Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

China Machinery Engineering / Event-Driven

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After <a href="https://www.smartkarma.com/entities/china-machinery-engineering-corp" target="_blank" data-smartkarma-citation="entities:10998:1" rel="noopener">China Machinery Engineering (1829 HK)</a>'s (CMEC) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0108/2021010701436.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading on the 8 January  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company", CMEC has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0113/2021011300422.pdf" target="_blank" rel="noopener">announced</a> a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH.
The Offer price is HK$3.70/share, a 45.10% premium to last close, and a 118.93% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for CMEC's domestic shares at RMB3.082692/share is also tabled.
CMEC has 4,125,700,000 shares out, comprising 908,270,000 H shares and 3,217,430,000 domestic shares.
SINOMACH holds 3.185bn domestic shares directly, and 32.174mn shares indirectly via China United. Together this totals 77.99% of the total voting interest in CNEC. 
SINOMACH does not hold any H  shares.
The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE.
As CMEC is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.
This appears a relatively clean deal. The Long Stop date is the 13 January 2022, but this should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.
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More below the fold.
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After China Machinery Engineering (1829 HK)'s (CMEC) shares were suspended ahead of trading on the 8 January  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company", CMEC has now announced a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH.
The Offer price is HK$3.70/share, a 45.10% premium to last close, and a 118.93% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for CMEC's domestic shares at RMB3.082692/share is also tabled.
CMEC has 4,125,700,000 shares out, comprising 908,270,000 H shares and 3,217,430,000 domestic shares.
SINOMACH holds 3.185bn domestic shares directly, and 32.174mn shares indirectly via China United. Together this totals 77.99% of the total voting interest in CNEC. 
SINOMACH does not hold any H  shares.
The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE.
As CMEC is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.
This appears a relatively clean deal. The Long Stop date is the 13 January 2022, but this should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.


More below the fold.


China Machinery Engineering (1829 HK): Delisting Offer From Parent

<a href="https://www.smartkarma.com/entities/china-machinery-engineering-corp" target="_blank" data-smartkarma-citation="entities:10998:1" rel="noopener">China Machinery Engineering (1829 HK)</a>'s (CMEC) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0108/2021010701436.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading this morning  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company".
CMEC is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against) for the H shares. Such an Offer may or may not require an additional tendering acceptance condition.
CMEC's ultimate controlling shareholder is state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH, which holds 77.99% of shares out, via CMEC's domestic shares. SINOMACH holds no H shares. 
CMEC is up 56.4% since the 29 December, on larger-than-average volume.
Funny that.
The most interesting facet attached to CMEC is that it has (adjusted) net cash of HK$8.8bn as at 30 June 2020, compared to market cap of HK$10.5bn.  Should a firm offer unfold, it is doubtful it will fully reflect the underlying business in addition to that cash pile.
More below the fold.

China Machinery Engineering (1829 HK)'s (CMEC) shares were suspended ahead of trading this morning  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company".
CMEC is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against) for the H shares. Such an Offer may or may not require an additional tendering acceptance condition.
CMEC's ultimate controlling shareholder is state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH, which holds 77.99% of shares out, via CMEC's domestic shares. SINOMACH holds no H shares. 
CMEC is up 56.4% since the 29 December, on larger-than-average volume.
Funny that.
The most interesting facet attached to CMEC is that it has (adjusted) net cash of HK$8.8bn as at 30 June 2020, compared to market cap of HK$10.5bn.  Should a firm offer unfold, it is doubtful it will fully reflect the underlying business in addition to that cash pile.
More below the fold.

China Machinery Engineering (1829 HK): Possible Offer

Quality-Value Investing

Marc Melendez, CFA

Emerging Market Small and Mid Cap Equities

Reperio Capital

Reperio Capital Research was founded in 2013 with the goal of better serving the investment community with in-depth, high quality, value oriented research.

Reperio means to discover in latin. Using value investing principles, we aim to discover a minimum of 12 investment opportunities per year within the Emerging Markets Small and Mid Cap universe.

We take a business owners perspective with a long term investment horizon. We conduct bottom up, fundamental research. We focus on downside risks and require a significant margin of safety in any investment to prevent the permanent loss of capital. All factors differentiating our research from the short term, trading focus of traditional research providers.

Equity Bottom-Up

China Machinery Engineering / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/10998" target="_blank" data-smartkarma-citation="entities:10998:1">China Machinery Engineering (1829 HK)</a> (CMEC) is a Chinese state-owned construction and engineering company. It is project manager subcontracting most project activities to qualified suppliers. CMEC is consistently profitable with an average return on operating asset of 14.5% since 2012. It has a negative invested capital position and a large net cash position. Despite its quality, CMEC’s market cap. is below the company’s net cash position. There is 83% upside to the conservative bear case, which values operating assets at 8 times after tax free cash flow and discounts financial assets by 50%. The downside is limited with an asset reproduction value 8.8% below the current share price. The company’s primary assets are receivables with a historic impairment rate of 0.9% and cash and investments.

China Machinery Engineering (1829 HK) (CMEC) is a Chinese state-owned construction and engineering company. It is project manager subcontracting most project activities to qualified suppliers. CMEC is consistently profitable with an average return on operating asset of 14.5% since 2012. It has a negative invested capital position and a large net cash position. Despite its quality, CMEC’s market cap. is below the company’s net cash position. There is 83% upside to the conservative bear case, which values operating assets at 8 times after tax free cash flow and discounts financial assets by 50%. The downside is limited with an asset reproduction value 8.8% below the current share price. The company’s primary assets are receivables with a historic impairment rate of 0.9% and cash and investments.

China Machinery Engineering Corp (1829:HK)- Quality Business Trading Below Net Cash Value

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

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

Cosco International Holdings / Equity Bottom-Up

According to a recent search on Bloomberg, there are just 4 companies listed in Hong Kong that have a market cap greater than 500M USD, reasonable ADTV and negative Enterprise Value (EV).<table class="table table-striped"><tbody>
<tr>
<td>Company Name</td>
<td style="text-align: center;">Enterprise Value (M in HKD)</td>
<td style="text-align: center;">Dividend Yield</td>
<td style="text-align: center;">ADTV</td>
</tr>
<tr>
<td><a href="https://www.smartkarma.com/entities/10998" target="_blank" data-smartkarma-citation="entities:10998:1">China Machinery Engineering Corp (1829 HK)</a></td>
<td style="text-align: center;">-7,695</td>
<td style="text-align: center;">4.70%</td>
<td style="text-align: center;">22.8 M USD</td>
</tr>
<tr>
<td><a href="https://www.smartkarma.com/entities/5432" target="_blank" data-smartkarma-citation="entities:5432:1">FIH Mobile Ltd (2038 HK)</a></td>
<td style="text-align: center;">-152</td>
<td style="text-align: center;">0%</td>
<td style="text-align: center;">1.77 M USD</td>
</tr>
<tr>
<td><a href="https://www.smartkarma.com/entities/3690" target="_blank" data-smartkarma-citation="entities:3690:1">Weiqiao Textile Co (2698 HK)</a></td>
<td style="text-align: center;">-1,695</td>
<td style="text-align: center;">4.78%</td>
<td style="text-align: center;">0.55 M USD</td>
</tr>
<tr>
<td><a href="https://www.smartkarma.com/entities/672" target="_blank" data-smartkarma-citation="entities:672:1">COSCO International Holdings Limited (517 HK)</a></td>
<td style="text-align: center;">-1,272</td>
<td style="text-align: center;">5.5%</td>
<td style="text-align: center;">0.42 M USD</td>
</tr>
</tbody></table>Mr. Market is telling investors these…

According to a recent search on Bloomberg, there are just 4 companies listed in Hong Kong that have a market cap greater than 500M USD, reasonable ADTV and negative Enterprise Value (EV).

Company Name
Enterprise Value (M in HKD)
Dividend Yield
ADTV


China Machinery Engineering Corp (1829 HK)
-7,695
4.70%
22.8 M USD


FIH Mobile Ltd (2038 HK)
-152
0%
1.77 M USD


Weiqiao Textile Co (2698 HK)
-1,695
4.78%
0.55 M USD


COSCO International Holdings Limited (517 HK)
-1,272
5.5%
0.42 M USD

Mr. Market is telling investors these…

Cosco Ship Intl-517 HK: Trading at Negative EV & 25% Discount to Net Cash; Deep Value or Value Trap?

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

The latest gathering of China’s National People’s Congress has produced some reassuring news for the domestic infrastructure sector. In our view, we should see a similar level of fixed-asset investment, or FAI, growth (8%-9%) in 2017, and the public-private partnership, or PPP, project financing method will play an increasingly instrumental role in infrastructure development. The National Development and Reform Commission, the nation’s top economic development planning agency, is targeting about 8% year-on-year FAI growth, with a heavy emphasis on transportation infrastructure development in both inland regions and prosperous coastal provinces. The implied growth target in 2017 is in line with our assumption and reinforces our view that infrastructure firms with heavy PPP exposure (<a href="https://www.smartkarma.com/entities/265" target="_blank" data-smartkarma-citation="entities:265:1">China Communications Construction Co Ltd (1800 HK)</a>, or CCCC, and <a href="https://www.smartkarma.com/entities/265" target="_blank" data-smartkarma-citation="entities:265:1">China Communications Construction Co Ltd (1800 HK)</a>, or CSCI) are among the top beneficiaries in the latest transportation driven spending push. Our fair value estimates for no-moat CCCC and narrow-moat CSCI are unchanged at HKD 11.5 per share and HKD 14 per share, respectively, and we will revisit our valuations upon the release of annual results in late March.Analyst: John Hu

The latest gathering of China’s National People’s Congress has produced some reassuring news for the domestic infrastructure sector. In our view, we should see a similar level of fixed-asset investment, or FAI, growth (8%-9%) in 2017, and the public-private partnership, or PPP, project financing method will play an increasingly instrumental role in infrastructure development. The National Development and Reform Commission, the nation’s top economic development planning agency, is targeting about 8% year-on-year FAI growth, with a heavy emphasis on transportation infrastructure development in both inland regions and prosperous coastal provinces. The implied growth target in 2017 is in line with our assumption and reinforces our view that infrastructure firms with heavy PPP exposure (China Communications Construction Co Ltd (1800 HK), or CCCC, and China Communications Construction Co Ltd (1800 HK), or CSCI) are among the top beneficiaries in the latest transportation driven spending push. Our fair value estimates for no-moat CCCC and narrow-moat CSCI are unchanged at HKD 11.5 per share and HKD 14 per share, respectively, and we will revisit our valuations upon the release of annual results in late March.Analyst: John Hu

The Latest Government FAI Target Warrants Stable Growth Prospects for Infrastructure Sector

China

China Machinery Engineering Corporation contracts international engineering projects. The Company constructs thermal power plants, hydro power plants, power station projects and communication projects. Furthermore, the Company also offers import and export services in electric meters, electro-optic light and castings products.

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China Machinery Engineering (1829 HK)