Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

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<p>One of the biggest trends that COVID-19 has resulted has been the impact on the global population as millions of people delay having babies due to so many uncertainties associated with virus. China has been no exception. As such, the <a href="https://www.cnbc.com/2021/04/15/chinas-central-bank-pboc-paper-suggests-dropping-childbirth-limits.html" target="_blank" rel="noopener">People's Bank of China</a> released a working paper on 14 April that suggested that China faces severe population problems and that <strong>China allow three or more children per household. </strong></p>
<p>All in all, despite this urgent message from the People's Bank of China regarding the need to scrap the restriction in childbirth policy, this is not yet official. Nonetheless, given the fact that this document is coming from the People's Bank of China combined with the need to combat the big negative impact of COVID-19 on people having children, there could be an increasing probability that the Chinese government could indeed announce a change its policy to allow three or more children in 2021.</p>
</div><p>Some of the key infant formula related stocks that could benefit from the Chinese government allowing three or more children include <a href="https://www.smartkarma.com/entities/a2-milk-co-ltd-95d4fbed-afa1-41e9-bafb-a5f1ef97622e" target="_blank" data-smartkarma-citation="entities:22775:1" rel="noopener">A2 Milk Co Ltd (A2M AU)</a>, Beingmate Baby &amp; Child Food (002570 CH), and <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a>.</p>


One of the biggest trends that COVID-19 has resulted has been the impact on the global population as millions of people delay having babies due to so many uncertainties associated with virus. China has been no exception. As such, the People's Bank of China released a working paper on 14 April that suggested that China faces severe population problems and that China allow three or more children per household. 
All in all, despite this urgent message from the People's Bank of China regarding the need to scrap the restriction in childbirth policy, this is not yet official. Nonetheless, given the fact that this document is coming from the People's Bank of China combined with the need to combat the big negative impact of COVID-19 on people having children, there could be an increasing probability that the Chinese government could indeed announce a change its policy to allow three or more children in 2021.
Some of the key infant formula related stocks that could benefit from the Chinese government allowing three or more children include A2 Milk Co Ltd (A2M AU), Beingmate Baby &amp; Child Food (002570 CH), and China Mengniu Dairy Co (2319 HK).

China May Scrap The Restriction of Childbirths - Impact on Baby Formula Related Stocks in China

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>On the 27 September, Jingang Trade, a company wholly-owned by <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a>, and the Zhang Group <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0927/2020092700065.pdf" target="_blank" rel="noopener">entered</a> into a Share Subscription Agreement (SSA) with the Offeror,  a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group would transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror would hold 43.75% and be obligated to make a Mandatory General Offer (MGO) for all shares not owned. The MGO would be HK$1.132/share (an 11% premium to last close). The Offer price will not be increased.</p>
<p>The MGO is subject to a 50% (of all shares out) acceptance condition.</p>
<p>The SSA was completed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0111/2021011100722.pdf" target="_blank" rel="noopener">11 January</a> and the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0117/2021011700009.pdf" target="_blank" rel="noopener">Composite Doc</a> was despatched last night. The first close is the 8 February.</p>
<p>The Offeror has received 14 irrevocable undertakings (IU) from shareholders to accept the Offer in respect of 1,377,008,000 shares or 52.83% of shares out. Therefore, once the IU shareholders tender, the acceptance condition will have been met. Accordingly, the Offer is expected to become unconditional on or prior to the seventh day after the date of this Composite Doc.</p>
<p>The percentage of the Offer Shares made up by all of the IU shares is ~93.92%, therefore compulsory acquisition under section 88 of the Cayman Islands Companies Act and Rule 2.11 of the Takeovers Code will have been met.</p>
<p>As always, more below the fold.</p>
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On the 27 September, Jingang Trade, a company wholly-owned by Inner Mongolia Yili Industrial Group (A) (600887 CH), and the Zhang Group entered into a Share Subscription Agreement (SSA) with the Offeror,  a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group would transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror would hold 43.75% and be obligated to make a Mandatory General Offer (MGO) for all shares not owned. The MGO would be HK$1.132/share (an 11% premium to last close). The Offer price will not be increased.
The MGO is subject to a 50% (of all shares out) acceptance condition.
The SSA was completed on the 11 January and the Composite Doc was despatched last night. The first close is the 8 February.
The Offeror has received 14 irrevocable undertakings (IU) from shareholders to accept the Offer in respect of 1,377,008,000 shares or 52.83% of shares out. Therefore, once the IU shareholders tender, the acceptance condition will have been met. Accordingly, the Offer is expected to become unconditional on or prior to the seventh day after the date of this Composite Doc.
The percentage of the Offer Shares made up by all of the IU shares is ~93.92%, therefore compulsory acquisition under section 88 of the Cayman Islands Companies Act and Rule 2.11 of the Takeovers Code will have been met.
As always, more below the fold.






Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

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<p>On <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0731/2020073101776.pdf" target="_blank" rel="noopener">31 July 2020</a>, dairy farmer <a href="https://www.smartkarma.com/entities/china-zhongdi-dairy-holdings" target="_blank" data-smartkarma-citation="entities:22662:1" rel="noopener">China Zhongdi Dairy (1492 HK)</a> entered into a subscription agreement with Hongkong Jingang Trade Holding Co (Jingang Trade), a company wholly-owned by <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a>,  pursuant to which Jingang Trade was allotted 432,641,522 shares at HK$0.47/share, representing ~16.6% of the enlarged issued share capital in Zhongdi.  The subscription was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0812/2020081200704.pdf" target="_blank" rel="noopener">completed</a> on 12 August.</p>
<p>Immediately after completion, the shareholding percentage of Zhang Jianshe and Zhang Kaizhan (the Zhang Group) in Zhongdi decreased to approximately 29.51% of the then issued share capital, and the Zhang Group ceased to be the controlling shareholders of Zhongdi. </p>
<h3>The New News</h3>
<p>Jingang Trade and the Zhang Group have now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0927/2020092700065.pdf" target="_blank" rel="noopener">entered</a> into a Share Subscription Agreement (SSA) with the Offeror, which is a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group will transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror will hold 43.75%, and be obligated to make a Mandatory General Offer for all shares not owned. The MGO will be HK$1.132/share (a 11% premium to last close). The price will not be increased.</p>
<p>The SSA is primarily subject to independent shareholder approval and China's SAMR.</p>
<p>The MGO is subject to a 50% (of all shares out) acceptance condition.</p>
<p>Despite the meagre headline Offer premium to last close, Zhongdi shares are up 129% YTD. Apart from timing associated with regulatory approvals, this looks a done deal.</p>
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<p>This transaction is highly reminiscent of the recent <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0906/2020090600009.pdf" target="_blank" rel="noopener">conditional voluntary general offer</a> for <a href="https://www.smartkarma.com/entities/yuanshengtai-dairy-farm-ltd" target="_blank" data-smartkarma-citation="entities:17091:1" rel="noopener">Yuanshengtai Dairy Farm (1431 HK)</a> from <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> discussed in <em><a href="https://skr.ma/uF9jE" target="_blank" rel="noopener">YST Dairy (1431 HK): VGO From China Feihe</a></em>. </p>
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<p>As always, more below the fold.</p>
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On 31 July 2020, dairy farmer China Zhongdi Dairy (1492 HK) entered into a subscription agreement with Hongkong Jingang Trade Holding Co (Jingang Trade), a company wholly-owned by Inner Mongolia Yili Industrial Group (A) (600887 CH),  pursuant to which Jingang Trade was allotted 432,641,522 shares at HK$0.47/share, representing ~16.6% of the enlarged issued share capital in Zhongdi.  The subscription was completed on 12 August.
Immediately after completion, the shareholding percentage of Zhang Jianshe and Zhang Kaizhan (the Zhang Group) in Zhongdi decreased to approximately 29.51% of the then issued share capital, and the Zhang Group ceased to be the controlling shareholders of Zhongdi. 
The New News
Jingang Trade and the Zhang Group have now entered into a Share Subscription Agreement (SSA) with the Offeror, which is a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group will transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror will hold 43.75%, and be obligated to make a Mandatory General Offer for all shares not owned. The MGO will be HK$1.132/share (a 11% premium to last close). The price will not be increased.
The SSA is primarily subject to independent shareholder approval and China's SAMR.
The MGO is subject to a 50% (of all shares out) acceptance condition.
Despite the meagre headline Offer premium to last close, Zhongdi shares are up 129% YTD. Apart from timing associated with regulatory approvals, this looks a done deal.


This transaction is highly reminiscent of the recent conditional voluntary general offer for Yuanshengtai Dairy Farm (1431 HK) from China Feihe (6186 HK) discussed in YST Dairy (1431 HK): VGO From China Feihe. 


As always, more below the fold.


Zhongdi Dairy (1492 HK): Possible MGO from Yili

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

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

<p><a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> may have outperformed <a href="https://www.smartkarma.com/entities/health-and-happiness-h-h-int" target="_blank" data-smartkarma-citation="entities:20582:1" rel="noopener">Health And Happiness (H&amp;H) (1112 HK)</a> but the pair trade of long <a href="https://www.smartkarma.com/entities/yuanshengtai-dairy-farm-ltd" target="_blank" data-smartkarma-citation="entities:17091:1" rel="noopener">Yuanshengtai Dairy Farm (1431 HK)</a> and short <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> have made <strong>42%</strong> since the initiation in <a href="https://www.smartkarma.com/insights/china-feihe-6186-flying-no-more" target="_blank" data-smartkarma-citation="insights:39842" rel="noopener">China Feihe (6186): Flying No More?</a> .</p>
<p>The recent news that China Feihe is buying out YST has effectively collapsed the previously available valuation gap therefore it is time to also close the trade by selling YST and buy-to-cover China Feihe. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/619/original/image_10140919521599523419732.png?1599523420" class="editor-image img-responsive" data-smartkarma-image-id="157619"></figure>

China Feihe (6186 HK) may have outperformed Health And Happiness (H&amp;H) (1112 HK) but the pair trade of long Yuanshengtai Dairy Farm (1431 HK) and short China Feihe (6186 HK) have made 42% since the initiation in China Feihe (6186): Flying No More? .
The recent news that China Feihe is buying out YST has effectively collapsed the previously available valuation gap therefore it is time to also close the trade by selling YST and buy-to-cover China Feihe. 


YST (1431) VS China Feihe (6186): Time to Close

China

YuanShengTai Dairy Farm is a dairy farming company primarily engaged in the production and sale of raw cow milk. The company operates dairy cow farms in Heilongjiang and Jilin Provinces, China, supplying raw milk to downstream dairy processors. It was founded in 2008 and is headquartered in Qiqihar, People's Republic of China.

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YuanShengTai Dairy Farm (1431 HK)

Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

Done deal. Expect shares to be suspended next month. Buy a spread or two below terms if available - currently trading through terms at HK$1.15...

David Blennerhassett

Zhongdi Dairy (1492 HK): Possible MGO from Yili

After entering into a trading halt on the 4 September "pursuant to The Codes on Takeovers and Mergers and Share Buy-backs", Yuanshengtai Dairy...

David Blennerhassett

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

YST (1431) VS China Feihe (6186): Time to Close

China Feihe (6186 HK) may have outperformed Health And Happiness (H&H) (1112 HK) but the pair trade of long Yuanshengtai Dairy Farm (1431 HK)...

Henry Soediarko

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China May Scrap The Restriction of Childbirths - Impact on Baby Formula Related Stocks in China

The People's Bank of China released a paper on 14 April that suggested that China allow three or more children per household. In this insight, we...

Douglas Kim

Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

Done deal. Expect shares to be suspended next month. Buy a spread or two below terms if available - currently trading through terms at HK$1.15...

David Blennerhassett

Zhongdi Dairy (1492 HK): Possible MGO from Yili

After entering into a trading halt on the 4 September "pursuant to The Codes on Takeovers and Mergers and Share Buy-backs", Yuanshengtai Dairy...

David Blennerhassett

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

YST (1431) VS China Feihe (6186): Time to Close

China Feihe (6186 HK) may have outperformed Health And Happiness (H&H) (1112 HK) but the pair trade of long Yuanshengtai Dairy Farm (1431 HK)...

Henry Soediarko