to when it became in play
There's the risk of a winning curse.

Both PPG and Akzo Nobel seems willing to pay dearly for market share in Scandinavia, the Baltic region and beyond (China and Russia). Cost synergies do not seem to be the main reason for the bid

Cost synergies could be relevant in raw metals and logistics, and would probably  be higher for Akzo Nobel, about 5% of gross sales, than for PPG.
Bidders seem to focus on revenue synergies.

In spite of the latest consolidation moves, the industry remains very fragmented with c. 50% of global revenues coming from small producers.

Acquisitions are generally under 10x EV/EBITDA with synergies. Targets  typically can be brought in a relatively short time-frame to the higher margins of the larger scale acquirers.
Tikkurila is already trading at 17.4x EV/2020e EBITDA.

Putting Tikkurila on the same EV/EBITDA multiple of PPG, 16.55x EV/2020e EBITDA, I obtain an equity value of €30.87. Adding €2.5 per share worth of synergies (lower for PPG than in the case of Akzo Nobel), gives €33.38 per share,

c. 7% higher than the offer by Akzo Nobel and 2.5% higher than the last close price on 18 January.
Another raise could be the next move for PPG. Akzo Nobel is watching closely and surely is counting on it.
Like in the case of G4S, Tikkurila seems to be a scarce asset (at least for both bidders), that was undervalued and attracting plenty of courtship right now.

Recommendation is LONG Tikkurila, TP  33.38.

Akzo Nobel Tops PPG's Offer for Tikkurila

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Singaporean paint conglomerate Wuthelam will acquire a majority stake in Nippon Paint Holdings, Japan's largest coatings maker, in a deal valued at roughly 1.3 trillion yen ($12.3 billion), according to a Nippon Paint announcement on Friday that will bring Wuthelam’s stake from 39% to 55%, to be completed in January 2021 through a private placement of shares for around JPY 1.3 trillion or USD 12.3 billion.12 months onward, with a stronger balance sheet, profit is expected to increase by 60% and EPS to rise 10% at least that put the company in a better position for further M&amp;A. Indonesia has the largest construction market in ASEAN (USD 120 bn), much higher compared to the rest of the ASEAN countries combined. The acquisition of the Indonesian business will be earnings accretive for the company as the operating profit margin in Indonesia is 3x higher than the company’s current.The message it tries to send to the market is clear - becoming an Asian focus company leveraging on Nippon Paint's domain expertise, improved corporate governance that makes it friendlier for foreign investors who want to invest in Japan listed company with foreign board members, a stronger balance sheet and full participation in South East Asia's largest economy, Indonesia. With a stronger balance sheet and a higher EPS for next year, investors should prefer Nippon Paints to Kansai Paint.

Singaporean paint conglomerate Wuthelam will acquire a majority stake in Nippon Paint Holdings, Japan's largest coatings maker, in a deal valued at roughly 1.3 trillion yen ($12.3 billion), according to a Nippon Paint announcement on Friday that will bring Wuthelam’s stake from 39% to 55%, to be completed in January 2021 through a private placement of shares for around JPY 1.3 trillion or USD 12.3 billion.12 months onward, with a stronger balance sheet, profit is expected to increase by 60% and EPS to rise 10% at least that put the company in a better position for further M&amp;A. Indonesia has the largest construction market in ASEAN (USD 120 bn), much higher compared to the rest of the ASEAN countries combined. The acquisition of the Indonesian business will be earnings accretive for the company as the operating profit margin in Indonesia is 3x higher than the company’s current.The message it tries to send to the market is clear - becoming an Asian focus company leveraging on Nippon Paint's domain expertise, improved corporate governance that makes it friendlier for foreign investors who want to invest in Japan listed company with foreign board members, a stronger balance sheet and full participation in South East Asia's largest economy, Indonesia. With a stronger balance sheet and a higher EPS for next year, investors should prefer Nippon Paints to Kansai Paint.

Nippon Paint (4612): From Japan to Asia to Indonesia

<a href="https://www.smartkarma.com/entities/19508" target="_blank" data-smartkarma-citation="entities:19508:1">DuluxGroup Ltd (DLX AU)</a> is Australia’s largest player in the decorative paint market, with well-known brands Dulux in paints and Selleys in adhesives. On 17 April, DuluxGroup announced a recommended scheme of arrangement from <a href="https://www.smartkarma.com/entities/7387" target="_blank" data-smartkarma-citation="entities:7387:1">Nippon Paint Holdings (4612 JP)</a> for A$9.80 cash per share. <div class="content-highlight">Overall, we believe that Nippon Paint’s bid is attractive with limited chance of a superior proposal. </div>

DuluxGroup Ltd (DLX AU) is Australia’s largest player in the decorative paint market, with well-known brands Dulux in paints and Selleys in adhesives. On 17 April, DuluxGroup announced a recommended scheme of arrangement from Nippon Paint Holdings (4612 JP) for A$9.80 cash per share. Overall, we believe that Nippon Paint’s bid is attractive with limited chance of a superior proposal. 

DuluxGroup’s Attractive Bid from Nippon Paint

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.

Kansai Paint continues to enjoy strong results in India where subsidiary <a href="https://www.smartkarma.com/entities/10169" target="_blank" data-smartkarma-citation="entities:10169:1">Kansai Nerolac Paints Ltd (KNPL IN)</a> has seen revenue double since 2011 and where net income is set to double relative to FY03/15. With Kansai Nerolac's PE approaching 50x, Kansai Paint's 75% stake is now worth JPY327bn or 45% of the company's JPY722bn market cap. While Kansai Paint's Indian operations have seen OP grow at a 31% CAGR since 4QFY03/14 we nevertheless feel that its subsidiary's inflated multiple represents a downside risk as our analysis suggests that Kansai Paint's valuation is directly impacted by the valuation of Kansai Nerolac.The company has faced several headwinds this year as a crackdown on pollution in China has impacted solvent-based coatings and raw materials costs have pressured margins globally and caused losses in Africa. We believe that these issues should be resolved over the medium-term and should open up further opportunities for the company to increase profitability.

Kansai Paint continues to enjoy strong results in India where subsidiary Kansai Nerolac Paints Ltd (KNPL IN) has seen revenue double since 2011 and where net income is set to double relative to FY03/15. With Kansai Nerolac's PE approaching 50x, Kansai Paint's 75% stake is now worth JPY327bn or 45% of the company's JPY722bn market cap. While Kansai Paint's Indian operations have seen OP grow at a 31% CAGR since 4QFY03/14 we nevertheless feel that its subsidiary's inflated multiple represents a downside risk as our analysis suggests that Kansai Paint's valuation is directly impacted by the valuation of Kansai Nerolac.The company has faced several headwinds this year as a crackdown on pollution in China has impacted solvent-based coatings and raw materials costs have pressured margins globally and caused losses in Africa. We believe that these issues should be resolved over the medium-term and should open up further opportunities for the company to increase profitability.

Kansai Paint: India Drives Growth But Kansai Nerolac's 50x PE Is Also a Risk

Netherlands

Akzo Nobel N.V. manufactures specialty chemicals. The Company offers decorative paints and coatings, surfactants, polymer, pulp and paper, bleaching and oxidizing, salt-chlorine, and other chemical products. Akzo Nobel serves customers worldwide.

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Akzo Nobel NV (AKZA NA)

Avia Avian IPO Initiation: Painting by Numbers

Avia is seeking to raise up to $405 million at an IPO price range of IDR780-930. Avia is delivering robust growth, rising group margins and strong...

Arun George

Akzo Nobel Tops PPG's Offer for Tikkurila

Tikkurila seems to be a scarce asset (at least for both bidders), that was undervalued and attracting plenty of courtship right now (like G4S)....

Jesus Rodriguez Aguilar

Nippon Paint (4612): From Japan to Asia to Indonesia

Singaporean paint conglomerate Wuthelam will acquire a majority stake in Nippon Paint Holdings, Japan's largest coatings maker, in a deal valued at...

Henry Soediarko

DuluxGroup’s Attractive Bid from Nippon Paint

DuluxGroup Ltd (DLX AU) is Australia’s largest player in the decorative paint market, with well-known brands Dulux in paints and Selleys in...

Arun George

Kansai Paint: India Drives Growth But Kansai Nerolac's 50x PE Is Also a Risk

Kansai Paint continues to enjoy strong results in India where subsidiary Kansai Nerolac Paints Ltd (KNPL IN) has seen revenue double since 2011 and...

Mio Kato

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