Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The <a href="https://www.smartkarma.com/entities/rolls-royce-holdings-plc" target="_blank" data-smartkarma-citation="entities:22121:1" rel="noopener">Rolls-Royce Holdings (RR/ LN)</a> Rights Offering announced on 1 October has confounded me. </p><p>I thought that a situation where shares were trading at GBp130 and offering 10 rights for every three shares held to be exercised at GBp32 each, meaning that investors who owned shares had to decide to reinvest 82% of their existing exposure just to buy the new shares and NOT get diluted would mean that long-only holders would sell. </p><p>Instead, after seeing shares drop 20% in two days, they promptly rallied 100% in the next five days and have basically settled at just below 80% up from where they were at announcement. </p><p>Today, Rolls Royce holders <a href="https://www.reuters.com/article/us-health-coronavirus-rolls-royce-hldg/rolls-royce-shareholders-approve-two-billion-pound-rights-issue-idUSKBN27C1KX" target="_blank" rel="noopener">approved</a> the Rights Issue at the shareholder meeting today ("overwhelmingly" according to Chairman Ian Davis). Formal results will be published later.</p><p>The Rights go ex- tomorrow.  </p><p>The change in share price changes the exposure for long/short funds who happen to have shorted it here. That is the nature of rights offerings. With the rights exercise price so far below where the real-time TERP (Theoretical Ex-Rights Price) stands, it would seem shareholders have become significantly more bullish. </p>

The Rolls-Royce Holdings (RR/ LN) Rights Offering announced on 1 October has confounded me. I thought that a situation where shares were trading at GBp130 and offering 10 rights for every three shares held to be exercised at GBp32 each, meaning that investors who owned shares had to decide to reinvest 82% of their existing exposure just to buy the new shares and NOT get diluted would mean that long-only holders would sell. Instead, after seeing shares drop 20% in two days, they promptly rallied 100% in the next five days and have basically settled at just below 80% up from where they were at announcement. Today, Rolls Royce holders approved the Rights Issue at the shareholder meeting today ("overwhelmingly" according to Chairman Ian Davis). Formal results will be published later.The Rights go ex- tomorrow.  The change in share price changes the exposure for long/short funds who happen to have shorted it here. That is the nature of rights offerings. With the rights exercise price so far below where the real-time TERP (Theoretical Ex-Rights Price) stands, it would seem shareholders have become significantly more bullish. 

David Blennerhassett

Last Week in Event SPACE: Shimachu, Cathay, Nexon/Familymart, KWG Living, Tata Consultancy, Sun Art

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<p>Our research suggests average container rates rose by 6% in September, boosted by improved Transpacific volumes. While inbound to US demand appears strong through October, estimates from the Port of LA suggest early November will see a modest YoY decline in throughput. </p>
<p>Bunker (ship fuel) prices remain below year-ago levels and carrier profitability in Q3 (and early Q4) likely remains high compared to 2019. Germany's <a href="https://www.smartkarma.com/entities/hapag-lloyd-ag" target="_blank" data-smartkarma-citation="entities:21649:1" rel="noopener">Hapag-Lloyd AG (HLAG GR)</a> lifted full-year guidance this week, reflecting confidence in near-term market conditions. </p>
<p>After almost tripling earlier in 2020 on a combination of strong demand and limited capacity, it appears air cargo pricing for key Asian carriers has moderated compared versus peak levels in Q2. </p>
<p>While current conditions appear buoyant, we believe the sharpest YoY improvements in profitability for container carriers (and air cargo) are probably already behind us. </p>

Our research suggests average container rates rose by 6% in September, boosted by improved Transpacific volumes. While inbound to US demand appears strong through October, estimates from the Port of LA suggest early November will see a modest YoY decline in throughput. 
Bunker (ship fuel) prices remain below year-ago levels and carrier profitability in Q3 (and early Q4) likely remains high compared to 2019. Germany's Hapag-Lloyd AG (HLAG GR) lifted full-year guidance this week, reflecting confidence in near-term market conditions. 
After almost tripling earlier in 2020 on a combination of strong demand and limited capacity, it appears air cargo pricing for key Asian carriers has moderated compared versus peak levels in Q2. 
While current conditions appear buoyant, we believe the sharpest YoY improvements in profitability for container carriers (and air cargo) are probably already behind us. 

TRACKING TRAFFIC/Containers & Air Cargo: Box Rates Firm | LA Down in Nov? | Air Cargo Pricing Eases

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

<div>Adding Indonesia to the current 8 countries that Singapore has a reciprocal Green Lane travel arrangement with, we should expect an increase in mobility in Singapore as Indonesia contributes to the second largest number of tourists in Singapore besides China. There is also a pilot project of the travel bubble with Hong Kong that requires no 14-day quarantine. </div>
<div></div>
<div>The shift WFO from WFH is not losing any momentum but slowly increasing. Majority Singaporeans uses public transport to go to work compared to private vehicles (public transport is the largest revenue contributor to Comfort Delgro). Phase III of COVID-19 reopening creates higher mobility from the higher number of participants allowed in various events including weddings and religious services. </div>
<div></div>
<div>Let's not be fooled by the increase in the company's increase in PER, the increase was caused by the low earnings rather than an increase in share price thus for investors who have not have <a href="https://www.smartkarma.com/entities/comfortdelgro-corp-ltd" target="_blank" data-smartkarma-citation="entities:497:1" rel="noopener">Comfortdelgro Corp (CD SP)</a> in the portfolio, they still have a chance to do it. </div>

Adding Indonesia to the current 8 countries that Singapore has a reciprocal Green Lane travel arrangement with, we should expect an increase in mobility in Singapore as Indonesia contributes to the second largest number of tourists in Singapore besides China. There is also a pilot project of the travel bubble with Hong Kong that requires no 14-day quarantine. 

The shift WFO from WFH is not losing any momentum but slowly increasing. Majority Singaporeans uses public transport to go to work compared to private vehicles (public transport is the largest revenue contributor to Comfort Delgro). Phase III of COVID-19 reopening creates higher mobility from the higher number of participants allowed in various events including weddings and religious services. 

Let's not be fooled by the increase in the company's increase in PER, the increase was caused by the low earnings rather than an increase in share price thus for investors who have not have Comfortdelgro Corp (CD SP) in the portfolio, they still have a chance to do it. 

ComfortDelgro (CD): Higher Mobility Expected

<p>On the 9 June, <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> disclosed in its massive recapitalisation proposal <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0609/2020060900356.pdf" target="_blank" rel="noopener">announcement</a>, that:</p>
<blockquote>
<p>By the fourth quarter of 2020, Cathay Pacific’s management team will recommend to the Board the optimum size and shape of the Cathay Pacific Group to meet the air travel needs of Hong Kong while keeping Cathay Pacific’s financial status at a healthy level and meeting its responsibilities to Shareholder - <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0609/2020060900356.pdf" target="_blank" rel="noopener">page 6</a></p>
</blockquote>
<p>This morning, Cathay <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1021/2020102100213.pdf" target="_blank" rel="noopener">announced</a> its board had approved the following restructuring plan:</p>
<ul>
<li>Its wholly-owned Cathay Dragon, will cease its operations with effect from today. It is intended that regulatory approval will be sought for a majority of Cathay Dragon’s routes to be operated by the Company and wholly-owned subsidiary low-cost carrier, Hong Kong Express Airways.</li>
<li>Approximately 8,500 positions across the Cathay Pacific Group (including Cathay Dragon) will be eliminated, accounting for around 24% of the Cathay Pacific Group’s headcount of 35,000.</li>
<li>Hong Kong-based cabin and cockpit crew of Cathay Pacific will be asked to agree to changes in their conditions of service which are designed, inter alia, to match remuneration more closely to productivity and to enhance market competitiveness.</li>
</ul>
<p>This restructuring will cost HK$2.2bn, to be funded internally. </p>
<p>Cathay is still running at a HK$1.5-HK$2bn/monthly loss. This restructuring is expected to save HK$500mn/month once fully implemented in 2021.</p>
<p>Separately <a href="https://www.smartkarma.com/entities/swire-pacific-ltd-cl-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (A) (19 HK)</a>'s discount to NAV appears to have met support at around the current NAV discount.</p>
<p>As always, more below the fold.</p>

On the 9 June, Cathay Pacific Airways (293 HK) disclosed in its massive recapitalisation proposal announcement, that:

By the fourth quarter of 2020, Cathay Pacific’s management team will recommend to the Board the optimum size and shape of the Cathay Pacific Group to meet the air travel needs of Hong Kong while keeping Cathay Pacific’s financial status at a healthy level and meeting its responsibilities to Shareholder - page 6

This morning, Cathay announced its board had approved the following restructuring plan:

Its wholly-owned Cathay Dragon, will cease its operations with effect from today. It is intended that regulatory approval will be sought for a majority of Cathay Dragon’s routes to be operated by the Company and wholly-owned subsidiary low-cost carrier, Hong Kong Express Airways.
Approximately 8,500 positions across the Cathay Pacific Group (including Cathay Dragon) will be eliminated, accounting for around 24% of the Cathay Pacific Group’s headcount of 35,000.
Hong Kong-based cabin and cockpit crew of Cathay Pacific will be asked to agree to changes in their conditions of service which are designed, inter alia, to match remuneration more closely to productivity and to enhance market competitiveness.

This restructuring will cost HK$2.2bn, to be funded internally. 
Cathay is still running at a HK$1.5-HK$2bn/monthly loss. This restructuring is expected to save HK$500mn/month once fully implemented in 2021.
Separately Swire Pacific (A) (19 HK)'s discount to NAV appears to have met support at around the current NAV discount.
As always, more below the fold.

Singapore

Singapore Airlines Limited provides air transportation, engineering, pilot training, air charter, and tour wholesaling services. The Company's airline operation covers Asia, Europe, the Americas, South West Pacific, and Africa.

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Singapore Airlines (SIA SP)

Rolls Royce Rights Roll Off

Rolls Royce Rights go ex- on 28 October. A sharp pop in shares since the Rights were confirmed at end-Sep has led to shares 70+% higher vs pre...

Travis Lundy

Last Week in Event SPACE: Shimachu, Cathay, Nexon/Familymart, KWG Living, Tata Consultancy, Sun Art

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

TRACKING TRAFFIC/Containers & Air Cargo: Box Rates Firm | LA Down in Nov? | Air Cargo Pricing Eases

Container volumes and pricing firmed in September, and fuel prices remain relatively low, but trading conditions are unlikely to improve much from...

Tracking Traffic

ComfortDelgro (CD): Higher Mobility Expected

HK-SG travel bubble, Phase III, higher mobility in workplace are key catalysts to start accumulating ComfortDelgro's shares now.

Henry Soediarko

Cathay Pacific: Exit The Dragon

With passenger travel unlikely to return to pre-COVID-19 levels until 2024, the inevitable staff cut is announced, together with the cessation of...

David Blennerhassett

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