All Posts By

Smartkarma Daily Briefs

Brief Thailand: Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help and more

By | Daily Briefs, Thailand

In this briefing:

  1. Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help
  2. BEM: Leading Mass Transit Operator Is About to Get Huge
  3. Central Retail IPO: Trading Debut, Valuation Scenario Analysis
  4. The Guerrilla War Against The PBOC
  5. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

1. Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help

Image 59555925851582090484648

Central Retail (CRC TB) raised about US$2.32bn at THB42 per share, just above the mid point of its IPO price range. We have covered the IPO in our previous two notes:

In this insight, we will look at the IPO deal dynamics and updated valuation.

2. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%204

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

3. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

Dcf

Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

4. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

5. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

This past week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief China: Top Short Triggers in Asia for a Q1 Pullback and more

By | China, Daily Briefs

In this briefing:

  1. Top Short Triggers in Asia for a Q1 Pullback
  2. Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years
  3. New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2
  4. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

1. Top Short Triggers in Asia for a Q1 Pullback

We have outlined increasing risk of tops forming into the late January cycle timeline with some markets peaking before the SPX. The first top cycle date comes near January 23 and appears to be rolling in a touch early. The bigger cycle inflection comes between January 27 and February 9th. Our base case called for an equity cycle peak into late January and Q1 pullback into March.

Our short group in Asia is comprised of Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) , FTSE Straits Times Index (STI) (STI INDEX) , Kuala Lumpur Composite Index (Klci) (FBMKLCI INDEX) , FTSE China A50 Index (XIN9I INDEX) , Hong Kong Hang Seng Index (HSI INDEX) and NIFTY Index (NIFTY INDEX) .

The common thread is an oversold USD, slated cycle peaks in line with the global cycle, severe RSI divergence and sell signals in A50, HSI, Korea and India. This technical set up warns of a harder decline in Q1. Today’s price action aligns with power moves associated with non confirmation divergences.

EEM is also at a clear cycle peak as the USD makes key lows vs EM FX at a time when consensus is USD bearish (we have a bullish take on the green back).

2. Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years

Image?1579594208

Smoore Tech is a leading e-cigarette and component manufacturer in China. The company was delisted from the venture board in China, the NEEQ, and is seeking a listing in Hong Kong to raise up to USD 400 million. In our previous note, we have looked at the company’s background, its brief financials, and its shareholders. We are impressed by the company’s stellar growth in the past and its technology-driven business. 

In this note, we take a closer look at the company’s latest IPO filing and the latest fund-raising before the listing. The main driver of the company’s 178% YoY revenue growth in 1H2019 was the ODM device business. The company is the number one e-cigarette OEM player in the world with the US being its largest source of revenue. The company is undergoing its capacity expansion plan in the next three years to triple its production capacity. In the pre-IPO fundraising in late last year, we note that there was a lack of presence of institutional investors. 

Our previous coverage on Smoore International

3. New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2

Image 25915250771579546906059

  • EDU’s stock price had risen more than 120% in 2019.
  • The growth rate of both students and revenues accelerated in 2Q2020 (ended November 2019).
  • The operating margin turned to 3% in 2Q2020 versus -5% in 2Q2019.
  • The classroom-based business grew more rapidly than the online business and EDU has been utilizing learning centers more efficiently.
  • We believe, in fiscal 2020 (ended May 2020), total revenues will grow 29% and the operating margin will improve to 14% versus 10% in F2019.
  • The P/E band suggests an upside of 23%.

Our previous coverage on New Oriental:

4. Huaneng Renewables: Tendering Condition Satisfied. Offer Remains Conditional

Image 77809790021579525718925

On the First Closing Date – today – China Huaneng received valid acceptances representing 90.80% of Huaneng Renewables Corp H (958 HK)‘s total H Shares. This satisfies the 90% “acceptance condition” attached to the Offer.

This follows the EGM and H Share Class Meeting of HRC held on 6 January 2020 in which the special resolution to approve the delisting by the independent H shareholders was passed

What now? The Offer remains conditional on: 

… obtaining all necessary authorisations, consents and approvals (including approval in-principle) of any governmental or regulatory body in relation to the H Share Offer (including its implementation) (if applicable); and the condition on the completion of the filing of NDRC and MOFCOM and the registration of SAFE in relation to the H Share Offer.

Both these conditions have not been filled as at the First Closing Date. 

Should the Offer be declared unconditional in all respects, it will remain open for acceptance for not less than 28 days. However, as the Offer remains conditional, the Offer “will remain open for acceptance until further notice“. 

I’m not aware of similar wording – until further notice – in an Offer. As per page 3 of the Composite Document:

Pursuant to Rule 15.5 of the Takeovers Code, except with the consent of the Executive, the H Share Offer may not become or be declared unconditional as to acceptance after 7:00 p.m. on the 60th day after the posting of the Composite Document.

Evidently, the Executive (of the SFC) has consented to an extension.

Be that as it may, the outstanding regulatory conditions were likely contingent on the acceptance condition. This is China Huaneng – no one expects an issue with the authorities.

This is a done deal. Expect shares to trade tighter to terms tomorrow.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief USA: Sprint/T-Mobile: Markets Building in a 60% Probability Deal Is Rejected and more

By | Daily Briefs, United States

In this briefing:

  1. Sprint/T-Mobile: Markets Building in a 60% Probability Deal Is Rejected

1. Sprint/T-Mobile: Markets Building in a 60% Probability Deal Is Rejected

Sb%20holdco%20disc%2020%20jan

Sprint shares now trade at a 43% discount to the implied value based on the original merger terms, down from <10% last July when the DoJ approved the deal and from 27% when we last wrote about this in November. Based on our range of outcomes, that appears to imply a 60%+ probability that the TMUS merger will not pass muster in the courts. That ruling should be out in February and whilst we do not have any special insight (nor does anyone which is why deal odds are priced like this) we did think it worthwhile to look at the state of play. TMUS should trade steadily no matter the result whilst Sprint is almost assuredly mis-priced as markets give meaningful weight to both sides of a binary outcome.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief M&A: Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing and more

By | Daily Briefs, Mergers and Acquisitions

In this briefing:

  1. Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing
  2. Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road

1. Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing

Screenshot%202020 01 20%20at%204.38.35%20pm

This is a follow-on insight to Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road which discusses the Maeda Corp (1824 JP) hostile Tender Offer for Maeda Road Construction Co (1883 JP)

The first insight deals with the Tender Offer, and the possible responses Maeda Road might be able to call upon to defend itself.

Proper models for how this could play out would include the Itochu/Descente situation from early 2019 (see insights here), or situations such as the Steel Partners bids for Sotoh Co Ltd (3571 JP) or Yushiro Chemical Industry Co (5013 JP) in early 2014. Other models for defense reaction could include the reaction by Unizo Holdings (3258 JP) to the hostile partial offer by H I S Co Ltd (9603 JP) last summer. 

This insight deals with the Arbitrage Grids for Partial Tender Offers, the Funky Arbitrage Grids, and a discussion of how to think about front-end pricing before you have further news.

More below.

2. Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road

Screenshot%202020 01 20%20at%203.49.20%20pm

Today, construction company Maeda Corp (1824 JP) (a.k.a. Maeda Construction) has announced a Tender Offer to increase its stake in affiliate but not subsidiary 24.7%-owned Maeda Road Construction Co (1883 JP) to over 50%, at a premium of 50.0%.

This is not unexpected in the world of parent companies buying in subsidiaries in Japan as a wave of governance concern-led buy-ins and sell-downs leads the market in interesting situations (cf Hitachi, Toshiba, Fujitsu, etc). 

This one is different however.

This one is hostile. 

Maeda Road is upset, and has called on Maeda Corp to dissolve all capital ties and sell its shares in Maeda Road back to the company. 

This is where it is going to get interesting. There are options for Maeda Road to respond through a stick in the spokes of Maeda Corp’s intentions, but it is unlikely Maeda Corp will decide to cancel its Tender Offer to be launched tomorrow based solely on Maeda Road’s desire for it to go away.

Shares in Maeda Road initially jumped, before being suspended, then jumped JPY 500 to go limit up.

It looks like the Partial Tender would go through (there’s no minimum). That said, what we see today is just the beginning because to avoid seeing Maeda Corp own a greater stake, Maeda Road has to do something drastic.

As we like to say, this story could get interestinger.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: HSBC – Move Along, There’s Nothing To See Here and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. HSBC – Move Along, There’s Nothing To See Here
  2. Philips to Divest Domestic Appliances Business – Potential for Margin Expansion
  3. Japan Prime Realty Placement – A Straightforward and Accretive Acquisition
  4. Peijia Medical (沛嘉医疗) Pre-IPO: Reminiscence of Venus Medtech?
  5. Notes from the Silk Road: Beijing Capital Land (2868.HK): Rights Issue Complete, Next Phase Begins

1. HSBC – Move Along, There’s Nothing To See Here

Image 79759114251582011733080

It was 20 years ago that HSBC Holdings (5 HK) bought CCF in France. The conservative Scottish lender paid USD10.6bn for the French bank that had shareholders’ equity of USD3.2bn in 1999. Perhaps this was another poor purchase, at an inflated price? We all know the more fabled story of Household International, which become HSBC Finance, and forever changed the face of HSBC Holdings. The results just out once again show how past poor decisions are not always historical events. HSBC recorded a USD7.3bn goodwill impairment charge for Europe, causing a loss during 4Q19.

2. Philips to Divest Domestic Appliances Business – Potential for Margin Expansion

Image 28673930341582011090426

  • Dutch health technology company, Philips during its 4Q2019 results release, announced that it will be reviewing options for future ownership of its Domestic Appliance business.
  • The domestic appliance business is engaged in the sale of coffee machines, air purifiers and air fryers and the company has booked the domestic appliance business under its Personal Health Segment.
  • Philips has a long history of business restructuring where it previously divested/spun-off its semiconductor, TVs and lighting businesses in order to narrow down its focus on healthcare equipment and personal health products.
  • In this insight, we take a look at the company’s Domestic Appliance business, potential valuation and the impact on Philips’ revenue and margins.

3. Japan Prime Realty Placement – A Straightforward and Accretive Acquisition

Image 64752860331581992475208

Japan Prime Realty Investment (8955 JP) is looking to raise about US$150m in its placement to acquire a property.

We have earlier covered two of the REIT’s 2015 and 2017 offering in:

Overall, the deal scores well on our framework on all factors except for valuation, which indicated that JPR is trading largely in line with peers. 

4. Peijia Medical (沛嘉医疗) Pre-IPO: Reminiscence of Venus Medtech?

Image?1581992964

Peijia Medical is a leading domestic player in the transcatheter valve therapeutic medical device market and the neurointerventional procedural medical devices.

The company’s core TAVR product TaurusOne will be commercialized soon in 4Q2020. Having said that, the company is three years behind its domestic competitors, including Venus MedTech (2500 HK), Suzhou Jiecheng and Microport Scientific (853 HK). TAVR market is characterized by under-penetration and rapid growth.

The company is also a leading domestic player in the neurointerventional product. We believe its newly launched guide catheter complements its existing guide wire and micro catheter well. The company will benefit from the market growth as well as replacement of international products by its domestic competitors.

The company has a strong founder team with relevant experience in the interventional device market. The CEO and COO have worked in MicroPort Scientific which is a leading interventional medical device company in China. It also attracted a decent line-up of pre-IPO investors. 


If you have not read our 2019 IPO Analytic Series, please have a look:

Aequitas Research 2019 IPO Analytics

5. Notes from the Silk Road: Beijing Capital Land (2868.HK): Rights Issue Complete, Next Phase Begins

  • Key event: In our September update on Beijing Capital Land (BCL) Notes from the Silk Road: Beijing Capital Land (2868.HK), we noted that a confirmed date for a rights issue, accelerating fundamentals and a more defined plan should be positives for the stock. The rights issuance completed as of 22nd January 2020 release provides a key positive for the name.
  • Now the Rights issue complete, the next chapter for the stock begins. We foresee that the company may benefit from some capital structure changes and that this may lead to an unlocking of core value for institutional and retail investors, as a result of key decisions by the parent.
  • We examine the outcomes from the rights issuance in this note.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years
  2. New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2
  3. IndusInd Bank – NPL Formation Doubling
  4. RHB Bank – Quiet Transformation

1. Smoore Intl (思摩尔国际) Pre-IPO: Tripling Capacity in Three Years

Image?1579594208

Smoore Tech is a leading e-cigarette and component manufacturer in China. The company was delisted from the venture board in China, the NEEQ, and is seeking a listing in Hong Kong to raise up to USD 400 million. In our previous note, we have looked at the company’s background, its brief financials, and its shareholders. We are impressed by the company’s stellar growth in the past and its technology-driven business. 

In this note, we take a closer look at the company’s latest IPO filing and the latest fund-raising before the listing. The main driver of the company’s 178% YoY revenue growth in 1H2019 was the ODM device business. The company is the number one e-cigarette OEM player in the world with the US being its largest source of revenue. The company is undergoing its capacity expansion plan in the next three years to triple its production capacity. In the pre-IPO fundraising in late last year, we note that there was a lack of presence of institutional investors. 

Our previous coverage on Smoore International

2. New Oriental (EDU): Stock Up 120% in 2019, But Still 23% Upside Due to Excellent Q2

Image 25915250771579546906059

  • EDU’s stock price had risen more than 120% in 2019.
  • The growth rate of both students and revenues accelerated in 2Q2020 (ended November 2019).
  • The operating margin turned to 3% in 2Q2020 versus -5% in 2Q2019.
  • The classroom-based business grew more rapidly than the online business and EDU has been utilizing learning centers more efficiently.
  • We believe, in fiscal 2020 (ended May 2020), total revenues will grow 29% and the operating margin will improve to 14% versus 10% in F2019.
  • The P/E band suggests an upside of 23%.

Our previous coverage on New Oriental:

3. IndusInd Bank – NPL Formation Doubling

Image 71944491231579514748432

Indusind Bank (IIB IN) is one of India’s fastest growing financials. This means that it has higher unseasoned loans than many. Where this occurs alongside weak or deteriorating economic conditions, it can see higher NPL formation. The numbers just out, are illustrative of how this can look. Our emphasis herein is on Pillar 3 detail of NPLs and also credit costs, but for an intriguing read of questionable accounting and disclosure, we refer to Hemindra Hazari‘s report IndusInd Bank’s Charge on Shareholder Funds: Obscurity Is the Best Policy?.

4. RHB Bank – Quiet Transformation

Image 16387586551579140765536

RHB Bank Bhd (RHBBANK MK) used to be far more focused on corporate loans and this has changed dramatically over the years, in favor of consumer loans and SME loans. The bank’s transformation is also evident in its digitalization program, which may be easier for a medium-sized, well-managed bank to affect, than for large banks or less able small banks. The result of the bank’s strategic shift is evident in many facets, including ROA and ROE. But we believe there is more to come. Better credit metrics than most is also a stand out feature, as is the RHB’s relatively low market capitalization level compared with assets.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: AP Moller Maersk (MAERSKb): Assessing the Stock Price Development and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development
  2. HDFC AMC
  3. Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic
  4. Shanghai International Airport (600009 CH): Best of the Breed
  5. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top

1. AP Moller Maersk (MAERSKb): Assessing the Stock Price Development

2

While the market was looking brighter in the latter half of 2019, when most of the liner companies posted profits, it has taken a U-turn since then. Stocks have been on a downwards trajectory since the beginning of 2020 amid the war rhetoric between the US and Iran in January and the negative news of the virus thereafter. In the short term, we expect volatility in liner company stock prices as the news flow surrounding the virus ebbs and flows; this also encourages investors to take positions in companies, including APMM which offers a favourable risk-reward.

2. HDFC AMC

Image 281476367101582006131578

HDFC Asset Management Co Ltd (HDFCAMC IN)  is our preferred Asset Management play in spite of rich valuations thanks to the HDFC Parentage. With a focus on Individual Investor, HDFC AMC has carved out a unique space in the asset management industry, which offers substantial revenue visibility backed with strong industry tailwinds. 

A strong fund management team, high market share in B30 cities, and growth in preference for Equity as an asset class by individual investors are some of the key catalysts which could help maintain AAUM Growth.

Our Target Price based on 45x FY21 EPS works out INR 3,334.50 offering a mere 3% return over the previous close of INR 3,244. Investors with a short term horizon will be better off waiting for an attractive entry point that can provide a more attractive return.

However, the HDFC Parentage and strong structural tailwinds in the Industry keep us bullish on this stock. 

3. Luckin Coffee (LK) On the Ground: Lost Residential and Office Consumers Due to Epidemic

Image?1582013051

  • LK has lost office consumers, as very few employees are in their offices.
  • LK also lost resident consumers, as delivery men cannot enter communities.
  • We believe LK can hardly survive the epidemic.

Our previous coverage on Luckin Coffee:

4. Shanghai International Airport (600009 CH): Best of the Breed

Ncp%20cases%20 %203%20cities

We regard Shanghai International Airport Co, Ltd. (600009 CH) (SIAC) as the best airport play in China when compared with its peers like Beijing Capital International Airport (BCIA) (694 HK) and Guangzhou Baiyun International Airport (600004 CH) given its strong competitive position, its exposure to international traffic growth in the long term and growth in non-aeronautical revenue. 

Despite its premium P/B valuation, SIAC has a better ROE and stronger profit outlook. We think this justifies the stock’s higher P/B valuation than BCIA. In earnings terms, however, it is the least expensive amongst its peers on FY21 PER. Its high international exposure may be clouded by the Novel Coronavirus Pnemonia (NCP) outbreak, but we expect SIAC to be best positioned for the revival in international traffic over the long term. 

5. Coles Placement – Selldown from Wesfarmers Expected but Discount Is Narrow at the Top

Image 63552315691582012410876

Wesfarmers Ltd (WES AU) is looking to sell 65.4m shares in Coles Group Ltd (COL AU). Post selldown, Wesfarners will still have about 10.1% stake in Coles.

The deal scores well on our framework owing to good short-term momentum, relatively better leverage than peers. However, the deal size is large, representing about 21 days of three-month ADV. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Growth Ideas: Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help and more

By | Daily Briefs, Growth Ideas

In this briefing:

  1. Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help
  2. WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses
  3. Orica Placement – Not a Game Changer but past Deals Did Well
  4. BEM: Leading Mass Transit Operator Is About to Get Huge
  5. Intesa SanPaolo Swoops on UBI for a Win-Win Deal

1. Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help

Image 59555925851582090484648

Central Retail (CRC TB) raised about US$2.32bn at THB42 per share, just above the mid point of its IPO price range. We have covered the IPO in our previous two notes:

In this insight, we will look at the IPO deal dynamics and updated valuation.

2. WeWork: Softbank Details Imply Slowing Top Line Growth and $1bn+ in Losses

Ww%20value%20q3

According to Softbank (indirectly), WeWork revenue growth continues to slow and losses to expand. We did not get any detailed financial data this quarter but its announcement of financial targets and a breakdown of WeWork’s impact on Softbank Q3 numbers give us enough to get a rough idea. The magnitude of near-term losses does explain why conversions for most recent investments/contribution of joint venture stakes and the tender offer for the minority shareholders don’t kick until April when (presumably) the situation has stabilised. Meanwhile, it also The appears the fair value for equity has declined from $7.8bn at Q2 (Sep) to $7.3bn as of December.

3. Orica Placement – Not a Game Changer but past Deals Did Well

Image 52576137771582080204063

Orica Ltd (ORI AU) is looking to raise US$334m in its placement to acquire Exsa.

The acquisition of Exsa does not look like a game changer, at least in the near term. It will not be EPS accretive in the first full year of ownership. Its past deals (albeit a long time ago), have consistently been positive over the past one week.

4. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%204

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

5. Intesa SanPaolo Swoops on UBI for a Win-Win Deal

Screenshot%202020 02 18%20at%208.55.44%20pm

Intesa Sanpaolo (ISP IM) today announced one of the largest and certainly one of the boldest bank takeovers in Europe in the past ten years in an all-share deal for Unione Di Banche Italiane (UBI IM), Italy’s 5th largest lender and probably the strongest among the second tier.

The thing is, it’s hostile/unsolicited.

And it’s all shares – which is relatively unusual – executed through a Voluntary Public Exchange Offer.

Various media are reporting that the deal was launched without informing UBI’s board, on the day after UBI presented its 2022 Strategic Plan (which among other things included cutting 2000+ jobs, the closure of 175 branches in the next three years, and a plan for a 40% payout ratio). 

The announcement by Intesa Sanpaolo is laudatory of UBI:

Intesa Sanpaolo considers UBI Banca amongst the best Italian banks. UBI Banca has local entrenchment in the most dynamic regions of the country, enjoys outstanding results that have been achieved thanks to the excellent job of both its CEO and its management team, and has a sound Business Plan. All this can continue to be achieved and be indeed further enhanced in the combined Group. UBI Banca stands out for its similarities with Intesa Sanpaolo, specifically as regards the business model and the corporate values – many UBI Banca managers have had previous job experience at the Intesa Sanpaolo Group. In view of the shared corporate values in terms of sustainability and inclusion and social and environmental responsibility, a new unit of the combined Group’s Impact Bank will be based in Brescia and in Bergamo. The presence of the large number of Italian shareholders of UBI Banca, specifically the foundations, among the shareholders of the combined Group would reinforce the shared values, including in terms of shareholder base.

The Intesa announcement is here, and the UBI 2022 Strategic Plan is here.

Early days, and UBI is trading 5% through terms almost immediately, on what could be short-covering given the declared shorts in the name. 

More discussion below.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing
  2. Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road

1. Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing

Screenshot%202020 01 20%20at%204.38.35%20pm

This is a follow-on insight to Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road which discusses the Maeda Corp (1824 JP) hostile Tender Offer for Maeda Road Construction Co (1883 JP)

The first insight deals with the Tender Offer, and the possible responses Maeda Road might be able to call upon to defend itself.

Proper models for how this could play out would include the Itochu/Descente situation from early 2019 (see insights here), or situations such as the Steel Partners bids for Sotoh Co Ltd (3571 JP) or Yushiro Chemical Industry Co (5013 JP) in early 2014. Other models for defense reaction could include the reaction by Unizo Holdings (3258 JP) to the hostile partial offer by H I S Co Ltd (9603 JP) last summer. 

This insight deals with the Arbitrage Grids for Partial Tender Offers, the Funky Arbitrage Grids, and a discussion of how to think about front-end pricing before you have further news.

More below.

2. Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road

Screenshot%202020 01 20%20at%203.49.20%20pm

Today, construction company Maeda Corp (1824 JP) (a.k.a. Maeda Construction) has announced a Tender Offer to increase its stake in affiliate but not subsidiary 24.7%-owned Maeda Road Construction Co (1883 JP) to over 50%, at a premium of 50.0%.

This is not unexpected in the world of parent companies buying in subsidiaries in Japan as a wave of governance concern-led buy-ins and sell-downs leads the market in interesting situations (cf Hitachi, Toshiba, Fujitsu, etc). 

This one is different however.

This one is hostile. 

Maeda Road is upset, and has called on Maeda Corp to dissolve all capital ties and sell its shares in Maeda Road back to the company. 

This is where it is going to get interesting. There are options for Maeda Road to respond through a stick in the spokes of Maeda Corp’s intentions, but it is unlikely Maeda Corp will decide to cancel its Tender Offer to be launched tomorrow based solely on Maeda Road’s desire for it to go away.

Shares in Maeda Road initially jumped, before being suspended, then jumped JPY 500 to go limit up.

It looks like the Partial Tender would go through (there’s no minimum). That said, what we see today is just the beginning because to avoid seeing Maeda Corp own a greater stake, Maeda Road has to do something drastic.

As we like to say, this story could get interestinger.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Industrials: Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing and more

By | Daily Briefs, Industrials Sector

In this briefing:

  1. Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing
  2. Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road

1. Maeda Corp Tender for Maeda Road – Arb Grids & Front End Pricing

Screenshot%202020 01 20%20at%204.38.35%20pm

This is a follow-on insight to Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road which discusses the Maeda Corp (1824 JP) hostile Tender Offer for Maeda Road Construction Co (1883 JP)

The first insight deals with the Tender Offer, and the possible responses Maeda Road might be able to call upon to defend itself.

Proper models for how this could play out would include the Itochu/Descente situation from early 2019 (see insights here), or situations such as the Steel Partners bids for Sotoh Co Ltd (3571 JP) or Yushiro Chemical Industry Co (5013 JP) in early 2014. Other models for defense reaction could include the reaction by Unizo Holdings (3258 JP) to the hostile partial offer by H I S Co Ltd (9603 JP) last summer. 

This insight deals with the Arbitrage Grids for Partial Tender Offers, the Funky Arbitrage Grids, and a discussion of how to think about front-end pricing before you have further news.

More below.

2. Not All “Parent-Sub” Situations Are Friendly: Maeda Corp Goes Hostile On Affiliate Maeda Road

Screenshot%202020 01 20%20at%203.49.20%20pm

Today, construction company Maeda Corp (1824 JP) (a.k.a. Maeda Construction) has announced a Tender Offer to increase its stake in affiliate but not subsidiary 24.7%-owned Maeda Road Construction Co (1883 JP) to over 50%, at a premium of 50.0%.

This is not unexpected in the world of parent companies buying in subsidiaries in Japan as a wave of governance concern-led buy-ins and sell-downs leads the market in interesting situations (cf Hitachi, Toshiba, Fujitsu, etc). 

This one is different however.

This one is hostile. 

Maeda Road is upset, and has called on Maeda Corp to dissolve all capital ties and sell its shares in Maeda Road back to the company. 

This is where it is going to get interesting. There are options for Maeda Road to respond through a stick in the spokes of Maeda Corp’s intentions, but it is unlikely Maeda Corp will decide to cancel its Tender Offer to be launched tomorrow based solely on Maeda Road’s desire for it to go away.

Shares in Maeda Road initially jumped, before being suspended, then jumped JPY 500 to go limit up.

It looks like the Partial Tender would go through (there’s no minimum). That said, what we see today is just the beginning because to avoid seeing Maeda Corp own a greater stake, Maeda Road has to do something drastic.

As we like to say, this story could get interestinger.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.