Category

Industrials

Industrials: FTSE China A50 Index, Lenovo, Asia High Yield Bond Index and more

By | Daily Briefs, Industrials

In today’s briefing:

  • China’s Rebound
  • Lenovo Scraps $1.8bn IPO on Shanghai’s Star Market
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

China’s Rebound

By Shyam Devani

There has been a tendency to over-exaggerate bad news from China. This has been going on for a long time (years). Over the past three months there has been plenty of concerning news from crackdowns on Tech companies to changes in the education sector and developments in real estate.

Despite all this bad news, the FTSE A50 Index has not moved lower since the end of July. Instead, the A50 Index is now beginning to bounce back, taking out decent levels and posting an important weekly close on Friday. Even the more troubled Hang Seng posted a bullish reversal week. If anything, this price action is more impressive in the face of a generally strong Renminbi.

Once again it looks as though sentiment has been too stretched in China. Is the bad news already in the price? These charts suggest the answer to that, at least in the near term, is yes.


Lenovo Scraps $1.8bn IPO on Shanghai’s Star Market

By BondEvalue

The world’s largest PC maker Lenovo Group has withdrawn its application to list on Shanghai’s Star Market just eight days after the company was accepted by the exchange. This is the second largest IPO withdrawal after Ant Group scrapped its $39.7bn dual listing in November last year. Lenovo, which is already listed on the New York and Hong Kong exchanges, had planned to raise up to $1.8bn via a sale of Chinese depository receipts (CDRs), making it the first Red Chip (Term of the day) to do so. The IPO withdrawal is a setback for the Star Market, which positions itself as the “centre stage for China’s technology champions” as per SCMP.

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US equities ended lower on Friday with the S&P and Nasdaq down 0.2% and and 0.5%. While Energy and Financials were up 3.1% and 0.5%, all other sectors were in the red with Real Estate falling 1.1%. US 10Y Treasury yields were up 2bp to 1.61%. European stocks were mixed with the DAX and CAC falling 0.3% and 0.6% while the FTSE was up 0.3%. Brazil’s Bovespa ended 2% higher. In the Middle East, UAE’s ADX was up 0.3% and Saudi TASI was down 0.2%. Asian markets have opened slightly higher with Shanghai up 0.4%, HSI up 2.2%, STI up 0.1% and the Nikkei up 1.3%. US IG CDS spreads and HY CDX spreads widened 0.6bp and 4.2bp respectively. EU Main CDS spreads were 1bp wider and Crossover CDS spreads widened 5.5bp. Asia ex-Japan CDS spreads widened 2bp.

Before it’s here, it’s on Smartkarma

Industrials: Japan Post Holdings, TSMC, Dragon Crown Group, China Conch Venture Holdings and more

By | Daily Briefs, Industrials

In today’s briefing:

  • ECM Weekly (10th October 2021) – Japan Post, MicroPort Medbot, MicroTech, FWD, Medbanks, 4Paradigm
  • TSMC (2330 TT): Future Growth Through Advanced Technology and Overseas Expansion
  • Dragon Crown’s VGO Bid Likely to Complete
  • Conch Venture (586 HK): Not Much Left

ECM Weekly (10th October 2021) – Japan Post, MicroPort Medbot, MicroTech, FWD, Medbanks, 4Paradigm

By Zhen Zhou, Toh

Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

Events next week:

ECM activity is certainly starting to heat up in Asia Pacific. In particular, Japan has had a steady stream of large placements. This week Japan Post Holdings (6178 JP) was the center of attention as plans of the Japanese government selldown is slated to open this Monday, and price on the 25th of October.  The selldown has been well-flagged and it will be a quasi clean-up. We revisited Hulic Co Ltd (3003 JP) just before its pricing and so far, Hulic’s share price has been holding up above its deal price. 

Back to IPOs, in Hong Kong, MicroTech Medical Hangzhou (2235 HK) launched its bookbuild on Wednesday and it will close this coming Monday. The company’s listing debut is on 19th October. We think valuation looks full despite the strong cornerstone line-up.

We initiated on IPOs in the pipeline, Medbanks Network Technology (1690522D CH), an healthcare service provider with an oncology and pharmacy tilt,  and 4Paradigm (1764934D HK), a platform-centric AI enterprise solutions provider. 

We also shared our thoughts on valuation of Shanghai MicroPort MedBot Group (MMG HK), which is set to capture significant market share in China’s laparoscopic robotic surgical market.

In the U.S, FWD Group Holdings (FWD US) has been doing its rounds, meeting investors. We took a closer look at how the company compares to regional insurance competitors and share our thoughts on its valuation.

Last, but not least, tearsheets for newly filed IPOs this week:

Accuracy Rate:

Our overall accuracy rate is 73.8% for IPOs and 67.8% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • Green Tea Group (Hong Kong, US$200m, refiled)
  • Farm Fresh (Indonesia, US$125m)

News on Upcoming IPOs

Hong Kong/China

US/China ADR

India

Japan/Korea

Others

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
4Paradigm

4Paradigm (第四范式智能) Pre-IPO – Stupendous Growth but Needs Better Disclosure of Certain Data 

APM Monaco

APM Monaco Pre-IPO – China’s Resilience Shines 

Airdoc

Beijing Airdoc (北京鹰瞳科技) Pre-IPO – A Niche Field with Merits but Can It Sell? 

Anjuke

Anjuke Pre-IPO – Mixed (Positive and Negative) Developments 

Ambio

AmbioPharm (昂博制药) Pre-IPO: Peptide CDMO Leader Turning Licensor 

Biel Crystal

Biel Crystal (伯恩光学) Pre-IPO – Cash Flow Generative Business but Underlying Trend Is Worrying 

Biel Crystal

Biel Crystal (伯恩光学) Pre-IPO – Industry Landscape & Peer Comparison –  Auto Is the Wildcard 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Mixed PHIP Update, Updated Thoughts on Valuation 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Initial Thoughts on Valuation 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Tencent Music Peer Comp, Regulatory Impact 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Was in the Slow Stream, Playing Catch-Up 

Edda 

EDDA Healthcare Pre-IPO – RoboDoc – Has Been Around for a While but Is Just Getting the Robo Going 

Dingdang

Dingdang Health Tech (叮当健康) Pre-IPO – Impressive Growth but Not Without Concerns 

Intco Med

Intco Medical (英科医疗) A+H: From China No.1 to Global No. 1 

Imeik

Imeik Tech (爱美客) A/H Pre-IPO – Dermal Filler Leader Capitalizing on Its Valuation 

Jenscare

Jenscare (宁波健世科技) Pre-IPO: Differentiated Heart Valve Portfolio 

Medbanks

Medbanks (思派健康) Pre-IPO – Caught a Lucky Break 

MicroPort Medbot

MicroPort MedBot Pre-IPO – RoboDoc – Pre-Revenue, Has a Large Competitor but a Large Market as Well 

NewMed

NewMed (纽脉医疗) Pre-IPO: Uphill Battle for TAVR but Leads the TMVR 

Neusoft Xikang

Neusoft Xikang (东软熙康) Pre-IPO: A Long Way to Profit 

Neusoft Med

Neusoft Medical Systems (东软医疗系统) Pre-IPO: Unattractive Fundamentals 

WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
WeDoctor We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely 
WeDoctor We Doctor (微医) Pre-IPO – Forecasts, Early Thoughts on Valuation, and Acquisition Gripes 
Weilong Weilong Delicious Global Pre-IPO – The Positives – Fast Growth, Strong Backers 
Weilong Weilong Delicious Global Pre-IPO – The Negatives – Spicy Valuation 
WM Tech WM Tech Pre-IPO – Peer Comparison and Pre-IPO Valuation – Some Signs of Advantage 
WM Tech WM Tech Pre-IPO – Digitalization Efforts Coming Through but Not Well Substantiated 
India
Aadhar Housing Aadhar Housing Finance Pre-IPO – Decent past Growth but Comes with Weird Disclosures 
Aditya AMC Aditya Birla Sun Life AMC Pre-IPO – Strong Profit Growth but It’s Losing Market Share 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food

TSMC (2330 TT): Future Growth Through Advanced Technology and Overseas Expansion

By Scott Foster

TSMC is dealing with increasing geopolitical and geophysical risks through a combination of advanced technology and overseas expansion.

  1. Recycling is the solution to water shortages in Taiwan and Arizona.
  2. New production and R&D facilities in the U.S. and Japan mark the beginning of large-scale operations in those countries. Investment in Europe seems likely to follow.
  3. A 3D packaging venture with Japanese equipment and materials suppliers is taking the lead in back-end technology development.
  4. Approval of a new fab at the 2-nm node in Taiwan should keep the world’s most advanced front-end process technology at home.
  5. TSMC and other companies are working with the Taiwanese government and local universities to increase the number of engineering graduates trained to work in the semiconductor industry.

These initiatives address the main challenges facing TSMC as it navigates between China and the U.S. and creates new growth opportunities worldwide. We expect them to succeed. 

For a review of TSMC’s latest overseas investment, see TSMC – First Details of Japanese Investment Emerge by Mio Kato.


Dragon Crown’s VGO Bid Likely to Complete

By Arun George

Dragon Crown Group (935 HK) is an integrated terminal service provider in China providing storage and handling services for liquid petrochemicals. After market close on Friday, it announced a pre-conditional voluntary general cash offer from an indirect subsidiary of Guangdong Great River Smarter (002930 CH) (GGRSL). The offeror will offer HK$1.28 in cash per offer share and will not increase the offer price. The bid represents a premium of 8.47% over the closing price of HK$1.18 per share on the last trading date (30 September prior to the trading halt). 

The key pre-conditions are regulatory approval (NDRC, MOFCOM and SAFE), the Shenzhen Stock Exchange approving the material asset restructuring report (MAR) which will be published by GGRSL (the offer will constitute a MAR of GGRSL) and GGRSL shareholder approval. We think that regulatory approvals should be forthcoming as Dongguan SASAC is a co-investor in the offeror. 

The completion conditions include receiving valid acceptances not less than 90% of the offer shares. The offeror has received irrecovables which represent 86.91% of the outstanding shares. The 90% acceptance threshold can be waived if the offeror and concert parties acquire 50% of the voting rights.

Overall, we think the offer price is attractive. In combination with the irrecovables, we think that the voluntary general offer will be successful. 


Conch Venture (586 HK): Not Much Left

By Osbert Tang, CFA

We think that after the spin-off of China Conch Environment Protection Holdings (CEP HK), the businesses being left with China Conch Venture Holdings (586 HK) will be even smaller and render it more like a holding company. We think such development is not positive to Conch Venture, and also, based on our sum-of-the-parts valuation; it is trading on 4% premium, suggesting that there is minimal upside from here, in our view.

What’s left with Conch Venture will mainly be the waste incineration solution business, or waste-to-energy, but its capacity is significantly behind that for China Everbright Environment (257 HK) and Canvest Environmental Protection Group (1381 HK). Also, the remaining assets (excluding Anhui Conch Cement (914 HK)) will see slower earnings growth than with CEP.  The 16% rally in share price since Sep should have reflected most of the news. We have also provided in this Insight a matrix table indicating the SOTP value for different levels of CEP’s PER and A-share price of Conch Cement. 


Before it’s here, it’s on Smartkarma

Industrials: Dragon Crown Group, Japan Post Holdings and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Dragon Crown (935 HK)’s VGO Is A Done Deal
  • Index Rebalance & ETF Flow Recap: HSCEI, CSI300, KOSPI200, KOSDAQ150, FTSE100, MSCI, Japan Post
  • Last Week in Event SPACE: Japan Post, Chinese Estates, NIPPO Corp, Hopson/Evergrande, PICC

Dragon Crown (935 HK)’s VGO Is A Done Deal

By David Blennerhassett

Liquid chemical storage and handling outfit Dragon Crown Group (935 HK) (DCG) has announced a pre-conditional Offer from Guangdong Great River Smarter (002930 CH) (GGRS).

The Offer price is HK$1.28/share, a 8.47% premium to last close, and a 20.75% premium to the average closing price over the previous 60 trading days. The Offer price will NOT be increased. No dividends are expected to be declared. 

The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, SAFE, the Shenzhen Stock Exchange, plus shareholder approval from GGRS.

The key condition to the Offer is valid acceptances of not less than 90% of shares out. Irrevocables totalling 86.91% (primarily from Ng Wai Man, the founder, chairman & CEO) have been received, therefore this requires a further 3.09% to get over the line.

This appears a relatively clean deal. The Long Stop date for the pre-cons is the 9 February 2022.

More below the fold.


Index Rebalance & ETF Flow Recap: HSCEI, CSI300, KOSPI200, KOSDAQ150, FTSE100, MSCI, Japan Post

By Brian Freitas

In this weeks recap, we look at:

There are no major index rebalance events next week.

In the ETF world, the largest inflows went into two Taiwan ETFs during the week. The Taiwan Top 50 ETF took in US$423m while the Taiwan Dividend Plus ETF took in US$276m.


Last Week in Event SPACE: Japan Post, Chinese Estates, NIPPO Corp, Hopson/Evergrande, PICC

By David Blennerhassett

Last Week in Event SPACE …

  • Plus, other events, CCASS movements (flagging possible Offers and  IPO lock-ups), and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)

M&A – ASIA

Japan Post Holdings (6178 JP)  (Mkt Cap: $31.3bn; Liquidity: $52mn)

The Offering for Japan Post has materialised. It is 1,027,477,400 shares or roughly ¥950bn (US$8.3bn) of shares. This one is really easy. It is really, really simple. Underwritten. No greenshoe. It is the world’s largest cleanup trade. And because the government is unlikely to ever add more money to the pot, this is likely the last equity offering Japan Post Holdings will ever do. 

  • There is about $1.8-2.6bn to buy in very short order for passive upweights. Because there is no greenshoe, that will mean this will get oversold by local brokers. That will also mean about US$1.8-2.6bn of index selling at the combined closing prices when the up-weights occur.  Given that occurs around the time of the annual TOPIX FFW rebalance for Jan-March fiscal year-end names, there could be considerable noise out there in the last couple of days of October.
  • The major indices which matter are MSCI (MSCICorp Events), FTSE (Ground RulesCorporate Actions & Events), Vanguard (similar to FTSE), TOPIX (GuidebookFFW Methodology), Nikkei 225 (Guidebook), JPX Nikkei 400 (Guidebook, FFW is TOPIX). There are also some others which are related to the above families in ESG-land and Russell-Nomura indices which will also be impacted. A general guide to passive indices used in Japan is shown in JAPAN PASSIVE: Who Owns What 2021?Given the proximity to month-end and the other month-end-related index changes for the TSE indices, it is possible the TSE would ad hoc decide to align the buying with those flows.
  • The questions about how many shares the upweight will be are dominated by not only the increase in float shares (1.027bn shares more) but how the FFW coefficient will be applied. Usually, MSCI and FTSE will do the appropriate thing and amend both at the same time. TOPIX does not have to. Right now, the effective weight is 60% but the implemented weight is 78.44% for TSE because shares held by the government are not counted in shares outstanding, so TSE Index Shares are about 1.1644bn today. That number will increase, but it is not clear that the FFW would be amended at the same time, or not. If it were amended, it would move higher.  
  • Separately, JPH has decided it will buy back shares. Unfortunately, the number and mechanism are less impactful than one would have hoped, but one cannot disregard.  If the Offering prices at ¥900/share and then climbs 20% over 6 months, the average might be ¥1,000/share over the period and that would mean a buyback of about 15-16 days of ADV to spend the ¥100bn.

    That would be about 15% of ADV over the period (using 3-year ADV as a reference), and about 20-22% of eligible volume. 

Chinese Estates Holdings (127 HK) (Mkt Cap: $0.7bn; Liquidity: <$1mn)

After being suspended on the 29 September pursuant to the Hong Kong Code on Takeovers and Mergers, Chinese Estates, a leading property developer in Hong Kong, has now announced an Offer, by way of a Scheme, from its founder, Joseph Lau, and his wife Chan Hoi Wan. The consideration is $4.00/share, a 37.9% premium to last close, but an impressive 83.5% premium to the close on the last full trading day. The Offer price will NOT be increased. Lau and Chan control 74.99% of the company. Disinterested shareholders comprise 21.41% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.141% of shares out. The headcount test applies.

  • Optically, Lau and Chan appear to be getting Chinese Estates at a bargain. And in essence, they are. But the current realised plus unrealised losses on the Evergrande (3333 HK) holding is HK$10.4bn, which dramatically alters what is deemed to be book value, and therefore the implied valuation metric under the Offer.
  • This looks done. But any association to Evergrande brings an additional risk premium. And it’s not a super large deal, and HK deals this year have been a shocker.1

(link to my insight: Chinese Estates (127 HK): $4.00/Share Offer)

Nippo Corp (1881 JP) (Mkt Cap: $4.3bn; Liquidity: $15mn)

Activist investor Oasis Management Company issued a press release calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth “over JPY5,600” apiece. Travis does not disagree. In his first insight, he said the ¥4,000/share TOB price was ¥1,500-2,000/share light. The Oasis Press Release is worth reading. That makes three activist shareholders who have opined. Expect more noise. 

  • For investors, it is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.
  • And as is usually the case in these situations, it is worth getting out your cowbell.  At just over ¥4,000, it is still an interesting bet. Too far above ¥4,000 and it becomes a more aggressive bet. 

(link to Travis’ insight: NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects)

Evergrande Property Services (6666 HK)  (Mkt Cap: $7.1bn; Liquidity: $42mn)

Evergrande (3333 HK) is suspended due to a material transaction. EPS due to a possible general Offer; and the intriguing part, Hopson Development (754 HK) suspended due to the acquisition of a company “and the relevant possible mandatory offer to acquire the shares of the” company. China’s state-backed Global Times said Hopson will buy a 51% stake in EPS “and the deal could be valued at more than 40 billion HKD” ($5.1bn). One of those media sources appears to be Cailian Press, which also has SOE affiliation. Jiemian.com, Cailian’s sister publication – the two merged in February 2018 – reckons the fine print on a deal won’t be known for a few days.

  • Much of the media focus is on the implied HK$40bn price tag for EPS as a whole. That would imply a 27.7% discount to last close, or an FY21E PER of 8.2x against its peer basket average of 11.4x. That may well be the price discount in a rescue-type situation, but probably not another shareholder will tender into. But right now, that valuation is purely indicative. When news first hit the tape yesterday morning, the initial interpretation was Hopson was paying $40bn for a 51% stake. If it is HK$40bn for a 51% stake, that would be considerably different and other investors might get involved.
  • If the deal is at HK$40bn for 51%, then the stock will go up (though there may be no chance to buy it before it prices there).
  • If the deal is at HK$40bn for 100%, of which they will buy 51% from Evergrande, that means the bulk of any selling pressure to be done by Evergrande disappears. That should relieve some pressure on the stock. 

Links to:
my insight: Hopson Navigates Evergrande’s Fire Sale
Brian Freitas‘ insight: Hopson (754 HK) To Buy 51% of Evergrande Property Services? Upcoming MGO & Potential HSCEI Changes

Japan-based Information Asset Platform business Pipedo HD Inc (3919 JP) announced on 30th September 2021 that they had received a Management Buy-out Offer (MBO) from the CEO and Advantage Partners.  The Deal will be structured as a Tender Offer. The Offer Price is ¥2,800/share in cash and the Tender Offer Period is open from 1st October 2021 to 15th November 2021. The Settlement Date will be 22nd November 2021.    Despite initially trading through Terms, Pipedo shares are currently trading marginally below the Offer Price. Link to Janaghan Jeyakumar‘s insight: Pipedo HD (3919 JP): Advantage Partners MBO.

Construction materials testing company Intega Group Ltd (ITG AU) has announced it has entered into a Scheme Implementation Deed (SID) with Dutch outfit Kiwa. The SID is struck at A$0.90/share, a 58% premium to last close. The deal is the culmination of a strategic review announced on the 9 June to “maximise value” for its shareholders. Apart from the standard shareholder approval attached to a Scheme, the transaction is subject to FIRB approval. Should that regulatory approval not occur before 31 December 2021, Intega is permitted to pay a special dividend of A$2.3mn each month (~A$0.005/share) between 1 January 2022 and 30 June 2022. These dividends will be in addition to the A$0.90/share cash consideration. Crescent Capital Partners, with 52.1% of shares out, supports the SID. This looks done and should trade tight to terms. Link to my insight: Intega (ITG AU) Enters Scheme With Kiwa.

Liquid chemical storage and handling outfit Dragon Crown Group (935 HK) (DCG) has announced a pre-conditional Offer from Guangdong Great River Smarter (002930 CH) (GGRS). The Offer price is HK$1.28/share, a 8.47% premium to last close. The Offer price will NOT be increased. No dividends are expected to be declared.  The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, SAFE, the Shenzhen Stock Exchange, plus shareholder approval from GGRS. The key condition to the Offer is valid acceptances not less than 90% of shares out. Irrevocables totaling 86.91% (primarily from Ng Wai Man, the founder, chairman & CEO) have been received, therefore this requires a further 3.09% to get over the line. This looks all stitched up – play the spread here. Link to my insight: Dragon Crown (935 HK)’s VGO Is A Done Deal.

STUBS

I estimate the discount to NAV at ~51% against a one-year average of ~47%. The simple ratio – PICC/PICC P&C – is currently 0.33x vs its long-term average (since PICC’s listing in December 2012) of 0.4x. 1339’s A continues to trade at a massive premium to the Hs of ~150%.  There is a tendency when the A-share premium trends lower, the implied stub narrows. But there has been considerable disconnect of late. 

  • Evergrande Exposure? This is potentially a key contributor to PICC’s weakness.  Back on the 23 April 2015, PICC entered into a strategic cooperation agreement with Evergrande towards the establishment of a “long-term, steady and mutual-beneficial cooperation“. But it’s probably the impairment losses from bank loans as the main risk here, and it would be useful to know Industrial Bank Co Ltd A (601166 CH)‘s exposure to Evergrande. Reportedly the Bank is exposed to ~RMB8bn. According to this article, the risks are “controllable” – it is pretty standard for bank loans to downstream Evergrande JVs to be collateralised.
  • The current NAV discount and implied stub are around all-time low levels. The market is assigning HK$27.4bn less for the stub ops since the beginning of this year, and HK$19bn since the beginning of August. The widening in the NAV appears to have overshot any perceived Evergrande exposure. At the same time, the earnings of the unlisted stub ops continue to improve.  Should the NAV start to narrow, go long PICC, short PICC P&C, with a near-term target discount of ~45%, around its longer-term average. 

(link to my insight: StubWorld: PICC (1339 HK)’s All-Time Low Vs. PICC P&C (2328 HK)

In arguably the simplest holding company structure out there, the ratio of the parent (Heineken Holding NV (HEIO NA)) over the Opco (Heineken NV (HEIA NA)) is currently around a nine-year low. Link to my insight: StubWorld: Heineken And The Lager Picture.

Sk Chemicals Co Ltd/New (285130 KS) announced it will improve the company’s dividend policy and complete a bonus issue. In SK Chemicals – Announces A Big Improvement in Dividends and Bonus Issue, Douglas Kim‘s base case NAV valuation of SK Chemicals suggests a valuation of ₩530,140/share, representing an 82% upside from current levels. This is based on the current market valuation of SK Bioscience (68.4% stake), 8x OP of SK Chemicals’ core business, and a 50% NAV discount. 

EVENTS

A relatively little-known (to foreigners) satellite broadcasting channel company called Nippon BS Broadcasting (9414 JP) (familiarly known as “BS11”) announced its FY results (FY-end is 31 August), with a 27-page  presentationannouncing a change in the COO as the current COO becomes CEO on 17 November upon the AGM. The company also announced that a shareholder (becoming better-known US-based Japan activism gadfly RMB Japan Opportunities Fund LP) had put forth a shareholder proposal for the upcoming AGM, and the directors have come out against it.  There are times when shareholder proposals are crazy. There are some where they may be ill-advised (either in the time spent on the tilt which will go nowhere, or in the idea that the proposal is so egregiously substantive that more study would be needed than could be afforded in the short period to the next vote. This proposal, however, is not one of those.  And the answer is… well…. BS. Link to Travis’ insight: What Is BS Governance? That Is BS Governance!.

The long and sordid history of the takeover of Invesco Office J Reit (3298 JP) was widely covered in these pages. The most recent event was the significant index deletion on 30 August 2021. After the close on the 30th, the Invesco Office announced its plans to hold an EGM before the end of October which would approve an extension of the fiscal year so as to not trigger the adverse local tax treatment as per the previous insight (Invesco Office Index Deletion Monday 30 Aug) and others. It held that EGM today, and today unitholders agreed to consolidation and squeezeout.  The announcement confirms that the consolidation (reverse stock split) of 2,200,662 units to 1 will take place on 12 November 2021, and that the last day of trading of the investment units will be 8 November 2021.  There are other details about payment for the units inside, and astute investors will remember that this particular announcement triggers another index event. Link to Travis’ insight: Invesco Office – Last Index Deletion and Residual Arb

TOPIX INCLUSIONS!

Japan-based systems integration company Simplex Holdings (4373 JP) was listed in the First Section (which will, in future, be named the “Prime Market”) of the Tokyo Stock Exchange (TSE) on 22nd September 2021. When a company gets listed on the TSE First Section, it subsequently gets included in the TOPIX Index and as a result, TOPIX-tracking funds will have to purchase the stock during an Inclusion Event which presents interesting trading opportunities for active investors to generate sharp market-neutral returns in the space of few trading days. Alternatively, this can also be considered as a key point in time where short-term IPO investors could decide if they wanted to exit their positions by utilising this liquidity event. In TOPIX Inclusion: Simplex Holdings (4373 JP). Read more:, Janaghan looks at the timeline and the parameters of the Inclusion Event and the potential trading opportunities surrounding it. 

M&A – EUROPE

At the long-awaited auction for Wm Morrison Supermarkets (MRW LN), CD&R increased its bid to 287p against a bid of 286p made by Fortress. Fortress could have withdrawn just as Carlyle did in the tussle with Philip Morris for Vectura (VEC LN), but preferred to make its rival pay a bit extra. The consideration represents an implied equity value of £7,032 mn and an implied EV of £10,113 mn. This also represents 9.1x EV/Fwd EBITDA and 20.4 Fwd P/E. Link to Jesus Rodriguez Aguilar‘s insight: CD&R/Morrisons: Final Offer and Spread.

M&A RISK ARB WEEKLY ROUND-UP

This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks. I number 39, mostly firm, deals around the region.

INDEX REBALS

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

Tianyuan Health (557 HK) 62.54%PrudentialOutside CCASS
Hygeia Healthcare Group (6078 HK) 13.51%MSOutside CCASS
Bank of Qingdao (3866 HK) 11.17%AMTDChina Merchants
International Entertainment (1009 HK) 10.44%H&SABCI
Shanghai Henlius Biotech (2696 HK) 21.42%CitiCMB
Heng Hup (1891 HK)19.20%ShenwanOutside CCASS
Source: HKEx
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Shanghai HeartCare Medical Technology (6609 HK) 16.06%CMBOutside CCASS
Chi Kan (9913 HK)55.91%China TonghaiForwin
Tam Jai (2217 HK)70.88%GuotaiOutside CCASS
Bairong (6608 HK) 10.71%CICCOutside CCASS
Source: HKEx

I listen to a bunch of music when writing insights. Here are a handful of tunes, old & new, that piqued my interest during the week: Lee Moses’ Hey Joe, Funk Inc.’s The Thrill Is Gone, Tony Allen & Hugh Masekela’s Slow Bones (Cool Cats Mix), Unloved’s When A Woman Is Around.

What are you listening to? 

Enjoy your Sunday!

Before it’s here, it’s on Smartkarma

Industrials: Adi Sarana Armada, Rivian Automotive Inc, Ecopro HN, Precious Shipping, ROHM Co Ltd, Refrigeration Electrical Eng, Aerospace Industrial Development, Yang Ming Marine Transport and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Adi Sarana Armada (ASSA IJ) – From the First to the Last Mile
  • Rivian Automotive IPO – Products and Business Model
  • Ecopro Tender: Swap Ratio Finalized, Still Juicy Spread, & We Can Buy/Tender Now
  • PSL: Expect Core Earnings to Hit Another Decade High in 3Q21
  • Rohm (6963): Buy for Auto & COVID Recovery
  • Refrigeration Electrical Engineering Corporation (REE VN/ Hold)
  • Aerospace Industrial (2634 TT) Business to Rebound
  • Yang Ming Marine (2609 TT) Mixed Views on Future Freight Rates

Adi Sarana Armada (ASSA IJ) – From the First to the Last Mile

By Angus Mackintosh

Adi Sarana Armada (ASSA IJ) has a unique combination of different parts of the mobility ecosystem in Indonesia from corporate car rental, to car auction, and online marketplace but it is its end-to-end logistics business, and especially Anteraja, that is plugged directly into Indonesia’s booming digital economy, that makes this an exciting story.

Anteraja has expanded its coverage area significantly and is now present in 600 service points in 34 provinces across the archipelago.  It accounted for 47% of total sales in 1H2021 and is likely to account for more than 50% of sales by 2H2021.
Adi Sarana Armada (ASSA IJ) 1H2021 results saw the company’s revenues grow by +50.4% YoY, with gross profit up +20% YoY, while operating profit grew +43.7%, and the company’s net profit grew by +68.9% YoY

In an interesting development, Anteraja, the last-mile delivery arm of Adi Sarana Armada (ASSA IJ) has announced partnerships with both Grab and Gojek, to integrate both company’s logistics services into its last-mile ecosystem.

Adi Sarana Armada (ASSA IJ) is a very interesting way to play the growth in the Indonesian digital economy through its exposure to logistics and the last-mile through Anteraja, which makes up close to 50% of sales, whilst its remaining business in car rental and car auction continue to produce stable growth.

The company trades on 42x FY22E PER and 31x FY223E PER but on 16.9x FY21EV/EBITDA and 13.4x FY23E EV/EBITDA, which is probably a better measure given that this is a growth company.


Rivian Automotive IPO – Products and Business Model

By Mio Kato

Rivian Automotive filed for a confidential IPO last August and publicly submitted the paperwork last week. The company aims to trade on the Nasdaq under the ticker symbol “RIVN”, and is expected to sell $100m in new equity.

Currently, the company is financially backed mainly by Amazon and Ford Motor Co., through whom the company was able to raise $10.5bn since 2019 through several investment rounds.


Ecopro Tender: Swap Ratio Finalized, Still Juicy Spread, & We Can Buy/Tender Now

By Sanghyun Park

Swap ratio finalized

Ecopro (acquirer) finalized the swap price at ₩95,441 on October 7. It was based on the VWAP for the three trading days from October 5 to 7. The discount rate applied in this case was 0%.

FYI, Ecopro HN (the target company)’s swap price was finalized at ₩110,500 based on the formula below.

  • September 3 is the reference date.
  • It was calculated through Min [Close on September 3, Average(Close on September 3, 1W VWAP, 1M VWAP)].
  • It is in accordance with the regulations of KRX.

So, the swap ratio got finalized at 1.1577833, meaning that you will swap your one share of Ecopro HN with 1.1577833 shares of Ecopro. The target number of shares remains the same at 6,121,973 shares, worth ₩676.5B.

Overview
AcquirerEcopro Co., Ltd. (086520)
– Qty.7,087,918
– Swap price₩95,441
 
Target companyEcopro HN Co Ltd (383310)
– Qty.6,121,973
– Swap price₩110,500
Swap ratio1.1577833
Target volume as % of SO40.00%
Target value₩676,477,981,838
BankerDaishin
Source: DART

PSL: Expect Core Earnings to Hit Another Decade High in 3Q21

By Research Group at Country Group Securities

We expect PSL to report 3Q21 core profit at Bt1,225m (+57%QoQ, recovery from a loss in 3Q20), the highest level in more than decade.

• QoQ and YoY improvement in 3Q21 driven by high profitable level of TCE rate which supported by shortage on supply-side factor along with moderate recovery in seaborne trade demand after the lockdown in the major countries.
• We expect an increase in PSL’s average earnings per vessel per day to US$22,367 per day in 3Q21 (+25%QoQ +155%YoY).
• EBITDA in 3Q21 is expected to be at Bt1,635m (+38%QoQ +294%YoY), the highest level in decade.
We upgrade PSL with HOLD rating from a SELL after raised target price by 20% to Bt21.20 (Previous TP: Bt17.60) as EPS was raised due to higher-than-expected freight rate in 2H21. The target derived from 2.0xPBV’22E (2 S.D. 10-year average). HOLD rating reflect our expectation for demand in dry bulk trading to face a hiccup in late 4Q21 as China’s import volume of soybean and iron ore will remain low after a peak of the recovery cycle. However, 2022 freight rate is anticipated to remain high supported by supply-side factor.

Rohm (6963): Buy for Auto & COVID Recovery

By Scott Foster

Rohm has dropped to the bottom of its recent trading range, presumably on concerns over the impact of COVID-19 on semiconductor assembly & test in Southeast Asia and the ongoing disruption of auto production. 

However,

  1. Guidance looks conservative. 1Q operating and net profit were 31% and 34% of FY Mar-22 full-year guidance, respectively.
  2. COVID infections in Southeast Asia have dropped back from recent peaks. 
  3. Rohm is a leading producer of Silicon Carbide wafers and power devices for Electric Vehicles. It is geared to both the recovery and technological advance of the auto industry.

With 38% upside to our ¥13,500 price target, we regard Rohm as a Buy both on a trading basis and as a longer-term investment. 


Refrigeration Electrical Engineering Corporation (REE VN/ Hold)

By Mirae Asset Securities

Investment thesis Strong 1H21 results mainly from M&A activities; not significantly affected by Covid19  Consolidated revenue for Refrigeration Electrical Engineering (REE) reached VND2,819bn, up 14.1% versus the same period in 2020, thanks to the merger of Vinh Son – Song Hinh Hydropower JSC (VSH – power segment) and TK Cong Company Limited (water segment – small scale, revenue +VND23bn).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Aerospace Industrial (2634 TT) Business to Rebound

By Masterlink Securities

As AIDC’s business had hit the bottom in 2020, its orders would continue to recover in the future. In addition, orders from the domestic production of indigenous jet policy are promising. Thus, we reiterate BUY on AIDC, with a TP of NT$42.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Yang Ming Marine (2609 TT) Mixed Views on Future Freight Rates

By Masterlink Securities

We have noticed that Yang Ming’s PBR trend matches with SCFI trend. As such, we reckon that Yang Ming’s valuation may fluctuate at a high level in 2H21. If cargo jams gradually decrease in 4Q21, Yang Ming’s PBR may undergo correction. Considering that Yang Ming’s 3x PBR is still high and has reflected its fundamentals, we assign a HOLD rating on Yang Ming with a TP of NT$115 (1.5x FY22 PBR).

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: SM Line Corp, Asia High Yield Bond Index, Astral Poly Technik and more

By | Daily Briefs, Industrials

In today’s briefing:

  • SM Line IPO: Offering Terms, Valuation Details, & Risk Analysis
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • Astral Poly Technik: Innovator and Trendsetter in the Piping Segment

SM Line IPO: Offering Terms, Valuation Details, & Risk Analysis

By Sanghyun Park

Offering terms

One of Korea’s major flag-carrying maritime transporter (only behind HMM in size), SM Line, put out the IPO prospectus. It will be listed on the KOSDAQ market around late November. The total offering is 34 million shares, representing 50% of the current number of shares outstanding. The institutional allotment is 68.5~75.0% of the offering.

Offering size
Ticker076710
BourseKOSPI
Pre-IPO SO67,688,440
Offering33,844,220
– % of SO50.00%
– Institutional allotment68.50~75.00%
Source: DART

This is a split offering at a 50:50 ratio. So the capital increase rate is 25%, with a share dilution at 20%.

Split
Primary %50.00%
Secondary %50.00%
Post-IPO shares outstanding84,610,550
Capital increase rate25.00%
Dilution20.00%
Source: DART

The book opens on November 1, and the allotment will be disclosed on November 3. The subscription follows on November 4, followed by the payment on November 9. The listing date will be announced later.

Schedule
Book open2021. 11. 01
Book close2021. 11. 02
Allotment2021. 11. 03
Subscription2021. 11. 04
Payment2021. 11. 09
Listing
Source: DART

The share of the largest shareholder will be 60% after listing. The stake is locked for six months. And the amount of inflow through the public offering is 40% of the post-IPO total shares.

ShareholdersSharesPost-IPO shareholding %Lockup
TK Chemicals18,646,23222.04%6 months
Samra Midas17,846,73321.09%6 months
Samra Inc14,273,36516.87%6 months
– Major shareholder total50,766,33060.00%6 months
ESOP (post-IPO)507,6630.60%1 year
IPO33,336,55739.40%
Source: DART

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

Wall Street trudged higher with S&P and Nasdaq up 0.4% and and 0.5%. US 10Y Treasury yields were 1bp lower at 1.54%. Utilities were up 1.5% and Consumer Staples were up 1% while Energy fell 1.1% with most sectors in the green. European stocks saw a sharp drop with the DAX, CAC and FTSE falling 1.5%, 1.3% and 1.2%. Brazil’s Bovespa was marginally higher by 0.1%. In the Middle East, UAE’s ADX was down 0.4% while Saudi TASI was up 0.1%. Asian markets have seen a positive move with the HSI up 2.3%, STI up 0.9% and Nikkei up 1.7%, while Shanghai remains closed. US IG CDS spreads and HY CDX spreads were flat. EU Main CDS spreads were 1.3bp wider and Crossover CDS spreads widened 8.1bp. Asia ex-Japan CDS spreads widened 1.5bp.

Astral Poly Technik: Innovator and Trendsetter in the Piping Segment

By Axis Direct

However, given limited short-term upside potential from the current levels but a positive long-term outlook on the company, we recommend a HOLD’ rating on the stock with a TP of Rs 2,250/share, implying a downside of -4.6% from CMP.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: Japan Post Holdings, HMM Co., Ltd., Asia High Yield Bond Index, Dinh Vu Port Investment & Development and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Japan Post Holdings – World’s Largest Cleanup Trade Announced – Story and Index Implications
  • Japan Post Holdings (6178 JP): Passive Buying + Buyback Will Mop Up MOF Offering
  • Japan Post Holdings Placement – The Final US$8bn Countdown – Past Deal Didn’t Do Well
  • SM Line Corp IPO Preview
  • UAE, Macquarie, Korea Launch $ Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gaine…
  • Dinh Vu Port Investment & Development JSC (DVP VN/TRADING BUY/TP

Japan Post Holdings – World’s Largest Cleanup Trade Announced – Story and Index Implications

By Travis Lundy

The Offering for Japan Post Holdings (6178 JP) expected to be announced today has materialised. It is 1,027,477,400 shares or roughly ¥950bn of shares. 

This is a Very Large Offering, but it is also a clean-up trade. After this, the government can sell no more without the company buying back more.

And because the government is unlikely to ever add more money to the pot, this is likely the last equity offering Japan Post Holdings will ever do. 

Separately, as I suggested in Japan Post Holdings – This Is the Big Move, JPH has decided it will buy back shares. Unfortunately, the number and mechanism are less impactful than one would have hoped, but one cannot disregard. It pays to think about the flows. 

So we do, below. 


Japan Post Holdings (6178 JP): Passive Buying + Buyback Will Mop Up MOF Offering

By Brian Freitas

Post market close yesterday, Japan Post Holdings (6178 JP) announced that the Ministry of Finance (MOF) would be selling 1,027,477,400 shares of the company to pare their stake to the minimum mandated 33.3%. The sell down is 27% of the company shares and at the last price is worth JPY 952bn (US$8.55bn).

Japan Post Holdings (6178 JP) also announced that they would be buying a maximum of 133m shares or up to JPY 100bn of their own shares following the supply-demand imbalance following the Ministry of Finance’s offering.

The news of the potential sell down has been swirling for the last week and the stock is down around 7.6% since then. With pricing of the offering to be determined between 25-27 October, the stock should head lower in the near term.

The passive buying due to an increase in the free float of the stock, plus the buyback, will support Japan Post Holdings (6178 JP). Both events together will mop up between 40-43% of the MOF offering.

With the Ministry of Finance holding the minimum mandated stake in the company, the overhang will go away.


Japan Post Holdings Placement – The Final US$8bn Countdown – Past Deal Didn’t Do Well

By Sumeet Singh

The Japanese government plans to sell over 26% or US$8bn worth of Japan Post Holdings (6178 JP). The selldown was originally slated for 2019 but was called off due to negative press for Japan Post Insurance. Thus, this deal has been over two years in the making and comes nearly four years after the previous selldown.

We covered the IPO and previous selldown in our prior notes, links to which are below.  

For people interested in reading more about the history and background, we’ve covered the IPO and JPH and JPI sell downs in the below series of insights:

Previous placement


SM Line Corp IPO Preview

By Douglas Kim

SM Line Corp is getting ready to complete its IPO in the KOSDAQ exchange in the next few weeks. This is the first shipping (marine transportation) company IPO in Korea in 14 years. SM Line Corp is trying to capitalize on the highly bullish environment for shipping companies globally.

The IPO price range is from 18,000 won to 25,000 won. At the high end of the IPO price range, the implied market cap of the company is 2.1 trillion won. The IPO offering amount range is from 609 billion won to 846 billion won. The book building for the institutional investors starts on 1 November. The lead underwrite of the IPO is NH Investment & Securities. 

The company plans to use the IPO proceeds to purchase more eco-friendly, green vessels to better respond to stricter carbon emission rules to be applied from 2022. It is also considering on buying used vessels that can be used immediately to capitalize on the current global ship shortages. 


UAE, Macquarie, Korea Launch $ Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gaine…

By BondEvalue

Wall Street picked up yesterday after a sharp drop on Monday as S&P was up over 1% and and Nasdaq was up 1.3% respectively. US 10Y Treasury yields shot up by 7bp to 1.55%. Financials were up 1.8%, IT and Communication Services were up over 1.5%, while Real Estate was down 0.9%. European stocks also rallied with the DAX, CAC and FTSE jumping over 1%, 1.5% and 0.9%. Brazil’s Bovespa was almost unchanged. In the Middle East, UAE’s ADX was down 0.1% while Saudi TASI was up 0.8%. Asia Pacific markets are broadly lower again – HSI was down 1.1%, STI was flat and Nikkei was down 1%, while Shanghai remains closed. US IG CDS spreads were 0.4bp wider while HY CDX spreads widened 2.1bp. EU Main CDS spreads were 0.4bp tighter and Crossover CDS spreads tightened 1.4bp. Asia ex-Japan CDS spreads widened 0.1bp.

Dinh Vu Port Investment & Development JSC (DVP VN/TRADING BUY/TP

By Mirae Asset Securities

Consensus OP (21F, VNDbn) NA Free float (%) EPS growth (21F, %) 18.6 Foreign ownership (%) 12.3

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: Ana Holdings, Nippo Corp, China Conch Environment Protection Holdings, Mitsubishi UFJ Financial (MUFG), Cummins India, Acco Brands and more

By | Daily Briefs, Industrials

In today’s briefing:

  • ANA – Needs More Capital
  • NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects
  • Conch Environment: Initial Thoughts on the Listing by Way of Introduction
  • HDB, MUFG Launch Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • Draft Electricity Bill sentimentally negative
  • ACCO: Mastering in Post COVID-19

ANA – Needs More Capital

By Mio Kato

We believe that there is a material possibility of ANA requiring more capital to maintain its competitiveness. In addition, valuations appear to be pricing in a blue-sky scenario and there are some signs that ANA’s spending could be unsustainably low. With markets looking for reopening plays and bidding up its price this looks like a perfect storm coming together.


NIPPO (1881 JP) Gets MORE Cowbell as Oasis Objects

By Travis Lundy

When the bid was announced, in ENEOS To Steamroll Nippo (1881 JP) Minorities I wrote about how in parent ENEOS Holdings (5020 JP) bid to buy out the minority holders of Nippo Corp (1881 JP) despite being an all-time high price, the bid was still egregiously low. 

NIPPO’s independent panel and board, of course, agreed with its parent company that the convoluted construct where ENEOS would participate in a 3rd party buyout, then sell its ownership back to the company (taking the cash out) while still controlling the company (then eventually try to re-list the company after taking the money out) was all good for shareholders and the company itself. 

Investors should not be under any illusion that NIPPO’s Board will, when presented with numbers which suggest they are selling the company too cheaply for the benefit of ENEOS will suddenly say “aha, you are right, we didn’t count the securities and real estate correctly.”

If NIPPO’s Board officially reviews the numbers and comes to the conclusion that they made a mistake, that upsets the entire ecosystem – the acquiror, the lawyers on both sides, the accountants and fair value assessors, and all the advisors who told them that this was fair and appropriate. Every single member of the ecosystem would be wrong.

And that can’t happen, so it won’t. 

The only one who changes the outcome here is the buyer – who can raise the price – or the investor base – who can raise the price on the buyer, challenging them to pay more. 

A short while ago, the CEO of Monex Oki Matsumoto in his role as CIO of the small activist-ish Monex Activist Mother Fund said that the ¥4,000/share TOB price was too cheap, and NIPPO should consider a special dividend to shareholders. This was discussed in NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More a bit over a week ago.  Three days later (27 Sep), Silchester International Investors – which says it is not an activist and generally does not make public comment – apparently said that generally agreed with what Matsumoto-san had to say. 

What investors may not have realised if they did not read the fine print of the original announcement is that the Board of NIPPO has already agreed to support a huge distribution of the company’s cash to shareholders. It is at the bottom of p5 and it says that NIPPO will distribute 194.098bn yen of the company’s cash to shareholders.

Actually, it will only give that cash to one shareholder – ENEOS – but the principle is the same. This cash is not needed for its operations. Therefore, in the process of “raising corporate value through the transaction” it will give that cash to shareholders. 

Investors have it in front of them. 

This morning Asia time, activist investor Oasis Management Company issued a press release calling on NIPPO to conduct an active market check to achieve a higher price, and says it believes NIPPO shares are worth “over JPY5,600” apiece. 

I do not disagree. In my first insight, I said the ¥4,000/share TOB price was ¥1,500-2,000/share light. 

For investors…

  1. The press release is definitely worth reading. 
  2. The original announcement is definitely worth re-reading
  3. It is worth digging through the structure and process to figure out how ENEOS (and NIPPO and GS?) are taking advantage of minorities. The statements and the actions do not necessarily agree with each other and the fiduciary duties of ENEOS and NIPPO.
  4. And as is usually the case in these situations, it is worth getting out your cowbell.

So below, I try to do #3.

Separately, investors should have questions about the Sentaku article which came out discussing the coincidence that GS has just perhaps agreed to sell an asset to ENEOS at a price below other bidders, and is now being accorded the opportunity to participate in a separate transaction with ENEOS where they bring neither value nor net capital. 


Conch Environment: Initial Thoughts on the Listing by Way of Introduction

By Osbert Tang, CFA

We believe the spin-off by introduction of China Conch Environment Protection Holdings (CEP HK) by China Conch Venture Holdings (586 HK) will leave more clarity to the business of both companies. Fundamentally speaking, we think CEP is a solid company with a focus on cement kiln waste treatment services for solid and hazardous waste in China.

The key positives for CEP are a leadership position in the industry, excellent new project pipeline momentum and strong relationship with its partners, in our view. However, the key negatives are declining margins, concentrated business lines and small market capitalisation. We estimate that CEP’s market cap will be just HK$4.98bn and HK$6.38bn, based on the average PER of the peers (5.9x) and high-end of peers (7.6x). 


HDB, MUFG Launch Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US markets saw a sharp drop yesterday, continuing its volatile movement from last week – S&P and Nasdaq were down 1.3% and 2.4% respectively. US 10Y Treasury yields were marginally higher by 1bp to 1.48%. Energy and Utilities were up over 1.4% while IT and Communication Services were down over 2.1%. European stocks were also lower with the DAX falling 0.8%, CAC falling 0.6% and FTSE down 0.2%. Brazil’s Bovespa was down sharply by 2.2%. In the Middle East, UAE’s ADX was down 0.3% and Saudi TASI was up 0.1%. Asia Pacific markets are broadly lower again – STI is down 0.8% and Nikkei 2.8% while Shanghai remains closed, HSI recovered after opening ~1% lower and was up 0.3%,. US IG CDS spreads were 0.95bp wider while HY CDX spreads widened 4.7bp. EU Main CDS spreads were 0.9bp wider and Crossover CDS spreads widened 5bp. Asia ex-Japan CDS spreads widened 0.1bp.

Draft Electricity Bill sentimentally negative

By Motilal Oswal

Draft Bill aimed at lowering pollution via other generation sources: In light of rising pollution levels, particularly in metros and large cities, the Draft Bill states that the electricity distributor shall ensure uninterrupted (24*7) power supply to all consumers so there is no requirement of running dieselgenerating (DG) sets. The State Commission may consider a separate reliability charge for the distribution company, if it requires funds for investment in infrastructure, to ensure the reliability of electricity supply to consumers.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

ACCO: Mastering in Post COVID-19

By Hamed Khorsand

  • The return of in-person learning has not dissipated as was once the case at the start of this school year. Back to school shopping continued without pause and should result in Acco Brands (ACCO) experiencing a better than expected third quarter.

 

  • The Company has been highlighting the channel inventory that would need to be consumed before retailers would replenish their stock. Industry data suggests consumers were buying more this year and buying earlier in the back-to-school shopping season.

 

  • It is not only North America where ACCO could experience a lift in sales. The end of the year is usually the time when the southern hemisphere goes through their back-to-school shopping season.

 

  • Investor focus remains on recently acquired PowerA business, which does change the growth profile of ACCO However, it would be the supplies and equipment side of the business making much of the splash from a return to normalcy environment.

Before it’s here, it’s on Smartkarma

Industrials: Japan Post Holdings, Intega Group Ltd, Hyundai Engineering & Construction, Asia High Yield Bond Index, PNC Infratech Ltd and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Japan Post Holdings – This Is the Big Move
  • Intega (ITG AU) Enters Scheme With Kiwa
  • Hyundai E&C 1P Offering: A Vast Spread, but Worth Taking the Risk?
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • PNC Infratech: Well-Positioned to Capitalize on Strong Industry Tailwinds

Japan Post Holdings – This Is the Big Move

By Travis Lundy

Last week, several news outlets (Bloomberg) reported that the Japanese government had told brokerage officials that it planned on executing a sale of Japan Post Holdings (6178 JP) shares to the tune of ¥1 trillion (using Tuesday’s closing price as a guide), with an official announcement to be made on 6 October (this coming Wednesday). 

The government currently owns ~61%, and the goal of an offering and a possible direct sale of shares back to the issuer would be to reduce the government’s holding in Japan Post Holding down to just over one-third, which is the legal minimum as per the Bill to Partially Revise the Postal Privatization Law passed in 2012.

The shares fell, in anticipation of the supply to come, and have been falling since.  

The numbers suggest a public sale of 1,000,000,000 shares or slightly more.

Those numbers may not be right.

And the repercussions from thinking about it that way are important. 


Intega (ITG AU) Enters Scheme With Kiwa

By David Blennerhassett

Construction materials testing company Intega Group Ltd (ITG AU) has announced it has entered into a Scheme Implementation Deed (SID) with Dutch outfit Kiwa. 

The SID is struck at A$0.90/share, a 58% premium to last close. The deal is the culmination of strategic review announced on the 9 June to “maximise value” for its shareholders.

Apart from the standard shareholder approval attached to a Scheme, the transaction is subject to FIRB approval. Should that regulatory approval not occur before 31 December 2021, Intega is permitted to pay a special dividend of A$2.3mn each month (~A$0.005/share) between 1 January 2022 and 30 June 2022. These dividends will be in addition to the A$0.90/share cash consideration.

Crescent Capital Partners, with 52.1% of shares out, supports the SID and will vote in favour.

This looks done (with an expected completion mid-December) and should trade tight to terms.

More below the fold. 


Hyundai E&C 1P Offering: A Vast Spread, but Worth Taking the Risk?

By Sanghyun Park

Hyundai E&C 1P’s subscription rights trading was very active on the first trading day. In this event, which offers a total of 2 million preferred shares, 1.83M subscription rights are listed for trade.

Hyundai E&C 68PR
Total offering2,000,000
Subscription rights listed for trade1,832,367
Source: KRX

Of this, 0.51M, nearly a third, was traded on the first trading day. Interestingly, however, the rights price fell sharply in the afternoon, ending at ₩3,460. On this day, VWAP was ₩6,419.

Subscription rightsCloseVolumeValueVWAP
10/01₩3,460510,183₩3,274,741,535₩6,419
Source: KRX

This offering has a whopping 45% discount. The specific formula of how to fix the offering price is shown below.

Pricing
1st roundRP × (1 – 45%) / [1 + (1.79% × 45%)]
– Reference price (RP)Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]
– Reference date2021. 08. 30
Ex-rights base price[RP + (1st × 1.79%)] / (1 + 1.79%)
– Reference price (RP)Previous close
– Reference date2021. 09. 01
2nd roundRP × (1 – 45%)
– Reference price (RP)Min [Close, Avg (Close, 1W VWAP)]
– Reference date2021. 10. 18
 
FinalMin (1st, 2nd)
– Reference date2021. 10. 18
Discount rate45.00%
Capital increase rate1.79%
Source: DART

The 1st round price got settled at ₩98,300, which, of course, serves as the ceiling price since whichever lower of the 1st and the 2nd will be the final price.

Of course, we don’t know where and how much the 1P price will head and will get corrected before the 2nd round pricing date, which is October 18. But at the current price, we have this vast spread. If we buy subscription rights at the last close (₩3,460) and the current 1P share price holds until October 18, we will likely enjoy a 75.40% return.

Spread status
Current price₩172,000
: 45% discount₩94,600
Subscription rights price₩3,460
Spread75.40%
Source: KRX

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US markets ended higher on Friday to end a volatile week for equities as the S&P was up 1.2% and Nasdaq up 0.8%. US 10Y Treasury yields eased 1bp to 1.47%. Energy led the sectoral gains, up 3.3%, followed by Communication Services, Materials and Financials up over 1.6%. European stocks were mixed with the DAX falling 0.7%, FTSE down 0.8% while CAC was flat. Brazil’s Bovespa was marginally lower, down 0.1%. In the Middle East, UAE’s ADX and Saudi TASI were 0.4% lower. Asia Pacific markets are down again. While Shanghai remains closed, HSI and Nikkei were down 2.3% and 1% while STI was up 1.4%. US IG CDS spreads were 0.9bp tighter while HY CDX spreads tightened 3.7bp. EU Main CDS spreads were 0.2bp wider and Crossover CDS spreads widened 0.8bp. Asia ex-Japan CDS spreads tightened 0.3bp.

PNC Infratech: Well-Positioned to Capitalize on Strong Industry Tailwinds

By Axis Direct

We initiate coverage with a BUY rating and value the company’s EPC business at 14x FY24E EPS and HAM portfolio at 1x book value, to arrive at a target price of Rs 440/share. TP implies an upside potential of 24% from the CMP.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma

Industrials: SUMCO Corp and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Sumco (3436 JP): 21% Dilution from New Share Issue, Buy into Current Weakness

Sumco (3436 JP): 21% Dilution from New Share Issue, Buy into Current Weakness

By Scott Foster

On September 30, SUMCO announced plans to issue up to 60 million common shares to finance the construction of new 300mm silicon wafer production capacity. Maximum dilution of the current share count would be 20.7%.

Total capital investment in new plant buildings and equipment is expected to reach ¥228.7 billion and is scheduled to be completed by the end of 2024. Capacity will be expanded in stages in order to keep up with customer demand, which is forecast to rise at a CAGR of 5.1% from 2020 to 2024. 

The maximum amount of proceeds is estimated at nearly ¥128 billion. The remainder will come from cash on hand, which amounted to ¥95.6 billion at the end of June. On top of that, cash generated by operations has recently been running at an annual rate of more than ¥90 billion.

The Pricing Date will be between October 12 and October 15. On Friday, October 1, the share price dropped 4.4% to ¥2,151. The estimate of maximum proceeds implies a price of ¥2,133.

On a 3-year view, our forecast has the P/E ratio dropping from 23x to 16x and P/CF dropping from 9x to 6x. We continue to recommend buying into the current weakness for the medium to long term.


Before it’s here, it’s on Smartkarma

Industrials: Toshiba Corp, Jardine Matheson Holdings, Hyundai Heavy Industries, MMC Corp Bhd, Asia High Yield Bond Index, Gamuda Bhd and more

By | Daily Briefs, Industrials

In today’s briefing:

  • Toshiba – Elliott Jumps Into The Fray
  • Jardine Matheson’s (JM SP) Turn To Buy Back Shares
  • Hyundai Heavy Industries: Passive Impact Timing Confusion
  • Toshiba – We View Elliot’s Entry as Only Marginally Positive
  • MMC Corp (MMC MK): The Vote Gets Up. Now For Court Sanctioning
  • Toshiba Corp (6502 JP) Chapter 7: Elliott Appears to Have Arrived “just-In-Time”
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • A Strong Recovery in 4QFY21

Toshiba – Elliott Jumps Into The Fray

By Travis Lundy

Toshiba Corp (6502 JP) has had a tough time of things for years, but they have been problems largely of the company’s own manufacture. 

Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. 

The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But “new management” in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they’d-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. 

Magically, he found someone – his old shop – to say “hey, we’d like to buy out Toshiba, but only if Kurumatani-san stays” (discussed in Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger and Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast (the first of which, coincidentally, followed on exactly a year after I wrote An MBO for Toshiba? Not As Silly As It Sounds)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in Toshiba – The King Is Dead, Long Live the King). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (Toshiba’s 2020 AGM Investigative Report Is Damning). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. 

In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. 

There are noises of either an IPO (more likely) or a take-private of the Kioxia (6600 JP) unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a press release regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). 

Today’s News Is BIG

The FT posted an article this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. “people close to Toshiba said that Elliott’s stake did not exceed 5 per cent.” Bloomberg touched base with Elliott who said that Elliott confirmed they were a “large shareholder.” Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren’t a 5% stakeholder today. 

But the FT article is super-interesting, and deserves to be read closely.

And I have some more thoughts about that below the fold.  


Jardine Matheson’s (JM SP) Turn To Buy Back Shares

By David Blennerhassett

On the 6th September, Hongkong Land (HKL SP) announced a US$500mn share buyback program, which will run until 31st December 2022. Based on the average daily volume over the last year of US$9-10mn, this buyback is roughly equivalent to ~15% of daily volume through to 2022 year-end. Pretty punchy.

In Hongkong Land’s (HKL SP) Big Buyback, I said the Jardine’s group evidently believes it makes good business sense to buy back its own shares in place of deploying capital into HKL’s investment and development property portfolio.

Now it’s Jardine Matheson Holdings (JM SP)‘s turn to buy back its own shares. 

Yesterday the conglomerate announced a US$250mn buyback which will run through to 30 June next year.

As with HKL, the holding of treasury shares is not permitted in JMH’s constitution, therefore any shares repurchased will be cancelled.

I see JMH’s discount to NAV at ~30%, around its lowest level since taking Jardine Strategic Holdings (JS SP) private.

We now have some indication as to what the Keswick family considers a cheap entry-level. 

More below the fold.


Hyundai Heavy Industries: Passive Impact Timing Confusion

By Sanghyun Park

Hyundai Heavy Industries is up 14% on the previous trading day and today. Over the past five days, the share price has risen close to 19%.

(Source: Google Finance)

It seems that the leading cause is a mixture of passive trading for KOSPI 200 inclusion and also the trading aimed at this expectation.

In fact, among the top net buying stocks by local pension funds (National Pension Service accounts for about 80%) over the past month, Hyundai Heavy Industries ranks second only after Krafton. Local pension funds have recorded more than 150 billion won in net purchases in the past six trading days since Hyundai Heavy Industries went public.

(Source: KRX)

The market seems to be interpreting the purchase of Hyundai Heavy Industries by local pension funds as a preemptive response to the KOSPI 200 inclusion. Hyundai Heavy Industries’ current market cap is ₩10.25T, ranking 41st among KOSPI common stocks. The KOSPI 200 Fast Entry is almost certain given the difference in market cap of about ₩2T from the 50th place.


Toshiba – We View Elliot’s Entry as Only Marginally Positive

By Mio Kato

The FT notes that Elliot has now gotten involved in the Toshiba drama following its successful bid to get Softbank to return more cash to shareholders. While the news is very welcome we do not believe it materially changes how the Toshiba drama is likely to unfold.


MMC Corp (MMC MK): The Vote Gets Up. Now For Court Sanctioning

By David Blennerhassett

Back on the 3 June, Seaport Terminal, a wholly-owned vehicle of Tan Sri Syed Mokhtar Albukhary, announced an Offer for port operator and utility play MMC Corp Bhd (MMC MK) at RM2.00/share, a 70.94% premium to last close. Seaport Terminal owned 51.76% of MMC.  The Offer was being done via a selective capital reduction and repayment (SCR) exercise.  The circular was dispatched on the 8 September with the EGM scheduled for the 30 September. Payment under the offer is expected towards the end of December.

This looked done, but has consistently traded wide to terms, largely on concerns as to how Permodalan Nasional (PNB) will vote.

In MMC Corp (MMC MK): This Is A Buy I thought it was highly unlikely the Offer would have been pitched without first sounding out PNB. I recommended getting involved at the then gross spread of 13.6%.

Yesterday, shareholders overwhelmingly approved the SCR – 85% of the disinterested shareholders voted and 99.7519% in value to the votes attached to those shares approved the special resolution. Therefore, PNB gave its blessing.

Now it’s a question of when the High Court will sanction the deal.

More below the fold.


Toshiba Corp (6502 JP) Chapter 7: Elliott Appears to Have Arrived “just-In-Time”

By David Lepper

The Financial Times has reported that Elliott Management (“Elliott”) has built a “sizeable” stake in Toshiba. 

The article released on 30th September 2021 in the Financial Times, comes some nine days after the publication reported that activist shareholders were starting to lose the power that they had secured following the last AGM.

There is no reason to believe that management will have the ability to remain silent for much longer when it comes to advising shareholders of its progress of three key events. We discuss why these events and why the unlocking of value is now a real possibility.


Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US markets ended mixed after selling-off sharply a day earlier as the S&P climbed 0.2% while the Nasdaq Composite slipped 0.2%. US 10Y Treasury yields eased 2bp to 1.51% after a sharp rise over the last week. Utilities and Consumer Staples led the gains while Materials and Communication Services led the losers. European stocks on the other hand jumped with the DAX and CAC up 0.8% each and FTSE up 1.1%. Brazil’s Bovespa also rose 0.9%. In the Middle East, UAE’s ADX ended 0.3% lower while Saudi TASI ended flat. Asia Pacific markets are mixed with Shanghai up 0.5%, HSI down 1%, STI up 0.6% and Nikkei down 0.3%. US IG CDS spreads were 0.1bp wider while HY CDX spreads tightened 1.3bp. EU Main CDS spreads were 0.5bp tighter and Crossover CDS spreads tightened 6.9bp. Asia ex-Japan CDS spreads widened 0.2bp.

A Strong Recovery in 4QFY21

By TA Securities Holdings Bhd

GAMUDA’s FY21 core profit of RM588.3mn exceeded expectations, accounting for 119.6% and 120.2% of our and consensus’ full-year estimates, respectively. […] In FY21, no dividend was declared, compared to 6.0sen/share in FY20. […] The increased profit contribution from both the construction and property divisions was primarily responsible for the improved earnings performance. […] Following the better-than-expected results, we raise our earnings forecasts for FY22 and FY23 by 1.6% and 4.8%, respectively, after increasing earnings contribution from the construction and property divisions. […] RM3.14, based on CY22 earnings with unchanged target PE multiples of 20x, 8x and 12x for construction, property and concessions, respectively.

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Before it’s here, it’s on Smartkarma