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Singapore

Brief Singapore: The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos and more

By | Daily Briefs, Singapore

In this briefing:

  1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos
  2. Singapore Property – Jump in New Supply. Upcoming Mega-Launches to Test Buyers’ Appetite.
  3. Are Risky Assets Overvalued?
  4. Taking Off: Vietnamese Exports Are Rocking and Rolling
  5. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIA Engineering

1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos

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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Macro Insights

In Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession), CrossASEAN Economist Prasenjit K. Basu revisits the Singapore economic outlook in light of recent indicative numbers that suggest that the economy has stalled. 

In Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked, CrossASEAN Indght Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

In Taking Off: Vietnamese Exports Are Rocking and Rolling,Dr. Jim Walker zeros in on the picture for Asia Exports as the US-China Trade War continues to simmer. 

In Thai Macro Watch: Huawei, Trade Wars, and More, our Thai Guru Athaporn Arayasantiparb, CFA looks at five news on the global front that may impact Thai equities directly or indirectly.

Equity Bottom-Up Insights

In Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s leading smartphone retailer and finds plenty to cheer about after a conversation with management. 

In EGM Alliance Mineral (AMS SP): Galaxy Investment Approved by Shareholders. Next Stop: Full Takeover?,Nicolas Van Broekhoven revisits Alliance Mineral Assets (AMS SP) after attending the company’s recent EGM. 

In Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend, Consumer specialist Devi Subhakesan takes a close look at this leading Indonesian staples player. 

In Health Management Int’l Privatisation – Easy Peasy,Travis Lundy zeros in on this potential privatisation event. 

In IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm,Athaporn Arayasantiparb, CFA takes a close look at the upcoming IPO of Singha Group’s hotel arm. 

In Thanachart and TMB: On the Defensive. An Insurance Policy for Challenging Times, Banking Specialist looks at this impending merger of these two major financial institutions in Thailand. 

In StubWorld: Just Rumours (For Now) As SIA Engineering Pops,David Blennerhassett examines the possibility of privatisation of Sia Engineering (SIE SP). Sia Engineering (SIE SP) is not aware of any information, however last week’s 15% gain in two days rekindles privatisation talks by Singapore Airlines (SIA SP)

In Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy,Travis Lundy looks at this proposed merger, which would create the largest hospitality trust in Asian Pac. 

Sector and Thematic Insights

In Indonesian Telecoms: The Recovery Continued in 1Q and We Expect It to Last, our friends at New Street Research circle back to the Indonesian Telco sector post 1Q19 results and maintain an upbeat view on the prospects for an increasingly data-driven market.

In Singapore REIT – Cautious Search for High Yield, property specialist Anni Kum revisits the REIT sector and identifies her top picks. 

In REIT Discover: Prime US REIT IPO Brief Review,Anni Kum takes a look at the initial public offer (IPO) of Prime Us Reit (PRIME SP)

2. Singapore Property – Jump in New Supply. Upcoming Mega-Launches to Test Buyers’ Appetite.

Picture3

Singapore’s Urban Redevelopment Authority (URA) today released the data on property developers’ private home sales for the month of June 2019.

A total of 670 non-land private residential units were launched for sale in June. This was 51% fewer than the number of units launched in the preceding month and 5% fewer year-on-year.

A total of 803 non-landed private residential units were sold in June. This was 14% fewer than the number of new units sold in the previous month.

10 new projects received their sales approval in June, adding a substantial 4,731 units to the launch pipeline. 2 mega-launches to watch out for in the coming months are Parc Clematis  and Avenue South Residence. 

Total developers’ inventory available for immediate launch jumped by 22.3% MoM in June to 20,531 units. This is the highest level since Jan 2015. Rising inventory is within expectation and will continue to affect the pricing power of developers.

3. Are Risky Assets Overvalued?

Cape to long term average log cape to average chartbuilder 2

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

4. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

5. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIA Engineering

Lennon

Last Week in Event SPACE …

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

EVENTS

Chiyoda Corp (6366 JP)  (Mkt Cap: $729mn; Liquidity: $15mn)

Travis Lundy calculated the total shares to be sold at 48-50m accounting for 20% of outstanding and 30% of float in Chiyoda’s upcoming removal from the Nikkei (and now confirmed – see Travis insight below) and Topix indexes, and referenced the exclusion trades resulted in Toshiba Corp (6502 JP) falling 24% and Sharp Corp (6753 JP) falling 31%. But Mio Kato, CFA feels that the company’s situation could skew the timing compared to what would be “normal”.

  • Mio believes that it may be more interesting to look for a reversion trade in the event that the stock price declines significantly into the exclusion. He feels that the fall may not be quite as steep as that for Toshiba or Sharp. In both Toshiba and Sharp’s cases there was still significant uncertainty surrounding the names as Toshiba had not completed or even announced its capital raise at the time and the sale of its memory subsidiary was still being hotly contested; while in Sharp’s case Hon Hai was playing hardball on deal terms.
  • In contrast, Chiyoda has already secured funding from a very stable and large partner and appears to have kitchen-sinked a lot of assumptions and faces a very bright operational outlook – its problems stem from poor risk management, which Mitsubishi is meant to solve, and not operations. 
  • In addition, due to Chiyoda’s previous operational struggles and write-downs there is already a very significant short base. This could distort the usual timing of the fall in the stock price and the fact that the stock has recovered to just 3.5% below the level prior to more widespread reporting of the exclusion points to this eventuality. It does seem likely that the size of the required sell could push Chiyoda’s price down at some point – Mio argues this could happen much closer to the actual event than usual. If borrow is difficult to come by, there could be money to be made on the other side around the turn of the month.

(link to Mio’s insight: Chiyoda: Risks to the Index Kick-Out Trade and Potential Volatility at Earnings the Next Day)


Bandai Namco Holdings (7832 JP)  (Mkt Cap: $12.6bn; Liquidity: $28mn)

The Nikkei Inc announced its “Changes to the Nikkei Indices” this week  which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that Chiyoda Corp (6366 JP)s yuho (Annual Securities Report) had the company at a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. The Announcement surprised people. As expected, Chiyoda is Out – but Bandai is In.  Chiyoda closed down 2.6% on 2mm shares, and Bandai closed limit up +19.3% on 300k shares allocated at the limit on the close.

  • There are still something like 50 million shares of Chiyoda to sell. The significant shorts – which are likely well in excess of the 23+ million shares shown and reported – are likely sourcing a lot of their borrow from the shareholders (passive funds) who have to sell. Those shareholders will have to recall their borrow. Earnings come out the day after the exclusion. I would not want to be short that earnings number. Plus read Mio’s insight above.
  • There should be 27mm shares to buy in Bandai which is about 20% of float. However, if only half the foreigners and only half the individual holders would be willing to sell on a large jump in price in the next few weeks, then the net available to sell is probably closer to 80mm shares and 27mm to buy would be one-third. It’s a lot. Once it gets purchased by Nikkei 225 funds, it won’t come out anytime soon. This stock is likely to get squeezed.
  • Dmg Mori Co Ltd (6141 JP) was flagged by many as a good bet to replace Chiyoda. Since then, roughly 14 million shares of excess volume have traded. If half of that is a real displacement of holdings based on this event, 7mm shares would need to be sold. That is 3% of shares out and 4-5% of float. It is among the larger excess positioning situations in the last five years in the stock. DMG closed -10% on 7.3mm shares in response to the index changes.

(link to Travis’s insight: Nikkei 225 – Bandai Namco IN, Chiyoda OUT)


Kcc Corp (002380 KS)  (Mkt Cap: $2.2bn; Liquidity: $6mn)

KCC will split itself into two companies in the form of an equity spinoff with KCC the surviving company and KCG the new company. KCC will mainly comprise the B2B business (silicone, paint and varnish); KCG will get the B2C business such as glass and interior. An EGM will be held on Nov 13 and shareholder approval can be obtained with 2/3 of attending votes and 1/3 of shares out. Both companies will be listed – KCC on Jan 21 next year, but KCG’s listing date hasn’t been fixed.

  • Typically, demergers serve to streamline a business.  However, the major shareholder retains 40%, which Sanghyun Park considers to be weak. He believes the major shareholder intends to further solidify this controlling stake via a tender, possibly a month after the Jan 21 listing. 

(link to Sanghyun’s insight: KCC Corp Equity Spinoff: Summary & Mispricing Checkup)


R* Shares CPSE ETF (CPSEBE IN) 

The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises, declining to 10 after Rural Electrification (RECL IN) was kicked out this past Friday. The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

  • The CPSE ETF does not trade big volumes on a regular day. However, there is a huge volume surge following fund offerings as many investors look to flip their allocation back into the market and lock in a profit. The anchor portion was oversubscribed almost 6 times in the last tranche issued in March this year, though the number may be smaller this time with the tighter discount being offered.
  • The ETF will need to buy around 63m shares of Indian Oil Corp (IOCL IN) in the market on July 19. Brian Freitas estimates this number since the Government of India can only sell around 64m shares to the ETF as this will take their stake in the company down to 51.5%, the lowest percentage for the stock to remain in the Nifty CPSE index. Given the stock trades around 13m shares a day on average, he sees 4x of excess volume and expect the stock to rally in the lead up to July 19 and see buying over the day on July 19.

links to Brian’s insights:
The CPSE ETF Arb Is Back, but Tighter!
India – NIFTY CPSE Index Review.

M&A – ASIA-PAC

Unizo Holdings (3258 JP) (Mkt Cap: $913mn; Liquidity: $4mn)

Japan’s premier discount travel agency H I S Co Ltd (9603 JP) on Wednesday announced it would launch a Partial Tender Offer (commencing this past Friday) to purchase a 40+% stake in real estate and hotel business Unizo to raise its stake from ~4.8% to 45.0%. The Tender Offer price is at a 56% premium to the last trade and is at an 18-month high. But, this is a hostile tender.

  • A hostile tender offer by one company upon another conducted without warning, or with warning but without approval, is reasonably rare. In Japan, it is even rarer. This is, however, the second in six months – the first being Itochu Corp (8001 JP)‘s tender offer for shares of Descente Ltd (8114 JP).  HIS has decided to buy 40% of a company it hadn’t talked to. At a 50+% premium. And given this one has hostility AND a longer end date, there is more trading and event optionality than normal.
  • Unizo has several possible responses it could give. The right thing to do would be to establish an independent committee immediately. A rights offering might kill the deal. But it would be fair to investors. A White Knight is not unthinkable. Travis expects the odds are pretty good that Unizo does not have a great defense here. That means the Tender likely goes through.
  • Unless corporate and financial cross-holders tender, the pro-ration could end up being very high.  If crossholders tender, pro-ration goes way down and one is better off just selling everything in the market for a small loss. Travis is bullish that the tender goes through and bullish the profit opportunity. He thinks for the astute arbitrageur, there is a lot of room to play around the ranges here.

(link to Travis’s insight: HIS Hostile Tender for Unizo – Fun Ahead!)


Villa World Ltd (VLW AU)  (Mkt Cap: $203mn; Liquidity: $1mn)

VLW and AVID have (finally) entered into a Scheme Implementation Agreement at A$2.345/share yesterday, which is a 17.8% premium to the unaffected price of $1.99 on 14 March, and an A$0.115 bump over the initial pitch in March. Any final or special dividend paid on or prior to the implementation of the Scheme will reduce the Offer Price. The key nagging issue is Ho Bee Land Ltd (HOBEE SP).

  • Ho Bee, VLW’s largest shareholder and JV partner, responded to AVID’s proposal by buying 2.2mn shares (~1.8% of shares out) at an average of A$2.04/share – and a high of A$2.18/share – lifting its stake to 9.41% on the same day as the initial Offer. Ho Bee further bumped its stake to 10.45% on the 25 March at an average price of A$2.21; and finally, to 11.62% on the 15 April at an average of $2.17. Its overall average in-price is A$1.98/share.
  • Would Ho Bee go to such extreme just to extract another 5% from the Offer? Maybe, but it is a little weird. Ho Bee did not buy over $2.23/share.
  • On balance, this deal should get up. Pricing appears fair with respect to peers. Ho Bee receives a decent premium to its overall average position. This is also not a material holding for Ho Bee – the 11.62% stake is equivalent to ~2% of its market cap – while it remains directly invested in the Melbourne JV.  With a late November/ early December completion, this is trading very tight to terms at 0.6% gross.

(link to my insight: Villa World Greenlights AVID’s Offer)


Ascendas Hospitality Trust (ASCHT SP) (Mkt Cap: $844mn; Liquidity: $3mn)

On 3 July, Ascott Residence Trust (ART SP) and ASCHT jointly announced a proposed combination, which would result in the combined entity becoming the largest hospitality trust in the Asia Pacific region, one of the top ten globally, with an asset value of S$7.6bn. It would – using data from the end of June – become the 7th largest trust on the SGX.

  • The deal is for Ascott to acquire ASCHT through a Scheme of Arrangement whereby ASCHT unitholders will receive what was – at the announcement – S$1.0868 per ASCHT Stapled Unit. The exact terms are S$0.0543 in cash and 0.7942 Ascott Reit-BT Stapled Units. That is a ratio of 0.836 but if you do the arithmetic, it comes out as a NAV-flat transaction. Neither ASCHT nor ART shareholders “overly benefit” at the expense of the other, but they both benefit from scale lowering future costs.
  • The deal is another REIT consolidation to create a LARGER NewREIT. It was also totally obvious, after the Ascendas-Singbridge deal was signed earlier this year, that within the Capitaland group (which meant Temasek was going to own 51% of Capitaland when completed), this was going to happen (even though the deal meant there were no chained transactions for the REITs). It makes one wonder if there is a deal for Ascendas Real Estate Investment Trust (AREIT SP) to come. 
  • The deal (at the time of the insight) showed a 4.5% spread being long ASCHT and short Ascott, which is slightly wide for a deal of ~five months. However, there is some uncertainty in the distributions. If you own Ascott and are in a position to switch out of Ascott into AREIT, Travis would do so. If you own ASCHT and you like the risk of owning the REIT, you own the right one. 

(link to Travis’s insight: Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy)


Dalian Port (Pda) Co Ltd H (2880 HK)  (Mkt Cap: $3bn; Liquidity: $1mn)

Back on the 4 June, Dalian Port (Pda) announced a possible Mandatory General Offer (MGO) at $1.0127/share, a 0.27% premium to last close. The MGO would be triggered following the rearrangement of various companies under the PRC government, collectively holding 68.37% into Dalian Port (Pda), with the long-term objective of merging the ports in Liaoning province under a single platform. The shareholding structure is a spider’s web and understanding the share transfers is probably best done by studying the diagrams in the document and the insight.

  • The integration/consolidation process is complicated with local, provincial and central government holdings in port ownership. Further, local governments, which often trumpet their success in tandem with the performance of its port, may be less willing to forego such economic benefits by giving up absolute control.
  • China Merchant Holdings already has effective control of Dalian Port (Pda) – (47.31%) direct and 21.05% via Team Able/China Merchants Port (144 HK). The equity transfers forming part of the restructuring are being hived out from one SASAC entity into another SASAC-controlled entity. This should all go through and the unconditional MGO will be triggered, and potentially wrap up in October, provided the ETA completes on the long stop date.
  • Dalian Port (Pda) is trading in line with listed Hong Kong ports. You have a (likely) hard floor at $1.01, with expectations of further group restructuring, as the three Liaoning ports are integrated. However, HK port companies are down ~7.% in the past year, similar to Chinese-listed port companies.  The sentiment is decidedly downbeat as the trade war creates a less profitable business environment.

(link to my insight: Dalian Port – Rearranging The Deck Chairs)


Health Management Intl (HMI SP) (Mkt Cap: $844mn; Liquidity: $3mn)

The previous Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider HMI announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT would acquire HMI for S$0.73/share in cash or one share of the Acquirer. That price is a 25-30% premium to the 1, 3, 6, and 12-month VWAPs prior to the announcement and a 14% premium to the last “undisturbed” trading day.

  • It is not overly generous. The premium is small, and the forecast Next 12 Month EV/EBITDA multiple at 17+x is OK but compared to the other private hospital operators out there in Asia it is not overwhelmingly high-priced. It seems a bit of a stretch to see someone come over the top when this has been negotiated. However, if one asked me whether the likelihood of bump or deal failure is more likely, Travis would tilt towards bump, but it would be just a kiss.
  • It takes 75% of the 39% not owned by NSI and “concert parties” to get this done, but the 2018 Annual Report showed that 89.75% of the shareholders (i.e. 83.2% or so of the possible Scheme Shareholders) owned more than 1,000,000 shares. The top 40 shareholders determine the outcome of this deal as long as the rest generally are split 51/49 or better. It is difficult to see this one getting knocked down.
  • Travis expects the timeline of this deal is about 4 months plus perhaps a week. That means at S$0.72 the gross spread at 1.39% gets you an annualised spread of about 4.15%. At S$0.715, the gross spread is 2.10% (before comms, etc) so 4 months is 6+% annualised.  The trade here is to get queue priority at S$0.715. 

(link to Travis’s insight: Health Management Int’l Privatisation – Easy Peasy)


Briefly …

Harbin Electric Co Ltd H (1133 HK) this week announced there will be no further extension of its Offer which closes on the 19 July. By my estimate, tendered shares total 71.86%. The tendering condition is 90%.

M&A – UK

Telford Homes (TEF LN) (Mkt Cap: $335mn; Liquidity: $1mn)

On July 3rd, US-based commercial real estate services company, CBRE Group Inc A (CBG US)announced that they had reached an agreement with the board of London-based residential real estate developer, Telford, to acquire 100% of its shares by way of a Scheme of Arrangement at a price of GBP3.50/ share. The offer values the target at a market cap of GBP 265mn. 

  • While the Offer Price translates to premia of 11.1%, 14.3%, and 21.3% to the undisturbed price, 1-month VWAP and 3-month VWAP respectively, it remains 3.4% lower than the 1-year VWAP of Telford shares. Furthermore, the offer price also translates to discounts of 28.8% and 38.8% to the stock’s 1-year and 2-year highs respectively.
  • The company appears to have confidence its current build-plan and will come through on budget and so after a couple of project delays at the end of this past year, earnings will rebound and march higher. The few analysts who cover the stock are less bullish this year, but it appears they expect the company to meet its 2020 targets a year or two later. 8x EPS and 1.0x book seem quite low. It is below the mean of the selected comps.
  •  If Travis had to bet right now, it’s 50/50 it does not get done. Brexit worries could get this over the line but he expects there are some unhappy shareholders. He is not sure there is enough time to get a competitor in there to see the price lifted.  The deal timeline is very short. The indicative timeline suggests the Target Scheme Meeting could be in just four weeks. 

(link to Travis’s insight: Telford Homes Takeout – A Disappointing End?)

M&A – US

Avon Products (AVP US) (Mkt Cap: $1.8bn; Liquidity: $41mn)

On May 22, 2019, Avon announced that it had entered into a merger agreement to be acquired in an all-stock transaction by Brazilian Holding Company Natura & Co (NATUR3 BZ).  Natura will exchange 0.30 of its shares for each AVP share on a fixed exchange ratio basis, currently valuing AVP at ~US$2 bn. The merger agreement deadline is set for July 22, 2020. On completion of the merger, NATU3 shareholders will own 76% of the combination with AVP shareholders owning 24%. The transaction catapults NATU3 to becoming the world’s sixth largest consumer goods company.

  • Natura is paying ~10x consensus 2019 EBITDA for standalone AVP which is reasonable in comparison to prevailing peer group multiples averaging 17x and compares with Natura’s own standalone valuation multiple of ~14x.
  • The transaction could attract particular scrutiny from the antitrust authorities in Brazil, which represents the single largest market for both Natura and AVP. According to data from Euromonitor, Natura maintains a commanding lead in Brazil’s direct sales market for cosmetics with an estimated 31% market share followed by a ~ 16% share for AVP. That being said, the direct sales market is based around independent consultants/reps, many of whom already offer both Natura and Avon products in Brazil. 
  • The double-digits merger spread that prevails (14% at the time of the insight) could offer a lucrative opportunity for arbs. The complicating factor is that Natura is listed on the Brazilian Stock exchange (B3) and denominated in an historically volatile currency, the Brazilian Real, while AVP shares trade on the NYSE in US$. As some AVP shareholders may not want to own or are restricted from owning shares that trade on a non-US exchange, Natura will offer AVP shareholders the option to receive Natura shares in the form of Level-II ADRs to be traded on the NYSE or shares listed on B3. Natura does not currently have an ADR in issue.

(link to Robert Sassoon‘s insight: MergerTalk: Natura & Co/Avon Products -“Ding Dong, The Avon Spread Calling”)

STUBBS/HOLDCOS

Singapore Airlines (SIA SP) / Sia Engineering (SIE SP) 

SIE gained 15% the previous week, rekindling privatisation talks by SIA.  Despite the share price increase, SIE trades around November 2009 levels. SIE is not aware of any reasons for the jump. The stub is not terribly exciting with SIE accounting for 18% and 22% of NAV and market cap, and barely makes the grade with SIE trading ~US$1mn/day.

  • Last year’s privatisation of HAECO (44 HK) at $72/share (63.2% premium to last close) by Swire Pacific Ltd Cl A (19 HK) – which held 74.9% prior to the Offer – is not lost on investors. The takeover PER was 35x vs. 19x currently for SIE. Peer comps trade at 24x. SIE only appears fairly valued on an EV/EBITDA metric on account of the earnings from associated companies and JVs.
  • SIE is a maintenance, repair & overhaul company providing aircraft & component overhaul, fleet management and line maintenance services. The company also has material stakes in associated companies and JVs which contribute 71% of the Group’s profits in FY19, up from 58% in FY18.
  • The outcome, should an Offer be pitched, would cost SIA ~S$700mn to take out the shares it does not own. Not chump change, and it might have a slightly negative impact on SIA as it removes one layer of transparency. But given the stub weakness, the focus would be on the SIE arbitrage. I would not want to be short SIE here.

(link to my insight: StubWorld: Just Rumours (For Now) As SIA Engineering Pops)

SHARE CLASSIFICATIONS

My share class monitor provides a snapshot of the premium/discounts for 322 share classifications –  ADRs, Korean prefs, dual class, Thai (F/L) & A/Hs – around the region.

(link to my insight: Share Classifications: A Year In Review)

OTHER M&A 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 – like Madison Holdings Group Ltd (8057 HK) on the 5 July.  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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

ISP Global (8487 HK)
50.50%
Bluemont
Outside CCASS
Camsing (2662 HK)
Great Roc
Founder
18.20%
Kingston
Citi
Source: HKEx

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Brief Singapore: ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes and more

By | Daily Briefs, Singapore

In this briefing:

  1. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

1. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

Highlight

ESR-REIT announced an S$100 million private placement and S$75 million preferential offerings for the existing unitholders. In this insight, we will provide our thoughts on the deal and score the deal in our ECM framework. 

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Brief Singapore: Singapore Property – Jump in New Supply. Upcoming Mega-Launches to Test Buyers’ Appetite. and more

By | Daily Briefs, Singapore

In this briefing:

  1. Singapore Property – Jump in New Supply. Upcoming Mega-Launches to Test Buyers’ Appetite.
  2. Are Risky Assets Overvalued?
  3. Taking Off: Vietnamese Exports Are Rocking and Rolling
  4. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIA Engineering
  5. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week

1. Singapore Property – Jump in New Supply. Upcoming Mega-Launches to Test Buyers’ Appetite.

Picture2

Singapore’s Urban Redevelopment Authority (URA) today released the data on property developers’ private home sales for the month of June 2019.

A total of 670 non-land private residential units were launched for sale in June. This was 51% fewer than the number of units launched in the preceding month and 5% fewer year-on-year.

A total of 803 non-landed private residential units were sold in June. This was 14% fewer than the number of new units sold in the previous month.

10 new projects received their sales approval in June, adding a substantial 4,731 units to the launch pipeline. 2 mega-launches to watch out for in the coming months are Parc Clematis  and Avenue South Residence. 

Total developers’ inventory available for immediate launch jumped by 22.3% MoM in June to 20,531 units. This is the highest level since Jan 2015. Rising inventory is within expectation and will continue to affect the pricing power of developers.

2. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

3. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

4. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIA Engineering

Lennon

Last Week in Event SPACE …

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

EVENTS

Chiyoda Corp (6366 JP)  (Mkt Cap: $729mn; Liquidity: $15mn)

Travis Lundy calculated the total shares to be sold at 48-50m accounting for 20% of outstanding and 30% of float in Chiyoda’s upcoming removal from the Nikkei (and now confirmed – see Travis insight below) and Topix indexes, and referenced the exclusion trades resulted in Toshiba Corp (6502 JP) falling 24% and Sharp Corp (6753 JP) falling 31%. But Mio Kato, CFA feels that the company’s situation could skew the timing compared to what would be “normal”.

  • Mio believes that it may be more interesting to look for a reversion trade in the event that the stock price declines significantly into the exclusion. He feels that the fall may not be quite as steep as that for Toshiba or Sharp. In both Toshiba and Sharp’s cases there was still significant uncertainty surrounding the names as Toshiba had not completed or even announced its capital raise at the time and the sale of its memory subsidiary was still being hotly contested; while in Sharp’s case Hon Hai was playing hardball on deal terms.
  • In contrast, Chiyoda has already secured funding from a very stable and large partner and appears to have kitchen-sinked a lot of assumptions and faces a very bright operational outlook – its problems stem from poor risk management, which Mitsubishi is meant to solve, and not operations. 
  • In addition, due to Chiyoda’s previous operational struggles and write-downs there is already a very significant short base. This could distort the usual timing of the fall in the stock price and the fact that the stock has recovered to just 3.5% below the level prior to more widespread reporting of the exclusion points to this eventuality. It does seem likely that the size of the required sell could push Chiyoda’s price down at some point – Mio argues this could happen much closer to the actual event than usual. If borrow is difficult to come by, there could be money to be made on the other side around the turn of the month.

(link to Mio’s insight: Chiyoda: Risks to the Index Kick-Out Trade and Potential Volatility at Earnings the Next Day)


Bandai Namco Holdings (7832 JP)  (Mkt Cap: $12.6bn; Liquidity: $28mn)

The Nikkei Inc announced its “Changes to the Nikkei Indices” this week  which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that Chiyoda Corp (6366 JP)s yuho (Annual Securities Report) had the company at a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. The Announcement surprised people. As expected, Chiyoda is Out – but Bandai is In.  Chiyoda closed down 2.6% on 2mm shares, and Bandai closed limit up +19.3% on 300k shares allocated at the limit on the close.

  • There are still something like 50 million shares of Chiyoda to sell. The significant shorts – which are likely well in excess of the 23+ million shares shown and reported – are likely sourcing a lot of their borrow from the shareholders (passive funds) who have to sell. Those shareholders will have to recall their borrow. Earnings come out the day after the exclusion. I would not want to be short that earnings number. Plus read Mio’s insight above.
  • There should be 27mm shares to buy in Bandai which is about 20% of float. However, if only half the foreigners and only half the individual holders would be willing to sell on a large jump in price in the next few weeks, then the net available to sell is probably closer to 80mm shares and 27mm to buy would be one-third. It’s a lot. Once it gets purchased by Nikkei 225 funds, it won’t come out anytime soon. This stock is likely to get squeezed.
  • Dmg Mori Co Ltd (6141 JP) was flagged by many as a good bet to replace Chiyoda. Since then, roughly 14 million shares of excess volume have traded. If half of that is a real displacement of holdings based on this event, 7mm shares would need to be sold. That is 3% of shares out and 4-5% of float. It is among the larger excess positioning situations in the last five years in the stock. DMG closed -10% on 7.3mm shares in response to the index changes.

(link to Travis’s insight: Nikkei 225 – Bandai Namco IN, Chiyoda OUT)


Kcc Corp (002380 KS)  (Mkt Cap: $2.2bn; Liquidity: $6mn)

KCC will split itself into two companies in the form of an equity spinoff with KCC the surviving company and KCG the new company. KCC will mainly comprise the B2B business (silicone, paint and varnish); KCG will get the B2C business such as glass and interior. An EGM will be held on Nov 13 and shareholder approval can be obtained with 2/3 of attending votes and 1/3 of shares out. Both companies will be listed – KCC on Jan 21 next year, but KCG’s listing date hasn’t been fixed.

  • Typically, demergers serve to streamline a business.  However, the major shareholder retains 40%, which Sanghyun Park considers to be weak. He believes the major shareholder intends to further solidify this controlling stake via a tender, possibly a month after the Jan 21 listing. 

(link to Sanghyun’s insight: KCC Corp Equity Spinoff: Summary & Mispricing Checkup)


R* Shares CPSE ETF (CPSEBE IN) 

The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises, declining to 10 after Rural Electrification (RECL IN) was kicked out this past Friday. The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

  • The CPSE ETF does not trade big volumes on a regular day. However, there is a huge volume surge following fund offerings as many investors look to flip their allocation back into the market and lock in a profit. The anchor portion was oversubscribed almost 6 times in the last tranche issued in March this year, though the number may be smaller this time with the tighter discount being offered.
  • The ETF will need to buy around 63m shares of Indian Oil Corp (IOCL IN) in the market on July 19. Brian Freitas estimates this number since the Government of India can only sell around 64m shares to the ETF as this will take their stake in the company down to 51.5%, the lowest percentage for the stock to remain in the Nifty CPSE index. Given the stock trades around 13m shares a day on average, he sees 4x of excess volume and expect the stock to rally in the lead up to July 19 and see buying over the day on July 19.

links to Brian’s insights:
The CPSE ETF Arb Is Back, but Tighter!
India – NIFTY CPSE Index Review.

M&A – ASIA-PAC

Unizo Holdings (3258 JP) (Mkt Cap: $913mn; Liquidity: $4mn)

Japan’s premier discount travel agency H I S Co Ltd (9603 JP) on Wednesday announced it would launch a Partial Tender Offer (commencing this past Friday) to purchase a 40+% stake in real estate and hotel business Unizo to raise its stake from ~4.8% to 45.0%. The Tender Offer price is at a 56% premium to the last trade and is at an 18-month high. But, this is a hostile tender.

  • A hostile tender offer by one company upon another conducted without warning, or with warning but without approval, is reasonably rare. In Japan, it is even rarer. This is, however, the second in six months – the first being Itochu Corp (8001 JP)‘s tender offer for shares of Descente Ltd (8114 JP).  HIS has decided to buy 40% of a company it hadn’t talked to. At a 50+% premium. And given this one has hostility AND a longer end date, there is more trading and event optionality than normal.
  • Unizo has several possible responses it could give. The right thing to do would be to establish an independent committee immediately. A rights offering might kill the deal. But it would be fair to investors. A White Knight is not unthinkable. Travis expects the odds are pretty good that Unizo does not have a great defense here. That means the Tender likely goes through.
  • Unless corporate and financial cross-holders tender, the pro-ration could end up being very high.  If crossholders tender, pro-ration goes way down and one is better off just selling everything in the market for a small loss. Travis is bullish that the tender goes through and bullish the profit opportunity. He thinks for the astute arbitrageur, there is a lot of room to play around the ranges here.

(link to Travis’s insight: HIS Hostile Tender for Unizo – Fun Ahead!)


Villa World Ltd (VLW AU)  (Mkt Cap: $203mn; Liquidity: $1mn)

VLW and AVID have (finally) entered into a Scheme Implementation Agreement at A$2.345/share yesterday, which is a 17.8% premium to the unaffected price of $1.99 on 14 March, and an A$0.115 bump over the initial pitch in March. Any final or special dividend paid on or prior to the implementation of the Scheme will reduce the Offer Price. The key nagging issue is Ho Bee Land Ltd (HOBEE SP).

  • Ho Bee, VLW’s largest shareholder and JV partner, responded to AVID’s proposal by buying 2.2mn shares (~1.8% of shares out) at an average of A$2.04/share – and a high of A$2.18/share – lifting its stake to 9.41% on the same day as the initial Offer. Ho Bee further bumped its stake to 10.45% on the 25 March at an average price of A$2.21; and finally, to 11.62% on the 15 April at an average of $2.17. Its overall average in-price is A$1.98/share.
  • Would Ho Bee go to such extreme just to extract another 5% from the Offer? Maybe, but it is a little weird. Ho Bee did not buy over $2.23/share.
  • On balance, this deal should get up. Pricing appears fair with respect to peers. Ho Bee receives a decent premium to its overall average position. This is also not a material holding for Ho Bee – the 11.62% stake is equivalent to ~2% of its market cap – while it remains directly invested in the Melbourne JV.  With a late November/ early December completion, this is trading very tight to terms at 0.6% gross.

(link to my insight: Villa World Greenlights AVID’s Offer)


Ascendas Hospitality Trust (ASCHT SP) (Mkt Cap: $844mn; Liquidity: $3mn)

On 3 July, Ascott Residence Trust (ART SP) and ASCHT jointly announced a proposed combination, which would result in the combined entity becoming the largest hospitality trust in the Asia Pacific region, one of the top ten globally, with an asset value of S$7.6bn. It would – using data from the end of June – become the 7th largest trust on the SGX.

  • The deal is for Ascott to acquire ASCHT through a Scheme of Arrangement whereby ASCHT unitholders will receive what was – at the announcement – S$1.0868 per ASCHT Stapled Unit. The exact terms are S$0.0543 in cash and 0.7942 Ascott Reit-BT Stapled Units. That is a ratio of 0.836 but if you do the arithmetic, it comes out as a NAV-flat transaction. Neither ASCHT nor ART shareholders “overly benefit” at the expense of the other, but they both benefit from scale lowering future costs.
  • The deal is another REIT consolidation to create a LARGER NewREIT. It was also totally obvious, after the Ascendas-Singbridge deal was signed earlier this year, that within the Capitaland group (which meant Temasek was going to own 51% of Capitaland when completed), this was going to happen (even though the deal meant there were no chained transactions for the REITs). It makes one wonder if there is a deal for Ascendas Real Estate Investment Trust (AREIT SP) to come. 
  • The deal (at the time of the insight) showed a 4.5% spread being long ASCHT and short Ascott, which is slightly wide for a deal of ~five months. However, there is some uncertainty in the distributions. If you own Ascott and are in a position to switch out of Ascott into AREIT, Travis would do so. If you own ASCHT and you like the risk of owning the REIT, you own the right one. 

(link to Travis’s insight: Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy)


Dalian Port (Pda) Co Ltd H (2880 HK)  (Mkt Cap: $3bn; Liquidity: $1mn)

Back on the 4 June, Dalian Port (Pda) announced a possible Mandatory General Offer (MGO) at $1.0127/share, a 0.27% premium to last close. The MGO would be triggered following the rearrangement of various companies under the PRC government, collectively holding 68.37% into Dalian Port (Pda), with the long-term objective of merging the ports in Liaoning province under a single platform. The shareholding structure is a spider’s web and understanding the share transfers is probably best done by studying the diagrams in the document and the insight.

  • The integration/consolidation process is complicated with local, provincial and central government holdings in port ownership. Further, local governments, which often trumpet their success in tandem with the performance of its port, may be less willing to forego such economic benefits by giving up absolute control.
  • China Merchant Holdings already has effective control of Dalian Port (Pda) – (47.31%) direct and 21.05% via Team Able/China Merchants Port (144 HK). The equity transfers forming part of the restructuring are being hived out from one SASAC entity into another SASAC-controlled entity. This should all go through and the unconditional MGO will be triggered, and potentially wrap up in October, provided the ETA completes on the long stop date.
  • Dalian Port (Pda) is trading in line with listed Hong Kong ports. You have a (likely) hard floor at $1.01, with expectations of further group restructuring, as the three Liaoning ports are integrated. However, HK port companies are down ~7.% in the past year, similar to Chinese-listed port companies.  The sentiment is decidedly downbeat as the trade war creates a less profitable business environment.

(link to my insight: Dalian Port – Rearranging The Deck Chairs)


Health Management Intl (HMI SP) (Mkt Cap: $844mn; Liquidity: $3mn)

The previous Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider HMI announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT would acquire HMI for S$0.73/share in cash or one share of the Acquirer. That price is a 25-30% premium to the 1, 3, 6, and 12-month VWAPs prior to the announcement and a 14% premium to the last “undisturbed” trading day.

  • It is not overly generous. The premium is small, and the forecast Next 12 Month EV/EBITDA multiple at 17+x is OK but compared to the other private hospital operators out there in Asia it is not overwhelmingly high-priced. It seems a bit of a stretch to see someone come over the top when this has been negotiated. However, if one asked me whether the likelihood of bump or deal failure is more likely, Travis would tilt towards bump, but it would be just a kiss.
  • It takes 75% of the 39% not owned by NSI and “concert parties” to get this done, but the 2018 Annual Report showed that 89.75% of the shareholders (i.e. 83.2% or so of the possible Scheme Shareholders) owned more than 1,000,000 shares. The top 40 shareholders determine the outcome of this deal as long as the rest generally are split 51/49 or better. It is difficult to see this one getting knocked down.
  • Travis expects the timeline of this deal is about 4 months plus perhaps a week. That means at S$0.72 the gross spread at 1.39% gets you an annualised spread of about 4.15%. At S$0.715, the gross spread is 2.10% (before comms, etc) so 4 months is 6+% annualised.  The trade here is to get queue priority at S$0.715. 

(link to Travis’s insight: Health Management Int’l Privatisation – Easy Peasy)


Briefly …

Harbin Electric Co Ltd H (1133 HK) this week announced there will be no further extension of its Offer which closes on the 19 July. By my estimate, tendered shares total 71.86%. The tendering condition is 90%.

M&A – UK

Telford Homes (TEF LN) (Mkt Cap: $335mn; Liquidity: $1mn)

On July 3rd, US-based commercial real estate services company, CBRE Group Inc A (CBG US)announced that they had reached an agreement with the board of London-based residential real estate developer, Telford, to acquire 100% of its shares by way of a Scheme of Arrangement at a price of GBP3.50/ share. The offer values the target at a market cap of GBP 265mn. 

  • While the Offer Price translates to premia of 11.1%, 14.3%, and 21.3% to the undisturbed price, 1-month VWAP and 3-month VWAP respectively, it remains 3.4% lower than the 1-year VWAP of Telford shares. Furthermore, the offer price also translates to discounts of 28.8% and 38.8% to the stock’s 1-year and 2-year highs respectively.
  • The company appears to have confidence its current build-plan and will come through on budget and so after a couple of project delays at the end of this past year, earnings will rebound and march higher. The few analysts who cover the stock are less bullish this year, but it appears they expect the company to meet its 2020 targets a year or two later. 8x EPS and 1.0x book seem quite low. It is below the mean of the selected comps.
  •  If Travis had to bet right now, it’s 50/50 it does not get done. Brexit worries could get this over the line but he expects there are some unhappy shareholders. He is not sure there is enough time to get a competitor in there to see the price lifted.  The deal timeline is very short. The indicative timeline suggests the Target Scheme Meeting could be in just four weeks. 

(link to Travis’s insight: Telford Homes Takeout – A Disappointing End?)

M&A – US

Avon Products (AVP US) (Mkt Cap: $1.8bn; Liquidity: $41mn)

On May 22, 2019, Avon announced that it had entered into a merger agreement to be acquired in an all-stock transaction by Brazilian Holding Company Natura & Co (NATUR3 BZ).  Natura will exchange 0.30 of its shares for each AVP share on a fixed exchange ratio basis, currently valuing AVP at ~US$2 bn. The merger agreement deadline is set for July 22, 2020. On completion of the merger, NATU3 shareholders will own 76% of the combination with AVP shareholders owning 24%. The transaction catapults NATU3 to becoming the world’s sixth largest consumer goods company.

  • Natura is paying ~10x consensus 2019 EBITDA for standalone AVP which is reasonable in comparison to prevailing peer group multiples averaging 17x and compares with Natura’s own standalone valuation multiple of ~14x.
  • The transaction could attract particular scrutiny from the antitrust authorities in Brazil, which represents the single largest market for both Natura and AVP. According to data from Euromonitor, Natura maintains a commanding lead in Brazil’s direct sales market for cosmetics with an estimated 31% market share followed by a ~ 16% share for AVP. That being said, the direct sales market is based around independent consultants/reps, many of whom already offer both Natura and Avon products in Brazil. 
  • The double-digits merger spread that prevails (14% at the time of the insight) could offer a lucrative opportunity for arbs. The complicating factor is that Natura is listed on the Brazilian Stock exchange (B3) and denominated in an historically volatile currency, the Brazilian Real, while AVP shares trade on the NYSE in US$. As some AVP shareholders may not want to own or are restricted from owning shares that trade on a non-US exchange, Natura will offer AVP shareholders the option to receive Natura shares in the form of Level-II ADRs to be traded on the NYSE or shares listed on B3. Natura does not currently have an ADR in issue.

(link to Robert Sassoon‘s insight: MergerTalk: Natura & Co/Avon Products -“Ding Dong, The Avon Spread Calling”)

STUBBS/HOLDCOS

Singapore Airlines (SIA SP) / Sia Engineering (SIE SP) 

SIE gained 15% the previous week, rekindling privatisation talks by SIA.  Despite the share price increase, SIE trades around November 2009 levels. SIE is not aware of any reasons for the jump. The stub is not terribly exciting with SIE accounting for 18% and 22% of NAV and market cap, and barely makes the grade with SIE trading ~US$1mn/day.

  • Last year’s privatisation of HAECO (44 HK) at $72/share (63.2% premium to last close) by Swire Pacific Ltd Cl A (19 HK) – which held 74.9% prior to the Offer – is not lost on investors. The takeover PER was 35x vs. 19x currently for SIE. Peer comps trade at 24x. SIE only appears fairly valued on an EV/EBITDA metric on account of the earnings from associated companies and JVs.
  • SIE is a maintenance, repair & overhaul company providing aircraft & component overhaul, fleet management and line maintenance services. The company also has material stakes in associated companies and JVs which contribute 71% of the Group’s profits in FY19, up from 58% in FY18.
  • The outcome, should an Offer be pitched, would cost SIA ~S$700mn to take out the shares it does not own. Not chump change, and it might have a slightly negative impact on SIA as it removes one layer of transparency. But given the stub weakness, the focus would be on the SIE arbitrage. I would not want to be short SIE here.

(link to my insight: StubWorld: Just Rumours (For Now) As SIA Engineering Pops)

SHARE CLASSIFICATIONS

My share class monitor provides a snapshot of the premium/discounts for 322 share classifications –  ADRs, Korean prefs, dual class, Thai (F/L) & A/Hs – around the region.

(link to my insight: Share Classifications: A Year In Review)

OTHER M&A 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 – like Madison Holdings Group Ltd (8057 HK) on the 5 July.  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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

ISP Global (8487 HK)
50.50%
Bluemont
Outside CCASS
Camsing (2662 HK)
Great Roc
Founder
18.20%
Kingston
Citi
Source: HKEx

5. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week

2019 total deals 2019 accuracy rate  chartbuilder%20%281%29

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

It’s an unfortunate week for Asia’s ECM market as Budweiser Brewing Company APAC (1876 HK) was not able to price its IPO on Friday and, as of this morning, AB InBev announced that the IPO has been called off. Perhaps the massive deal size without cornerstone investors and the tight valuation discount were too much for investors to digest. In any case, it will likely affect the sentiment of any upcoming mega IPOs in Hong Kong.

Beyond that, next week will be filled with trading debuts. In Hong Kong, there are Zhongliang Holdings (2772 HK), Edvantage Group (382 HK), and Jinshang Bank Co Ltd (2558 HK) listing on Tuesday and Thursday. Zhongliang priced close to the bottom of its price range while Edvantage and Jinshang priced at and slightly above their mid-point respectively.

In Singapore, Prime Us Reit (PRIME SP) is listing on Friday while Douyu International Holdings (DOYU US) is listing on Wednesday. We heard that Douyu’s books have already been covered.

Beyond that, this week’s IPO performance in Hong Kong had been lacklustre. CIMC Vehicle Group Co Ltd (1839 HK) closed below its IPO price on the first day while IVD Medical (1931 HK) struggled and closed right at its IPO price.

Accuracy Rate:

Our overall accuracy rate is 72.5% for IPOs and 64% for Placements 

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

New IPO filings this week

  • SinoMab Bioscience (Hong Kong, ~US$200m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Alibaba

Alibaba IPO/Secondary Listing – The Real IPO Only Begins on the 11th Day Post Listing ​

AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ascentage

Ascentage Pharma (亚盛医药) IPO: Updates and Thoughts on HQP1351 (3rd Gen Bcr-Abl TKI) ​

Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

Clarity

Clarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand

China Feihe

China Feihe (中国飞鹤) IPO: New Numbers, New Red Flag, and Demographic Risk 

Helenbergh

Helenbergh (海伦堡) Early Thoughts – The Usual Red Flag – Related Party Transactions

Hut Chi-Med

Hutchison-China Med (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

JS Global

JS Global Lifestyle (JS 环球生活) Early Thoughts – Declaring US$470m Dividend Before IPO 

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
Renrui

Renrui Human Resources (人瑞人才) Pre-IPO Review – Riding on China’s Unicorns 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Valuation of Four Biosimilars

Topsports Topsports International Holdings Pre-IPO – Performing Well but All Proceeds Will Likely Go to Belle 
Topsports Topsports Pre-IPO – Quick Take – Nike & Adidas Data Throws up Some Interesting Nuggets 
TOT Bio TOT Biopharm (东曜药业) IPO: An Unimpressive Pipeline 
TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Aakash EduAakash Education Pre-IPO – Fast Growth in an Attractive Sector
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
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 Emami 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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Sterling Sterling and Wilson Solar Pre-IPO – Potentially India’s Largest IPO This Year – Ain’t No Sunshine 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
AMTDI AMTD International (尚乘国际) Pre-IPO – Avoid at All Costs 
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
DouyuDouyu (斗鱼直播) IPO: Comparison with Huya (Part 2)
Douyu Douyu (斗鱼直播) IPO: Latest Numbers Bode Well for Listing (Part 3) 
Douyu Douyu (斗鱼直播) IPO: Detailed E-Sports Broadcasting Comparison with Huya 
MetenMeten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
Wanda SportsWanda Sports (万达体育) Early Thoughts – Convoluted by Contracts and Cyclicality
Wanda Sports Wanda Sports (万达体育) Pre-IPO – Closer Look at the Business Segments ​

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Brief Singapore: Are Risky Assets Overvalued? and more

By | Daily Briefs, Singapore

In this briefing:

  1. Are Risky Assets Overvalued?
  2. Taking Off: Vietnamese Exports Are Rocking and Rolling
  3. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering
  4. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week
  5. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

1. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

2. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

3. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering

Spin2

Last Week in Event SPACE …

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

EVENTS

Chiyoda Corp (6366 JP)  (Mkt Cap: $729mn; Liquidity: $15mn)

Travis Lundy calculated the total shares to be sold at 48-50m accounting for 20% of outstanding and 30% of float in Chiyoda’s upcoming removal from the Nikkei (and now confirmed – see Travis insight below) and Topix indexes, and referenced the exclusion trades resulted in Toshiba Corp (6502 JP) falling 24% and Sharp Corp (6753 JP) falling 31%. But Mio Kato, CFA feels that the company’s situation could skew the timing compared to what would be “normal”.

  • Mio believes that it may be more interesting to look for a reversion trade in the event that the stock price declines significantly into the exclusion. He feels that the fall may not be quite as steep as that for Toshiba or Sharp. In both Toshiba and Sharp’s cases there was still significant uncertainty surrounding the names as Toshiba had not completed or even announced its capital raise at the time and the sale of its memory subsidiary was still being hotly contested; while in Sharp’s case Hon Hai was playing hardball on deal terms.
  • In contrast, Chiyoda has already secured funding from a very stable and large partner and appears to have kitchen-sinked a lot of assumptions and faces a very bright operational outlook – its problems stem from poor risk management, which Mitsubishi is meant to solve, and not operations. 
  • In addition, due to Chiyoda’s previous operational struggles and write-downs there is already a very significant short base. This could distort the usual timing of the fall in the stock price and the fact that the stock has recovered to just 3.5% below the level prior to more widespread reporting of the exclusion points to this eventuality. It does seem likely that the size of the required sell could push Chiyoda’s price down at some point – Mio argues this could happen much closer to the actual event than usual. If borrow is difficult to come by, there could be money to be made on the other side around the turn of the month.

(link to Mio’s insight: Chiyoda: Risks to the Index Kick-Out Trade and Potential Volatility at Earnings the Next Day)


Bandai Namco Holdings (7832 JP)  (Mkt Cap: $12.6bn; Liquidity: $28mn)

The Nikkei Inc announced its “Changes to the Nikkei Indices” this week  which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that Chiyoda Corp (6366 JP)s yuho (Annual Securities Report) had the company at a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. The Announcement surprised people. As expected, Chiyoda is Out – but Bandai is In.  Chiyoda closed down 2.6% on 2mm shares, and Bandai closed limit up +19.3% on 300k shares allocated at the limit on the close.

  • There are still something like 50 million shares of Chiyoda to sell. The significant shorts – which are likely well in excess of the 23+ million shares shown and reported – are likely sourcing a lot of their borrow from the shareholders (passive funds) who have to sell. Those shareholders will have to recall their borrow. Earnings come out the day after the exclusion. I would not want to be short that earnings number. Plus read Mio’s insight above.
  • There should be 27mm shares to buy in Bandai which is about 20% of float. However, if only half the foreigners and only half the individual holders would be willing to sell on a large jump in price in the next few weeks, then the net available to sell is probably closer to 80mm shares and 27mm to buy would be one-third. It’s a lot. Once it gets purchased by Nikkei 225 funds, it won’t come out anytime soon. This stock is likely to get squeezed.
  • Dmg Mori Co Ltd (6141 JP) was flagged by many as a good bet to replace Chiyoda. Since then, roughly 14 million shares of excess volume have traded. If half of that is a real displacement of holdings based on this event, 7mm shares would need to be sold. That is 3% of shares out and 4-5% of float. It is among the larger excess positioning situations in the last five years in the stock. DMG closed -10% on 7.3mm shares in response to the index changes.

(link to Travis’s insight: Nikkei 225 – Bandai Namco IN, Chiyoda OUT)


Kcc Corp (002380 KS)  (Mkt Cap: $2.2bn; Liquidity: $6mn)

KCC will split itself into two companies in the form of an equity spinoff with KCC the surviving company and KCG the new company. KCC will mainly comprise the B2B business (silicone, paint and varnish); KCG will get the B2C business such as glass and interior. An EGM will be held on Nov 13 and shareholder approval can be obtained with 2/3 of attending votes and 1/3 of shares out. Both companies will be listed – KCC on Jan 21 next year, but KCG’s listing date hasn’t been fixed.

  • Typically, demergers serve to streamline a business.  However, the major shareholder retains 40%, which Sanghyun Park considers to be weak. He believes the major shareholder intends to further solidify this controlling stake via a tender, possibly a month after the Jan 21 listing. 

(link to Sanghyun’s insight: KCC Corp Equity Spinoff: Summary & Mispricing Checkup)


R* Shares CPSE ETF (CPSEBE IN) 

The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises, declining to 10 after Rural Electrification (RECL IN) was kicked out this past Friday. The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

  • The CPSE ETF does not trade big volumes on a regular day. However, there is a huge volume surge following fund offerings as many investors look to flip their allocation back into the market and lock in a profit. The anchor portion was oversubscribed almost 6 times in the last tranche issued in March this year, though the number may be smaller this time with the tighter discount being offered.
  • The ETF will need to buy around 63m shares of Indian Oil Corp (IOCL IN) in the market on July 19. Brian Freitas estimates this number since the Government of India can only sell around 64m shares to the ETF as this will take their stake in the company down to 51.5%, the lowest percentage for the stock to remain in the Nifty CPSE index. Given the stock trades around 13m shares a day on average, he sees 4x of excess volume and expect the stock to rally in the lead up to July 19 and see buying over the day on July 19.

links to Brian’s insights:
The CPSE ETF Arb Is Back, but Tighter!
India – NIFTY CPSE Index Review.

M&A – ASIA-PAC

Unizo Holdings (3258 JP) (Mkt Cap: $913mn; Liquidity: $4mn)

Japan’s premier discount travel agency H I S Co Ltd (9603 JP) on Wednesday announced it would launch a Partial Tender Offer (commencing this past Friday) to purchase a 40+% stake in real estate and hotel business Unizo to raise its stake from ~4.8% to 45.0%. The Tender Offer price is at a 56% premium to the last trade and is at an 18-month high. But, this is a hostile tender.

  • A hostile tender offer by one company upon another conducted without warning, or with warning but without approval, is reasonably rare. In Japan, it is even rarer. This is, however, the second in six months – the first being Itochu Corp (8001 JP)‘s tender offer for shares of Descente Ltd (8114 JP).  HIS has decided to buy 40% of a company it hadn’t talked to. At a 50+% premium. And given this one has hostility AND a longer end date, there is more trading and event optionality than normal.
  • Unizo has several possible responses it could give. The right thing to do would be to establish an independent committee immediately. A rights offering might kill the deal. But it would be fair to investors. A White Knight is not unthinkable. Travis expects the odds are pretty good that Unizo does not have a great defense here. That means the Tender likely goes through.
  • Unless corporate and financial cross-holders tender, the pro-ration could end up being very high.  If crossholders tender, pro-ration goes way down and one is better off just selling everything in the market for a small loss. Travis is bullish that the tender goes through and bullish the profit opportunity. He thinks for the astute arbitrageur, there is a lot of room to play around the ranges here.

(link to Travis’s insight: HIS Hostile Tender for Unizo – Fun Ahead!)


Villa World Ltd (VLW AU)  (Mkt Cap: $203mn; Liquidity: $1mn)

VLW and AVID have (finally) entered into a Scheme Implementation Agreement at A$2.345/share yesterday, which is a 17.8% premium to the unaffected price of $1.99 on 14 March, and an A$0.115 bump over the initial pitch in March. Any final or special dividend paid on or prior to the implementation of the Scheme will reduce the Offer Price. The key nagging issue is Ho Bee Land Ltd (HOBEE SP).

  • Ho Bee, VLW’s largest shareholder and JV partner, responded to AVID’s proposal by buying 2.2mn shares (~1.8% of shares out) at an average of A$2.04/share – and a high of A$2.18/share – lifting its stake to 9.41% on the same day as the initial Offer. Ho Bee further bumped its stake to 10.45% on the 25 March at an average price of A$2.21; and finally, to 11.62% on the 15 April at an average of $2.17. Its overall average in-price is A$1.98/share.
  • Would Ho Bee go to such extreme just to extract another 5% from the Offer? Maybe, but it is a little weird. Ho Bee did not buy over $2.23/share.
  • On balance, this deal should get up. Pricing appears fair with respect to peers. Ho Bee receives a decent premium to its overall average position. This is also not a material holding for Ho Bee – the 11.62% stake is equivalent to ~2% of its market cap – while it remains directly invested in the Melbourne JV.  With a late November/ early December completion, this is trading very tight to terms at 0.6% gross.

(link to my insight: Villa World Greenlights AVID’s Offer)


Ascendas Hospitality Trust (ASCHT SP) (Mkt Cap: $844mn; Liquidity: $3mn)

On 3 July, Ascott Residence Trust (ART SP) and ASCHT jointly announced a proposed combination, which would result in the combined entity becoming the largest hospitality trust in the Asia Pacific region, one of the top ten globally, with an asset value of S$7.6bn. It would – using data from the end of June – become the 7th largest trust on the SGX.

  • The deal is for Ascott to acquire ASCHT through a Scheme of Arrangement whereby ASCHT unitholders will receive what was – at the announcement – S$1.0868 per ASCHT Stapled Unit. The exact terms are S$0.0543 in cash and 0.7942 Ascott Reit-BT Stapled Units. That is a ratio of 0.836 but if you do the arithmetic, it comes out as a NAV-flat transaction. Neither ASCHT nor ART shareholders “overly benefit” at the expense of the other, but they both benefit from scale lowering future costs.
  • The deal is another REIT consolidation to create a LARGER NewREIT. It was also totally obvious, after the Ascendas-Singbridge deal was signed earlier this year, that within the Capitaland group (which meant Temasek was going to own 51% of Capitaland when completed), this was going to happen (even though the deal meant there were no chained transactions for the REITs). It makes one wonder if there is a deal for Ascendas Real Estate Investment Trust (AREIT SP) to come. 
  • The deal (at the time of the insight) showed a 4.5% spread being long ASCHT and short Ascott, which is slightly wide for a deal of ~five months. However, there is some uncertainty in the distributions. If you own Ascott and are in a position to switch out of Ascott into AREIT, Travis would do so. If you own ASCHT and you like the risk of owning the REIT, you own the right one. 

(link to Travis’s insight: Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy)


Dalian Port (Pda) Co Ltd H (2880 HK)  (Mkt Cap: $3bn; Liquidity: $1mn)

Back on the 4 June, Dalian Port (Pda) announced a possible Mandatory General Offer (MGO) at $1.0127/share, a 0.27% premium to last close. The MGO would be triggered following the rearrangement of various companies under the PRC government, collectively holding 68.37% into Dalian Port (Pda), with the long-term objective of merging the ports in Liaoning province under a single platform. The shareholding structure is a spider’s web and understanding the share transfers is probably best done by studying the diagrams in the document and the insight.

  • The integration/consolidation process is complicated with local, provincial and central government holdings in port ownership. Further, local governments, which often trumpet their success in tandem with the performance of its port, may be less willing to forego such economic benefits by giving up absolute control.
  • China Merchant Holdings already has effective control of Dalian Port (Pda) – (47.31%) direct and 21.05% via Team Able/China Merchants Port (144 HK). The equity transfers forming part of the restructuring are being hived out from one SASAC entity into another SASAC-controlled entity. This should all go through and the unconditional MGO will be triggered, and potentially wrap up in October, provided the ETA completes on the long stop date.
  • Dalian Port (Pda) is trading in line with listed Hong Kong ports. You have a (likely) hard floor at $1.01, with expectations of further group restructuring, as the three Liaoning ports are integrated. However, HK port companies are down ~7.% in the past year, similar to Chinese-listed port companies.  The sentiment is decidedly downbeat as the trade war creates a less profitable business environment.

(link to my insight: Dalian Port – Rearranging The Deck Chairs)


Health Management Intl (HMI SP) (Mkt Cap: $844mn; Liquidity: $3mn)

The previous Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider HMI announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT would acquire HMI for S$0.73/share in cash or one share of the Acquirer. That price is a 25-30% premium to the 1, 3, 6, and 12-month VWAPs prior to the announcement and a 14% premium to the last “undisturbed” trading day.

  • It is not overly generous. The premium is small, and the forecast Next 12 Month EV/EBITDA multiple at 17+x is OK but compared to the other private hospital operators out there in Asia it is not overwhelmingly high-priced. It seems a bit of a stretch to see someone come over the top when this has been negotiated. However, if one asked me whether the likelihood of bump or deal failure is more likely, Travis would tilt towards bump, but it would be just a kiss.
  • It takes 75% of the 39% not owned by NSI and “concert parties” to get this done, but the 2018 Annual Report showed that 89.75% of the shareholders (i.e. 83.2% or so of the possible Scheme Shareholders) owned more than 1,000,000 shares. The top 40 shareholders determine the outcome of this deal as long as the rest generally are split 51/49 or better. It is difficult to see this one getting knocked down.
  • Travis expects the timeline of this deal is about 4 months plus perhaps a week. That means at S$0.72 the gross spread at 1.39% gets you an annualised spread of about 4.15%. At S$0.715, the gross spread is 2.10% (before comms, etc) so 4 months is 6+% annualised.  The trade here is to get queue priority at S$0.715. 

(link to Travis’s insight: Health Management Int’l Privatisation – Easy Peasy)


Briefly …

Harbin Electric Co Ltd H (1133 HK) this week announced there will be no further extension of its Offer which closes on the 19 July. By my estimate, tendered shares total 71.86%. The tendering condition is 90%.

M&A – UK

Telford Homes (TEF LN) (Mkt Cap: $335mn; Liquidity: $1mn)

On July 3rd, US-based commercial real estate services company, CBRE Group Inc A (CBG US)announced that they had reached an agreement with the board of London-based residential real estate developer, Telford, to acquire 100% of its shares by way of a Scheme of Arrangement at a price of GBP3.50/ share. The offer values the target at a market cap of GBP 265mn. 

  • While the Offer Price translates to premia of 11.1%, 14.3%, and 21.3% to the undisturbed price, 1-month VWAP and 3-month VWAP respectively, it remains 3.4% lower than the 1-year VWAP of Telford shares. Furthermore, the offer price also translates to discounts of 28.8% and 38.8% to the stock’s 1-year and 2-year highs respectively.
  • The company appears to have confidence its current build-plan and will come through on budget and so after a couple of project delays at the end of this past year, earnings will rebound and march higher. The few analysts who cover the stock are less bullish this year, but it appears they expect the company to meet its 2020 targets a year or two later. 8x EPS and 1.0x book seem quite low. It is below the mean of the selected comps.
  •  If Travis had to bet right now, it’s 50/50 it does not get done. Brexit worries could get this over the line but he expects there are some unhappy shareholders. He is not sure there is enough time to get a competitor in there to see the price lifted.  The deal timeline is very short. The indicative timeline suggests the Target Scheme Meeting could be in just four weeks. 

(link to Travis’s insight: Telford Homes Takeout – A Disappointing End?)

M&A – US

Avon Products (AVP US) (Mkt Cap: $1.8bn; Liquidity: $41mn)

On May 22, 2019, Avon announced that it had entered into a merger agreement to be acquired in an all-stock transaction by Brazilian Holding Company Natura & Co (NATUR3 BZ).  Natura will exchange 0.30 of its shares for each AVP share on a fixed exchange ratio basis, currently valuing AVP at ~US$2 bn. The merger agreement deadline is set for July 22, 2020. On completion of the merger, NATU3 shareholders will own 76% of the combination with AVP shareholders owning 24%. The transaction catapults NATU3 to becoming the world’s sixth largest consumer goods company.

  • Natura is paying ~10x consensus 2019 EBITDA for standalone AVP which is reasonable in comparison to prevailing peer group multiples averaging 17x and compares with Natura’s own standalone valuation multiple of ~14x.
  • The transaction could attract particular scrutiny from the antitrust authorities in Brazil, which represents the single largest market for both Natura and AVP. According to data from Euromonitor, Natura maintains a commanding lead in Brazil’s direct sales market for cosmetics with an estimated 31% market share followed by a ~ 16% share for AVP. That being said, the direct sales market is based around independent consultants/reps, many of whom already offer both Natura and Avon products in Brazil. 
  • The double-digits merger spread that prevails (14% at the time of the insight) could offer a lucrative opportunity for arbs. The complicating factor is that Natura is listed on the Brazilian Stock exchange (B3) and denominated in an historically volatile currency, the Brazilian Real, while AVP shares trade on the NYSE in US$. As some AVP shareholders may not want to own or are restricted from owning shares that trade on a non-US exchange, Natura will offer AVP shareholders the option to receive Natura shares in the form of Level-II ADRs to be traded on the NYSE or shares listed on B3. Natura does not currently have an ADR in issue.

(link to Robert Sassoon‘s insight: MergerTalk: Natura & Co/Avon Products -“Ding Dong, The Avon Spread Calling”)

STUBBS/HOLDCOS

Singapore Airlines (SIA SP) / Sia Engineering (SIE SP) 

SIE gained 15% the previous week, rekindling privatisation talks by SIA.  Despite the share price increase, SIE trades around November 2009 levels. SIE is not aware of any reasons for the jump. The stub is not terribly exciting with SIE accounting for 18% and 22% of NAV and market cap, and barely makes the grade with SIE trading ~US$1mn/day.

  • Last year’s privatisation of HAECO (44 HK) at $72/share (63.2% premium to last close) by Swire Pacific Ltd Cl A (19 HK) – which held 74.9% prior to the Offer – is not lost on investors. The takeover PER was 35x vs. 19x currently for SIE. Peer comps trade at 24x. SIE only appears fairly valued on an EV/EBITDA metric on account of the earnings from associated companies and JVs.
  • SIE is a maintenance, repair & overhaul company providing aircraft & component overhaul, fleet management and line maintenance services. The company also has material stakes in associated companies and JVs which contribute 71% of the Group’s profits in FY19, up from 58% in FY18.
  • The outcome, should an Offer be pitched, would cost SIA ~S$700mn to take out the shares it does not own. Not chump change, and it might have a slightly negative impact on SIA as it removes one layer of transparency. But given the stub weakness, the focus would be on the SIE arbitrage. I would not want to be short SIE here.

(link to my insight: StubWorld: Just Rumours (For Now) As SIA Engineering Pops)

SHARE CLASSIFICATIONS

My share class monitor provides a snapshot of the premium/discounts for 322 share classifications –  ADRs, Korean prefs, dual class, Thai (F/L) & A/Hs – around the region.

(link to my insight: Share Classifications: A Year In Review)

OTHER M&A 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 – like Madison Holdings Group Ltd (8057 HK) on the 5 July.  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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

ISP Global (8487 HK)
50.50%
Bluemont
Outside CCASS
Camsing (2662 HK)
Great Roc
Founder
18.20%
Kingston
Citi
Source: HKEx

4. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week

Total deals since inception accuracy rate since inception  chartbuilder%20%281%29

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

It’s an unfortunate week for Asia’s ECM market as Budweiser Brewing Company APAC (1876 HK) was not able to price its IPO on Friday and, as of this morning, AB InBev announced that the IPO has been called off. Perhaps the massive deal size without cornerstone investors and the tight valuation discount were too much for investors to digest. In any case, it will likely affect the sentiment of any upcoming mega IPOs in Hong Kong.

Beyond that, next week will be filled with trading debuts. In Hong Kong, there are Zhongliang Holdings (2772 HK), Edvantage Group (382 HK), and Jinshang Bank Co Ltd (2558 HK) listing on Tuesday and Thursday. Zhongliang priced close to the bottom of its price range while Edvantage and Jinshang priced at and slightly above their mid-point respectively.

In Singapore, Prime Us Reit (PRIME SP) is listing on Friday while Douyu International Holdings (DOYU US) is listing on Wednesday. We heard that Douyu’s books have already been covered.

Beyond that, this week’s IPO performance in Hong Kong had been lacklustre. CIMC Vehicle Group Co Ltd (1839 HK) closed below its IPO price on the first day while IVD Medical (1931 HK) struggled and closed right at its IPO price.

Accuracy Rate:

Our overall accuracy rate is 72.5% for IPOs and 64% for Placements 

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

New IPO filings this week

  • SinoMab Bioscience (Hong Kong, ~US$200m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Alibaba

Alibaba IPO/Secondary Listing – The Real IPO Only Begins on the 11th Day Post Listing ​

AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ascentage

Ascentage Pharma (亚盛医药) IPO: Updates and Thoughts on HQP1351 (3rd Gen Bcr-Abl TKI) ​

Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

Clarity

Clarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand

China Feihe

China Feihe (中国飞鹤) IPO: New Numbers, New Red Flag, and Demographic Risk 

Helenbergh

Helenbergh (海伦堡) Early Thoughts – The Usual Red Flag – Related Party Transactions

Hut Chi-Med

Hutchison-China Med (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

JS Global

JS Global Lifestyle (JS 环球生活) Early Thoughts – Declaring US$470m Dividend Before IPO 

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
Renrui

Renrui Human Resources (人瑞人才) Pre-IPO Review – Riding on China’s Unicorns 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Valuation of Four Biosimilars

Topsports Topsports International Holdings Pre-IPO – Performing Well but All Proceeds Will Likely Go to Belle 
Topsports Topsports Pre-IPO – Quick Take – Nike & Adidas Data Throws up Some Interesting Nuggets 
TOT Bio TOT Biopharm (东曜药业) IPO: An Unimpressive Pipeline 
TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Aakash EduAakash Education Pre-IPO – Fast Growth in an Attractive Sector
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
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 Emami 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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Sterling Sterling and Wilson Solar Pre-IPO – Potentially India’s Largest IPO This Year – Ain’t No Sunshine 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
AMTDI AMTD International (尚乘国际) Pre-IPO – Avoid at All Costs 
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
DouyuDouyu (斗鱼直播) IPO: Comparison with Huya (Part 2)
Douyu Douyu (斗鱼直播) IPO: Latest Numbers Bode Well for Listing (Part 3) 
Douyu Douyu (斗鱼直播) IPO: Detailed E-Sports Broadcasting Comparison with Huya 
MetenMeten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
Wanda SportsWanda Sports (万达体育) Early Thoughts – Convoluted by Contracts and Cyclicality
Wanda Sports Wanda Sports (万达体育) Pre-IPO – Closer Look at the Business Segments ​

5. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

Singapore’s real GDP grew 0.1% YoY in 2Q 2019 (according to the advance estimate based mainly on April-May data), the weakest quarterly reading in a decade. At the seasonally-adjusted annualized rate (saar, the way the US reports its quarterly GDP), Singapore’s GDP contracted 3.4%QoQ in 2Q 2019, essentially giving back almost all of the 3.8%QoQ expansion in 1Q 2019. That followed a slight expansion of 0.8% QoQ in 3Q 2018, and a contraction of -0.8%QoQ in 4Q 2018 — which essentially implied that Singapore’s economy has stalled (recording average quarterly growth of 0.1%QoQ) for the past 1 year (4 quarters, from 3Q 2018 to 2Q 2019). 

As a trade-dependent economy, Singapore is the most direct victim of China’s slumping domestic demand, which has caused China’s imports to decline sharply since November 2018, severely weakening the global semiconductor/electronics sector — and dragging Asia’s economies down with it. China reported that its imports were down 7.3% YoY in June 2019 (only marginally better than its record -8.5%YoY reading for May). This will imply that Singapore’s exports (and NODX) remain extremely weak in June 2019 as well, thereby ensuring that the actual 2Q 2019 GDP print will not be much different from this weak advance estimate. Taiwan and Korea are likely to also succumb, albeit less so because of their willingness to deploy an earlier fiscal stimulus.   

Singapore has ample fiscal resources — including large, recurring investment income and land sale proceeds which Singapore does not even count as government revenue. With its cyclical manufacturing sector contracting for 3 consecutive quarters, it is already time for Singapore to announce a large fiscal stimulus — reduced employer contributions to CPF, removal of caps on the income and corporate tax rebates, and possibly even a temporary reduction in GST rate. However, the last is highly unlikely, and other measures are likely only after it is clear that the whole economy is in recession. Fiscal and monetary stimulus in October 2019 will be too late to prevent Singapore falling into recession, and the gloom is likely to worsen in the near-term. We recommend being Underweight Singapore.  

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Brief Singapore: ESR-REIT Placement: Placing Price Reflects the Trade-Offs and more

By | Daily Briefs, Singapore

In this briefing:

  1. ESR-REIT Placement: Placing Price Reflects the Trade-Offs
  2. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  4. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

1. ESR-REIT Placement: Placing Price Reflects the Trade-Offs

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On Monday, ESR-REIT (EREIT SP) unveiled plans to raise around S$150 million through a private placement and a preferential placing of new units at a placing price range of S$0.515-0.525 per unit. EREIT has been embarking on a steady transformation into a major industrial player in Singapore since ESR Cayman (ESR HK) became a sponsor in January 2017.

The proceeds from the placement will be used to finance a property acquisition, asset enhancement initiatives and to repay existing debt. Overall, we believe that proposed transactions’ underwhelming NAV accretion and EREIT’s ongoing overhang from a potential default from Hyflux Ltd (HYF SP) (a top 10 tenant) are adequately reflected in the proposed placement price.

2. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

4. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

Highlight

ESR-REIT announced an S$100 million private placement and S$75 million preferential offerings for the existing unitholders. In this insight, we will provide our thoughts on the deal and score the deal in our ECM framework. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Singapore: The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World and more

By | Daily Briefs, Singapore

In this briefing:

  1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  3. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

3. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

Highlight

ESR-REIT announced an S$100 million private placement and S$75 million preferential offerings for the existing unitholders. In this insight, we will provide our thoughts on the deal and score the deal in our ECM framework. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Singapore: Taking Off: Vietnamese Exports Are Rocking and Rolling and more

By | Daily Briefs, Singapore

In this briefing:

  1. Taking Off: Vietnamese Exports Are Rocking and Rolling
  2. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering
  3. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week
  4. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)
  5. REIT Discover: Prime US REIT IPO Brief Review

1. Taking Off: Vietnamese Exports Are Rocking and Rolling

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Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

2. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering

Spin2

Last Week in Event SPACE …

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

EVENTS

Chiyoda Corp (6366 JP)  (Mkt Cap: $729mn; Liquidity: $15mn)

Travis Lundy calculated the total shares to be sold at 48-50m accounting for 20% of outstanding and 30% of float in Chiyoda’s upcoming removal from the Nikkei (and now confirmed – see Travis insight below) and Topix indexes, and referenced the exclusion trades resulted in Toshiba Corp (6502 JP) falling 24% and Sharp Corp (6753 JP) falling 31%. But Mio Kato, CFA feels that the company’s situation could skew the timing compared to what would be “normal”.

  • Mio believes that it may be more interesting to look for a reversion trade in the event that the stock price declines significantly into the exclusion. He feels that the fall may not be quite as steep as that for Toshiba or Sharp. In both Toshiba and Sharp’s cases there was still significant uncertainty surrounding the names as Toshiba had not completed or even announced its capital raise at the time and the sale of its memory subsidiary was still being hotly contested; while in Sharp’s case Hon Hai was playing hardball on deal terms.
  • In contrast, Chiyoda has already secured funding from a very stable and large partner and appears to have kitchen-sinked a lot of assumptions and faces a very bright operational outlook – its problems stem from poor risk management, which Mitsubishi is meant to solve, and not operations. 
  • In addition, due to Chiyoda’s previous operational struggles and write-downs there is already a very significant short base. This could distort the usual timing of the fall in the stock price and the fact that the stock has recovered to just 3.5% below the level prior to more widespread reporting of the exclusion points to this eventuality. It does seem likely that the size of the required sell could push Chiyoda’s price down at some point – Mio argues this could happen much closer to the actual event than usual. If borrow is difficult to come by, there could be money to be made on the other side around the turn of the month.

(link to Mio’s insight: Chiyoda: Risks to the Index Kick-Out Trade and Potential Volatility at Earnings the Next Day)


Bandai Namco Holdings (7832 JP)  (Mkt Cap: $12.6bn; Liquidity: $28mn)

The Nikkei Inc announced its “Changes to the Nikkei Indices” this week  which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that Chiyoda Corp (6366 JP)s yuho (Annual Securities Report) had the company at a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. The Announcement surprised people. As expected, Chiyoda is Out – but Bandai is In.  Chiyoda closed down 2.6% on 2mm shares, and Bandai closed limit up +19.3% on 300k shares allocated at the limit on the close.

  • There are still something like 50 million shares of Chiyoda to sell. The significant shorts – which are likely well in excess of the 23+ million shares shown and reported – are likely sourcing a lot of their borrow from the shareholders (passive funds) who have to sell. Those shareholders will have to recall their borrow. Earnings come out the day after the exclusion. I would not want to be short that earnings number. Plus read Mio’s insight above.
  • There should be 27mm shares to buy in Bandai which is about 20% of float. However, if only half the foreigners and only half the individual holders would be willing to sell on a large jump in price in the next few weeks, then the net available to sell is probably closer to 80mm shares and 27mm to buy would be one-third. It’s a lot. Once it gets purchased by Nikkei 225 funds, it won’t come out anytime soon. This stock is likely to get squeezed.
  • Dmg Mori Co Ltd (6141 JP) was flagged by many as a good bet to replace Chiyoda. Since then, roughly 14 million shares of excess volume have traded. If half of that is a real displacement of holdings based on this event, 7mm shares would need to be sold. That is 3% of shares out and 4-5% of float. It is among the larger excess positioning situations in the last five years in the stock. DMG closed -10% on 7.3mm shares in response to the index changes.

(link to Travis’s insight: Nikkei 225 – Bandai Namco IN, Chiyoda OUT)


Kcc Corp (002380 KS)  (Mkt Cap: $2.2bn; Liquidity: $6mn)

KCC will split itself into two companies in the form of an equity spinoff with KCC the surviving company and KCG the new company. KCC will mainly comprise the B2B business (silicone, paint and varnish); KCG will get the B2C business such as glass and interior. An EGM will be held on Nov 13 and shareholder approval can be obtained with 2/3 of attending votes and 1/3 of shares out. Both companies will be listed – KCC on Jan 21 next year, but KCG’s listing date hasn’t been fixed.

  • Typically, demergers serve to streamline a business.  However, the major shareholder retains 40%, which Sanghyun Park considers to be weak. He believes the major shareholder intends to further solidify this controlling stake via a tender, possibly a month after the Jan 21 listing. 

(link to Sanghyun’s insight: KCC Corp Equity Spinoff: Summary & Mispricing Checkup)


R* Shares CPSE ETF (CPSEBE IN) 

The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises, declining to 10 after Rural Electrification (RECL IN) was kicked out this past Friday. The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

  • The CPSE ETF does not trade big volumes on a regular day. However, there is a huge volume surge following fund offerings as many investors look to flip their allocation back into the market and lock in a profit. The anchor portion was oversubscribed almost 6 times in the last tranche issued in March this year, though the number may be smaller this time with the tighter discount being offered.
  • The ETF will need to buy around 63m shares of Indian Oil Corp (IOCL IN) in the market on July 19. Brian Freitas estimates this number since the Government of India can only sell around 64m shares to the ETF as this will take their stake in the company down to 51.5%, the lowest percentage for the stock to remain in the Nifty CPSE index. Given the stock trades around 13m shares a day on average, he sees 4x of excess volume and expect the stock to rally in the lead up to July 19 and see buying over the day on July 19.

links to Brian’s insights:
The CPSE ETF Arb Is Back, but Tighter!
India – NIFTY CPSE Index Review.

M&A – ASIA-PAC

Unizo Holdings (3258 JP) (Mkt Cap: $913mn; Liquidity: $4mn)

Japan’s premier discount travel agency H I S Co Ltd (9603 JP) on Wednesday announced it would launch a Partial Tender Offer (commencing this past Friday) to purchase a 40+% stake in real estate and hotel business Unizo to raise its stake from ~4.8% to 45.0%. The Tender Offer price is at a 56% premium to the last trade and is at an 18-month high. But, this is a hostile tender.

  • A hostile tender offer by one company upon another conducted without warning, or with warning but without approval, is reasonably rare. In Japan, it is even rarer. This is, however, the second in six months – the first being Itochu Corp (8001 JP)‘s tender offer for shares of Descente Ltd (8114 JP).  HIS has decided to buy 40% of a company it hadn’t talked to. At a 50+% premium. And given this one has hostility AND a longer end date, there is more trading and event optionality than normal.
  • Unizo has several possible responses it could give. The right thing to do would be to establish an independent committee immediately. A rights offering might kill the deal. But it would be fair to investors. A White Knight is not unthinkable. Travis expects the odds are pretty good that Unizo does not have a great defense here. That means the Tender likely goes through.
  • Unless corporate and financial cross-holders tender, the pro-ration could end up being very high.  If crossholders tender, pro-ration goes way down and one is better off just selling everything in the market for a small loss. Travis is bullish that the tender goes through and bullish the profit opportunity. He thinks for the astute arbitrageur, there is a lot of room to play around the ranges here.

(link to Travis’s insight: HIS Hostile Tender for Unizo – Fun Ahead!)


Villa World Ltd (VLW AU)  (Mkt Cap: $203mn; Liquidity: $1mn)

VLW and AVID have (finally) entered into a Scheme Implementation Agreement at A$2.345/share yesterday, which is a 17.8% premium to the unaffected price of $1.99 on 14 March, and an A$0.115 bump over the initial pitch in March. Any final or special dividend paid on or prior to the implementation of the Scheme will reduce the Offer Price. The key nagging issue is Ho Bee Land Ltd (HOBEE SP).

  • Ho Bee, VLW’s largest shareholder and JV partner, responded to AVID’s proposal by buying 2.2mn shares (~1.8% of shares out) at an average of A$2.04/share – and a high of A$2.18/share – lifting its stake to 9.41% on the same day as the initial Offer. Ho Bee further bumped its stake to 10.45% on the 25 March at an average price of A$2.21; and finally, to 11.62% on the 15 April at an average of $2.17. Its overall average in-price is A$1.98/share.
  • Would Ho Bee go to such extreme just to extract another 5% from the Offer? Maybe, but it is a little weird. Ho Bee did not buy over $2.23/share.
  • On balance, this deal should get up. Pricing appears fair with respect to peers. Ho Bee receives a decent premium to its overall average position. This is also not a material holding for Ho Bee – the 11.62% stake is equivalent to ~2% of its market cap – while it remains directly invested in the Melbourne JV.  With a late November/ early December completion, this is trading very tight to terms at 0.6% gross.

(link to my insight: Villa World Greenlights AVID’s Offer)


Ascendas Hospitality Trust (ASCHT SP) (Mkt Cap: $844mn; Liquidity: $3mn)

On 3 July, Ascott Residence Trust (ART SP) and ASCHT jointly announced a proposed combination, which would result in the combined entity becoming the largest hospitality trust in the Asia Pacific region, one of the top ten globally, with an asset value of S$7.6bn. It would – using data from the end of June – become the 7th largest trust on the SGX.

  • The deal is for Ascott to acquire ASCHT through a Scheme of Arrangement whereby ASCHT unitholders will receive what was – at the announcement – S$1.0868 per ASCHT Stapled Unit. The exact terms are S$0.0543 in cash and 0.7942 Ascott Reit-BT Stapled Units. That is a ratio of 0.836 but if you do the arithmetic, it comes out as a NAV-flat transaction. Neither ASCHT nor ART shareholders “overly benefit” at the expense of the other, but they both benefit from scale lowering future costs.
  • The deal is another REIT consolidation to create a LARGER NewREIT. It was also totally obvious, after the Ascendas-Singbridge deal was signed earlier this year, that within the Capitaland group (which meant Temasek was going to own 51% of Capitaland when completed), this was going to happen (even though the deal meant there were no chained transactions for the REITs). It makes one wonder if there is a deal for Ascendas Real Estate Investment Trust (AREIT SP) to come. 
  • The deal (at the time of the insight) showed a 4.5% spread being long ASCHT and short Ascott, which is slightly wide for a deal of ~five months. However, there is some uncertainty in the distributions. If you own Ascott and are in a position to switch out of Ascott into AREIT, Travis would do so. If you own ASCHT and you like the risk of owning the REIT, you own the right one. 

(link to Travis’s insight: Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy)


Dalian Port (Pda) Co Ltd H (2880 HK)  (Mkt Cap: $3bn; Liquidity: $1mn)

Back on the 4 June, Dalian Port (Pda) announced a possible Mandatory General Offer (MGO) at $1.0127/share, a 0.27% premium to last close. The MGO would be triggered following the rearrangement of various companies under the PRC government, collectively holding 68.37% into Dalian Port (Pda), with the long-term objective of merging the ports in Liaoning province under a single platform. The shareholding structure is a spider’s web and understanding the share transfers is probably best done by studying the diagrams in the document and the insight.

  • The integration/consolidation process is complicated with local, provincial and central government holdings in port ownership. Further, local governments, which often trumpet their success in tandem with the performance of its port, may be less willing to forego such economic benefits by giving up absolute control.
  • China Merchant Holdings already has effective control of Dalian Port (Pda) – (47.31%) direct and 21.05% via Team Able/China Merchants Port (144 HK). The equity transfers forming part of the restructuring are being hived out from one SASAC entity into another SASAC-controlled entity. This should all go through and the unconditional MGO will be triggered, and potentially wrap up in October, provided the ETA completes on the long stop date.
  • Dalian Port (Pda) is trading in line with listed Hong Kong ports. You have a (likely) hard floor at $1.01, with expectations of further group restructuring, as the three Liaoning ports are integrated. However, HK port companies are down ~7.% in the past year, similar to Chinese-listed port companies.  The sentiment is decidedly downbeat as the trade war creates a less profitable business environment.

(link to my insight: Dalian Port – Rearranging The Deck Chairs)


Health Management Intl (HMI SP) (Mkt Cap: $844mn; Liquidity: $3mn)

The previous Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider HMI announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT would acquire HMI for S$0.73/share in cash or one share of the Acquirer. That price is a 25-30% premium to the 1, 3, 6, and 12-month VWAPs prior to the announcement and a 14% premium to the last “undisturbed” trading day.

  • It is not overly generous. The premium is small, and the forecast Next 12 Month EV/EBITDA multiple at 17+x is OK but compared to the other private hospital operators out there in Asia it is not overwhelmingly high-priced. It seems a bit of a stretch to see someone come over the top when this has been negotiated. However, if one asked me whether the likelihood of bump or deal failure is more likely, Travis would tilt towards bump, but it would be just a kiss.
  • It takes 75% of the 39% not owned by NSI and “concert parties” to get this done, but the 2018 Annual Report showed that 89.75% of the shareholders (i.e. 83.2% or so of the possible Scheme Shareholders) owned more than 1,000,000 shares. The top 40 shareholders determine the outcome of this deal as long as the rest generally are split 51/49 or better. It is difficult to see this one getting knocked down.
  • Travis expects the timeline of this deal is about 4 months plus perhaps a week. That means at S$0.72 the gross spread at 1.39% gets you an annualised spread of about 4.15%. At S$0.715, the gross spread is 2.10% (before comms, etc) so 4 months is 6+% annualised.  The trade here is to get queue priority at S$0.715. 

(link to Travis’s insight: Health Management Int’l Privatisation – Easy Peasy)


Briefly …

Harbin Electric Co Ltd H (1133 HK) this week announced there will be no further extension of its Offer which closes on the 19 July. By my estimate, tendered shares total 71.86%. The tendering condition is 90%.

M&A – UK

Telford Homes (TEF LN) (Mkt Cap: $335mn; Liquidity: $1mn)

On July 3rd, US-based commercial real estate services company, CBRE Group Inc A (CBG US)announced that they had reached an agreement with the board of London-based residential real estate developer, Telford, to acquire 100% of its shares by way of a Scheme of Arrangement at a price of GBP3.50/ share. The offer values the target at a market cap of GBP 265mn. 

  • While the Offer Price translates to premia of 11.1%, 14.3%, and 21.3% to the undisturbed price, 1-month VWAP and 3-month VWAP respectively, it remains 3.4% lower than the 1-year VWAP of Telford shares. Furthermore, the offer price also translates to discounts of 28.8% and 38.8% to the stock’s 1-year and 2-year highs respectively.
  • The company appears to have confidence its current build-plan and will come through on budget and so after a couple of project delays at the end of this past year, earnings will rebound and march higher. The few analysts who cover the stock are less bullish this year, but it appears they expect the company to meet its 2020 targets a year or two later. 8x EPS and 1.0x book seem quite low. It is below the mean of the selected comps.
  •  If Travis had to bet right now, it’s 50/50 it does not get done. Brexit worries could get this over the line but he expects there are some unhappy shareholders. He is not sure there is enough time to get a competitor in there to see the price lifted.  The deal timeline is very short. The indicative timeline suggests the Target Scheme Meeting could be in just four weeks. 

(link to Travis’s insight: Telford Homes Takeout – A Disappointing End?)

M&A – US

Avon Products (AVP US) (Mkt Cap: $1.8bn; Liquidity: $41mn)

On May 22, 2019, Avon announced that it had entered into a merger agreement to be acquired in an all-stock transaction by Brazilian Holding Company Natura & Co (NATUR3 BZ).  Natura will exchange 0.30 of its shares for each AVP share on a fixed exchange ratio basis, currently valuing AVP at ~US$2 bn. The merger agreement deadline is set for July 22, 2020. On completion of the merger, NATU3 shareholders will own 76% of the combination with AVP shareholders owning 24%. The transaction catapults NATU3 to becoming the world’s sixth largest consumer goods company.

  • Natura is paying ~10x consensus 2019 EBITDA for standalone AVP which is reasonable in comparison to prevailing peer group multiples averaging 17x and compares with Natura’s own standalone valuation multiple of ~14x.
  • The transaction could attract particular scrutiny from the antitrust authorities in Brazil, which represents the single largest market for both Natura and AVP. According to data from Euromonitor, Natura maintains a commanding lead in Brazil’s direct sales market for cosmetics with an estimated 31% market share followed by a ~ 16% share for AVP. That being said, the direct sales market is based around independent consultants/reps, many of whom already offer both Natura and Avon products in Brazil. 
  • The double-digits merger spread that prevails (14% at the time of the insight) could offer a lucrative opportunity for arbs. The complicating factor is that Natura is listed on the Brazilian Stock exchange (B3) and denominated in an historically volatile currency, the Brazilian Real, while AVP shares trade on the NYSE in US$. As some AVP shareholders may not want to own or are restricted from owning shares that trade on a non-US exchange, Natura will offer AVP shareholders the option to receive Natura shares in the form of Level-II ADRs to be traded on the NYSE or shares listed on B3. Natura does not currently have an ADR in issue.

(link to Robert Sassoon‘s insight: MergerTalk: Natura & Co/Avon Products -“Ding Dong, The Avon Spread Calling”)

STUBBS/HOLDCOS

Singapore Airlines (SIA SP) / Sia Engineering (SIE SP) 

SIE gained 15% the previous week, rekindling privatisation talks by SIA.  Despite the share price increase, SIE trades around November 2009 levels. SIE is not aware of any reasons for the jump. The stub is not terribly exciting with SIE accounting for 18% and 22% of NAV and market cap, and barely makes the grade with SIE trading ~US$1mn/day.

  • Last year’s privatisation of HAECO (44 HK) at $72/share (63.2% premium to last close) by Swire Pacific Ltd Cl A (19 HK) – which held 74.9% prior to the Offer – is not lost on investors. The takeover PER was 35x vs. 19x currently for SIE. Peer comps trade at 24x. SIE only appears fairly valued on an EV/EBITDA metric on account of the earnings from associated companies and JVs.
  • SIE is a maintenance, repair & overhaul company providing aircraft & component overhaul, fleet management and line maintenance services. The company also has material stakes in associated companies and JVs which contribute 71% of the Group’s profits in FY19, up from 58% in FY18.
  • The outcome, should an Offer be pitched, would cost SIA ~S$700mn to take out the shares it does not own. Not chump change, and it might have a slightly negative impact on SIA as it removes one layer of transparency. But given the stub weakness, the focus would be on the SIE arbitrage. I would not want to be short SIE here.

(link to my insight: StubWorld: Just Rumours (For Now) As SIA Engineering Pops)

SHARE CLASSIFICATIONS

My share class monitor provides a snapshot of the premium/discounts for 322 share classifications –  ADRs, Korean prefs, dual class, Thai (F/L) & A/Hs – around the region.

(link to my insight: Share Classifications: A Year In Review)

OTHER M&A 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 – like Madison Holdings Group Ltd (8057 HK) on the 5 July.  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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

ISP Global (8487 HK)
50.50%
Bluemont
Outside CCASS
Camsing (2662 HK)
Great Roc
Founder
18.20%
Kingston
Citi
Source: HKEx

3. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week

Upcoming

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

It’s an unfortunate week for Asia’s ECM market as Budweiser Brewing Company APAC (1876 HK) was not able to price its IPO on Friday and, as of this morning, AB InBev announced that the IPO has been called off. Perhaps the massive deal size without cornerstone investors and the tight valuation discount were too much for investors to digest. In any case, it will likely affect the sentiment of any upcoming mega IPOs in Hong Kong.

Beyond that, next week will be filled with trading debuts. In Hong Kong, there are Zhongliang Holdings (2772 HK), Edvantage Group (382 HK), and Jinshang Bank Co Ltd (2558 HK) listing on Tuesday and Thursday. Zhongliang priced close to the bottom of its price range while Edvantage and Jinshang priced at and slightly above their mid-point respectively.

In Singapore, Prime Us Reit (PRIME SP) is listing on Friday while Douyu International Holdings (DOYU US) is listing on Wednesday. We heard that Douyu’s books have already been covered.

Beyond that, this week’s IPO performance in Hong Kong had been lacklustre. CIMC Vehicle Group Co Ltd (1839 HK) closed below its IPO price on the first day while IVD Medical (1931 HK) struggled and closed right at its IPO price.

Accuracy Rate:

Our overall accuracy rate is 72.5% for IPOs and 64% for Placements 

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

New IPO filings this week

  • SinoMab Bioscience (Hong Kong, ~US$200m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Alibaba

Alibaba IPO/Secondary Listing – The Real IPO Only Begins on the 11th Day Post Listing ​

AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ascentage

Ascentage Pharma (亚盛医药) IPO: Updates and Thoughts on HQP1351 (3rd Gen Bcr-Abl TKI) ​

Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

Clarity

Clarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand

China Feihe

China Feihe (中国飞鹤) IPO: New Numbers, New Red Flag, and Demographic Risk 

Helenbergh

Helenbergh (海伦堡) Early Thoughts – The Usual Red Flag – Related Party Transactions

Hut Chi-Med

Hutchison-China Med (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

JS Global

JS Global Lifestyle (JS 环球生活) Early Thoughts – Declaring US$470m Dividend Before IPO 

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
Renrui

Renrui Human Resources (人瑞人才) Pre-IPO Review – Riding on China’s Unicorns 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Valuation of Four Biosimilars

Topsports Topsports International Holdings Pre-IPO – Performing Well but All Proceeds Will Likely Go to Belle 
Topsports Topsports Pre-IPO – Quick Take – Nike & Adidas Data Throws up Some Interesting Nuggets 
TOT Bio TOT Biopharm (东曜药业) IPO: An Unimpressive Pipeline 
TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Aakash EduAakash Education Pre-IPO – Fast Growth in an Attractive Sector
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
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 Emami 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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Sterling Sterling and Wilson Solar Pre-IPO – Potentially India’s Largest IPO This Year – Ain’t No Sunshine 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
AMTDI AMTD International (尚乘国际) Pre-IPO – Avoid at All Costs 
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
DouyuDouyu (斗鱼直播) IPO: Comparison with Huya (Part 2)
Douyu Douyu (斗鱼直播) IPO: Latest Numbers Bode Well for Listing (Part 3) 
Douyu Douyu (斗鱼直播) IPO: Detailed E-Sports Broadcasting Comparison with Huya 
MetenMeten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
Wanda SportsWanda Sports (万达体育) Early Thoughts – Convoluted by Contracts and Cyclicality
Wanda Sports Wanda Sports (万达体育) Pre-IPO – Closer Look at the Business Segments ​

4. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

Singapore’s real GDP grew 0.1% YoY in 2Q 2019 (according to the advance estimate based mainly on April-May data), the weakest quarterly reading in a decade. At the seasonally-adjusted annualized rate (saar, the way the US reports its quarterly GDP), Singapore’s GDP contracted 3.4%QoQ in 2Q 2019, essentially giving back almost all of the 3.8%QoQ expansion in 1Q 2019. That followed a slight expansion of 0.8% QoQ in 3Q 2018, and a contraction of -0.8%QoQ in 4Q 2018 — which essentially implied that Singapore’s economy has stalled (recording average quarterly growth of 0.1%QoQ) for the past 1 year (4 quarters, from 3Q 2018 to 2Q 2019). 

As a trade-dependent economy, Singapore is the most direct victim of China’s slumping domestic demand, which has caused China’s imports to decline sharply since November 2018, severely weakening the global semiconductor/electronics sector — and dragging Asia’s economies down with it. China reported that its imports were down 7.3% YoY in June 2019 (only marginally better than its record -8.5%YoY reading for May). This will imply that Singapore’s exports (and NODX) remain extremely weak in June 2019 as well, thereby ensuring that the actual 2Q 2019 GDP print will not be much different from this weak advance estimate. Taiwan and Korea are likely to also succumb, albeit less so because of their willingness to deploy an earlier fiscal stimulus.   

Singapore has ample fiscal resources — including large, recurring investment income and land sale proceeds which Singapore does not even count as government revenue. With its cyclical manufacturing sector contracting for 3 consecutive quarters, it is already time for Singapore to announce a large fiscal stimulus — reduced employer contributions to CPF, removal of caps on the income and corporate tax rebates, and possibly even a temporary reduction in GST rate. However, the last is highly unlikely, and other measures are likely only after it is clear that the whole economy is in recession. Fiscal and monetary stimulus in October 2019 will be too late to prevent Singapore falling into recession, and the gloom is likely to worsen in the near-term. We recommend being Underweight Singapore.  

5. REIT Discover: Prime US REIT IPO Brief Review

In this issue of REIT Discover, we take a look at the initial public offer (IPO) of Prime Us Reit (PRIME SP). The offer will close at noon on 15th July and trading of the units is expected to commence at 2pm on 19th July. The units are priced at US$0.88 each, representing an indicative distribution yield of 7.4% in 2019 and 7.6% in 2020, and a slight premium to book at 1.05x. The offering is expected to raise gross proceeds of US$813mn.

PRIME is a Class A US Office REIT. We like the high quality Class A and freehold office portfolio of 11 properties which boasts a high average occupancy of 96.7%. The portfolio is supported by relatively long leases with periodic rental step-up provisions for income visibility and organic growth. The detailed growth potential of PRIME deserves a deeper coverage in a separate insight. For now based on the ownership structure of the REIT and Manager, peer valuation and near-term risks, we gauge that the IPO seems fairly valued and may offer limited upside on the first day.   

 The Sponsor, KBS Asia Partners, is associated with KBS, one of the largest US commercial real estate managers with US$11.6 billion of assets currently under management. We recall that it was only recently in November 2017 that KBS partnered with Keppel Capital to list Class B Office REIT, Keppel-Kbs Us Reit (KORE SP) , on the SGX. Less than a year after listing, KORE announced a huge rights issue to fund an acquisition. We are cognizant of the fact that the management went ahead with a dilutive rights issue under turbulent market conditions and we view this management style as rather aggressive. We are therefore concerned about a déjà vu with PRIME in the near term.  We ascribe to this IPO a 2.5-star out of 5 stars rating.

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Brief Singapore: Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering and more

By | Daily Briefs, Singapore

In this briefing:

  1. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering
  2. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week
  3. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)
  4. REIT Discover: Prime US REIT IPO Brief Review
  5. EGM Alliance Mineral (AMS SP): Galaxy Investment Approved by Shareholders. Next Stop: Full Takeover?

1. Last Week in Event SPACE: Chiyoda, Bandai, Unizo, Ascendas, Villa World, Avon, SIE Engineering

13%20jul%202019

Last Week in Event SPACE …

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

EVENTS

Chiyoda Corp (6366 JP)  (Mkt Cap: $729mn; Liquidity: $15mn)

Travis Lundy calculated the total shares to be sold at 48-50m accounting for 20% of outstanding and 30% of float in Chiyoda’s upcoming removal from the Nikkei (and now confirmed – see Travis insight below) and Topix indexes, and referenced the exclusion trades resulted in Toshiba Corp (6502 JP) falling 24% and Sharp Corp (6753 JP) falling 31%. But Mio Kato, CFA feels that the company’s situation could skew the timing compared to what would be “normal”.

  • Mio believes that it may be more interesting to look for a reversion trade in the event that the stock price declines significantly into the exclusion. He feels that the fall may not be quite as steep as that for Toshiba or Sharp. In both Toshiba and Sharp’s cases there was still significant uncertainty surrounding the names as Toshiba had not completed or even announced its capital raise at the time and the sale of its memory subsidiary was still being hotly contested; while in Sharp’s case Hon Hai was playing hardball on deal terms.
  • In contrast, Chiyoda has already secured funding from a very stable and large partner and appears to have kitchen-sinked a lot of assumptions and faces a very bright operational outlook – its problems stem from poor risk management, which Mitsubishi is meant to solve, and not operations. 
  • In addition, due to Chiyoda’s previous operational struggles and write-downs there is already a very significant short base. This could distort the usual timing of the fall in the stock price and the fact that the stock has recovered to just 3.5% below the level prior to more widespread reporting of the exclusion points to this eventuality. It does seem likely that the size of the required sell could push Chiyoda’s price down at some point – Mio argues this could happen much closer to the actual event than usual. If borrow is difficult to come by, there could be money to be made on the other side around the turn of the month.

(link to Mio’s insight: Chiyoda: Risks to the Index Kick-Out Trade and Potential Volatility at Earnings the Next Day)


Bandai Namco Holdings (7832 JP)  (Mkt Cap: $12.6bn; Liquidity: $28mn)

The Nikkei Inc announced its “Changes to the Nikkei Indices” this week  which became inevitable when the Tokyo Stock Exchange announced on the 28th of June that Chiyoda Corp (6366 JP)s yuho (Annual Securities Report) had the company at a negative net worth, requiring a reassignment to the Second Section of the TSE. Nikkei 225 Methodology requires that members be TSE-1 listed. The Announcement surprised people. As expected, Chiyoda is Out – but Bandai is In.  Chiyoda closed down 2.6% on 2mm shares, and Bandai closed limit up +19.3% on 300k shares allocated at the limit on the close.

  • There are still something like 50 million shares of Chiyoda to sell. The significant shorts – which are likely well in excess of the 23+ million shares shown and reported – are likely sourcing a lot of their borrow from the shareholders (passive funds) who have to sell. Those shareholders will have to recall their borrow. Earnings come out the day after the exclusion. I would not want to be short that earnings number. Plus read Mio’s insight above.
  • There should be 27mm shares to buy in Bandai which is about 20% of float. However, if only half the foreigners and only half the individual holders would be willing to sell on a large jump in price in the next few weeks, then the net available to sell is probably closer to 80mm shares and 27mm to buy would be one-third. It’s a lot. Once it gets purchased by Nikkei 225 funds, it won’t come out anytime soon. This stock is likely to get squeezed.
  • Dmg Mori Co Ltd (6141 JP) was flagged by many as a good bet to replace Chiyoda. Since then, roughly 14 million shares of excess volume have traded. If half of that is a real displacement of holdings based on this event, 7mm shares would need to be sold. That is 3% of shares out and 4-5% of float. It is among the larger excess positioning situations in the last five years in the stock. DMG closed -10% on 7.3mm shares in response to the index changes.

(link to Travis’s insight: Nikkei 225 – Bandai Namco IN, Chiyoda OUT)


Kcc Corp (002380 KS)  (Mkt Cap: $2.2bn; Liquidity: $6mn)

KCC will split itself into two companies in the form of an equity spinoff with KCC the surviving company and KCG the new company. KCC will mainly comprise the B2B business (silicone, paint and varnish); KCG will get the B2C business such as glass and interior. An EGM will be held on Nov 13 and shareholder approval can be obtained with 2/3 of attending votes and 1/3 of shares out. Both companies will be listed – KCC on Jan 21 next year, but KCG’s listing date hasn’t been fixed.

  • Typically, demergers serve to streamline a business.  However, the major shareholder retains 40%, which Sanghyun Park considers to be weak. He believes the major shareholder intends to further solidify this controlling stake via a tender, possibly a month after the Jan 21 listing. 

(link to Sanghyun’s insight: KCC Corp Equity Spinoff: Summary & Mispricing Checkup)


R* Shares CPSE ETF (CPSEBE IN) 

The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises, declining to 10 after Rural Electrification (RECL IN) was kicked out this past Friday. The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

  • The CPSE ETF does not trade big volumes on a regular day. However, there is a huge volume surge following fund offerings as many investors look to flip their allocation back into the market and lock in a profit. The anchor portion was oversubscribed almost 6 times in the last tranche issued in March this year, though the number may be smaller this time with the tighter discount being offered.
  • The ETF will need to buy around 63m shares of Indian Oil Corp (IOCL IN) in the market on July 19. Brian Freitas estimates this number since the Government of India can only sell around 64m shares to the ETF as this will take their stake in the company down to 51.5%, the lowest percentage for the stock to remain in the Nifty CPSE index. Given the stock trades around 13m shares a day on average, he sees 4x of excess volume and expect the stock to rally in the lead up to July 19 and see buying over the day on July 19.

links to Brian’s insights:
The CPSE ETF Arb Is Back, but Tighter!
India – NIFTY CPSE Index Review.

M&A – ASIA-PAC

Unizo Holdings (3258 JP) (Mkt Cap: $913mn; Liquidity: $4mn)

Japan’s premier discount travel agency H I S Co Ltd (9603 JP) on Wednesday announced it would launch a Partial Tender Offer (commencing this past Friday) to purchase a 40+% stake in real estate and hotel business Unizo to raise its stake from ~4.8% to 45.0%. The Tender Offer price is at a 56% premium to the last trade and is at an 18-month high. But, this is a hostile tender.

  • A hostile tender offer by one company upon another conducted without warning, or with warning but without approval, is reasonably rare. In Japan, it is even rarer. This is, however, the second in six months – the first being Itochu Corp (8001 JP)‘s tender offer for shares of Descente Ltd (8114 JP).  HIS has decided to buy 40% of a company it hadn’t talked to. At a 50+% premium. And given this one has hostility AND a longer end date, there is more trading and event optionality than normal.
  • Unizo has several possible responses it could give. The right thing to do would be to establish an independent committee immediately. A rights offering might kill the deal. But it would be fair to investors. A White Knight is not unthinkable. Travis expects the odds are pretty good that Unizo does not have a great defense here. That means the Tender likely goes through.
  • Unless corporate and financial cross-holders tender, the pro-ration could end up being very high.  If crossholders tender, pro-ration goes way down and one is better off just selling everything in the market for a small loss. Travis is bullish that the tender goes through and bullish the profit opportunity. He thinks for the astute arbitrageur, there is a lot of room to play around the ranges here.

(link to Travis’s insight: HIS Hostile Tender for Unizo – Fun Ahead!)


Villa World Ltd (VLW AU)  (Mkt Cap: $203mn; Liquidity: $1mn)

VLW and AVID have (finally) entered into a Scheme Implementation Agreement at A$2.345/share yesterday, which is a 17.8% premium to the unaffected price of $1.99 on 14 March, and an A$0.115 bump over the initial pitch in March. Any final or special dividend paid on or prior to the implementation of the Scheme will reduce the Offer Price. The key nagging issue is Ho Bee Land Ltd (HOBEE SP).

  • Ho Bee, VLW’s largest shareholder and JV partner, responded to AVID’s proposal by buying 2.2mn shares (~1.8% of shares out) at an average of A$2.04/share – and a high of A$2.18/share – lifting its stake to 9.41% on the same day as the initial Offer. Ho Bee further bumped its stake to 10.45% on the 25 March at an average price of A$2.21; and finally, to 11.62% on the 15 April at an average of $2.17. Its overall average in-price is A$1.98/share.
  • Would Ho Bee go to such extreme just to extract another 5% from the Offer? Maybe, but it is a little weird. Ho Bee did not buy over $2.23/share.
  • On balance, this deal should get up. Pricing appears fair with respect to peers. Ho Bee receives a decent premium to its overall average position. This is also not a material holding for Ho Bee – the 11.62% stake is equivalent to ~2% of its market cap – while it remains directly invested in the Melbourne JV.  With a late November/ early December completion, this is trading very tight to terms at 0.6% gross.

(link to my insight: Villa World Greenlights AVID’s Offer)


Ascendas Hospitality Trust (ASCHT SP) (Mkt Cap: $844mn; Liquidity: $3mn)

On 3 July, Ascott Residence Trust (ART SP) and ASCHT jointly announced a proposed combination, which would result in the combined entity becoming the largest hospitality trust in the Asia Pacific region, one of the top ten globally, with an asset value of S$7.6bn. It would – using data from the end of June – become the 7th largest trust on the SGX.

  • The deal is for Ascott to acquire ASCHT through a Scheme of Arrangement whereby ASCHT unitholders will receive what was – at the announcement – S$1.0868 per ASCHT Stapled Unit. The exact terms are S$0.0543 in cash and 0.7942 Ascott Reit-BT Stapled Units. That is a ratio of 0.836 but if you do the arithmetic, it comes out as a NAV-flat transaction. Neither ASCHT nor ART shareholders “overly benefit” at the expense of the other, but they both benefit from scale lowering future costs.
  • The deal is another REIT consolidation to create a LARGER NewREIT. It was also totally obvious, after the Ascendas-Singbridge deal was signed earlier this year, that within the Capitaland group (which meant Temasek was going to own 51% of Capitaland when completed), this was going to happen (even though the deal meant there were no chained transactions for the REITs). It makes one wonder if there is a deal for Ascendas Real Estate Investment Trust (AREIT SP) to come. 
  • The deal (at the time of the insight) showed a 4.5% spread being long ASCHT and short Ascott, which is slightly wide for a deal of ~five months. However, there is some uncertainty in the distributions. If you own Ascott and are in a position to switch out of Ascott into AREIT, Travis would do so. If you own ASCHT and you like the risk of owning the REIT, you own the right one. 

(link to Travis’s insight: Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy)


Dalian Port (Pda) Co Ltd H (2880 HK)  (Mkt Cap: $3bn; Liquidity: $1mn)

Back on the 4 June, Dalian Port (Pda) announced a possible Mandatory General Offer (MGO) at $1.0127/share, a 0.27% premium to last close. The MGO would be triggered following the rearrangement of various companies under the PRC government, collectively holding 68.37% into Dalian Port (Pda), with the long-term objective of merging the ports in Liaoning province under a single platform. The shareholding structure is a spider’s web and understanding the share transfers is probably best done by studying the diagrams in the document and the insight.

  • The integration/consolidation process is complicated with local, provincial and central government holdings in port ownership. Further, local governments, which often trumpet their success in tandem with the performance of its port, may be less willing to forego such economic benefits by giving up absolute control.
  • China Merchant Holdings already has effective control of Dalian Port (Pda) – (47.31%) direct and 21.05% via Team Able/China Merchants Port (144 HK). The equity transfers forming part of the restructuring are being hived out from one SASAC entity into another SASAC-controlled entity. This should all go through and the unconditional MGO will be triggered, and potentially wrap up in October, provided the ETA completes on the long stop date.
  • Dalian Port (Pda) is trading in line with listed Hong Kong ports. You have a (likely) hard floor at $1.01, with expectations of further group restructuring, as the three Liaoning ports are integrated. However, HK port companies are down ~7.% in the past year, similar to Chinese-listed port companies.  The sentiment is decidedly downbeat as the trade war creates a less profitable business environment.

(link to my insight: Dalian Port – Rearranging The Deck Chairs)


Health Management Intl (HMI SP) (Mkt Cap: $844mn; Liquidity: $3mn)

The previous Friday, listed regional (Singapore, Malaysia, Indonesia) private healthcare provider HMI announced an Implementation Agreement for a privatisation by way of Scheme of Arrangement whereby private equity fund EQT would acquire HMI for S$0.73/share in cash or one share of the Acquirer. That price is a 25-30% premium to the 1, 3, 6, and 12-month VWAPs prior to the announcement and a 14% premium to the last “undisturbed” trading day.

  • It is not overly generous. The premium is small, and the forecast Next 12 Month EV/EBITDA multiple at 17+x is OK but compared to the other private hospital operators out there in Asia it is not overwhelmingly high-priced. It seems a bit of a stretch to see someone come over the top when this has been negotiated. However, if one asked me whether the likelihood of bump or deal failure is more likely, Travis would tilt towards bump, but it would be just a kiss.
  • It takes 75% of the 39% not owned by NSI and “concert parties” to get this done, but the 2018 Annual Report showed that 89.75% of the shareholders (i.e. 83.2% or so of the possible Scheme Shareholders) owned more than 1,000,000 shares. The top 40 shareholders determine the outcome of this deal as long as the rest generally are split 51/49 or better. It is difficult to see this one getting knocked down.
  • Travis expects the timeline of this deal is about 4 months plus perhaps a week. That means at S$0.72 the gross spread at 1.39% gets you an annualised spread of about 4.15%. At S$0.715, the gross spread is 2.10% (before comms, etc) so 4 months is 6+% annualised.  The trade here is to get queue priority at S$0.715. 

(link to Travis’s insight: Health Management Int’l Privatisation – Easy Peasy)


Briefly …

Harbin Electric Co Ltd H (1133 HK) this week announced there will be no further extension of its Offer which closes on the 19 July. By my estimate, tendered shares total 71.86%. The tendering condition is 90%.

M&A – UK

Telford Homes (TEF LN) (Mkt Cap: $335mn; Liquidity: $1mn)

On July 3rd, US-based commercial real estate services company, CBRE Group Inc A (CBG US)announced that they had reached an agreement with the board of London-based residential real estate developer, Telford, to acquire 100% of its shares by way of a Scheme of Arrangement at a price of GBP3.50/ share. The offer values the target at a market cap of GBP 265mn. 

  • While the Offer Price translates to premia of 11.1%, 14.3%, and 21.3% to the undisturbed price, 1-month VWAP and 3-month VWAP respectively, it remains 3.4% lower than the 1-year VWAP of Telford shares. Furthermore, the offer price also translates to discounts of 28.8% and 38.8% to the stock’s 1-year and 2-year highs respectively.
  • The company appears to have confidence its current build-plan and will come through on budget and so after a couple of project delays at the end of this past year, earnings will rebound and march higher. The few analysts who cover the stock are less bullish this year, but it appears they expect the company to meet its 2020 targets a year or two later. 8x EPS and 1.0x book seem quite low. It is below the mean of the selected comps.
  •  If Travis had to bet right now, it’s 50/50 it does not get done. Brexit worries could get this over the line but he expects there are some unhappy shareholders. He is not sure there is enough time to get a competitor in there to see the price lifted.  The deal timeline is very short. The indicative timeline suggests the Target Scheme Meeting could be in just four weeks. 

(link to Travis’s insight: Telford Homes Takeout – A Disappointing End?)

M&A – US

Avon Products (AVP US) (Mkt Cap: $1.8bn; Liquidity: $41mn)

On May 22, 2019, Avon announced that it had entered into a merger agreement to be acquired in an all-stock transaction by Brazilian Holding Company Natura & Co (NATUR3 BZ).  Natura will exchange 0.30 of its shares for each AVP share on a fixed exchange ratio basis, currently valuing AVP at ~US$2 bn. The merger agreement deadline is set for July 22, 2020. On completion of the merger, NATU3 shareholders will own 76% of the combination with AVP shareholders owning 24%. The transaction catapults NATU3 to becoming the world’s sixth largest consumer goods company.

  • Natura is paying ~10x consensus 2019 EBITDA for standalone AVP which is reasonable in comparison to prevailing peer group multiples averaging 17x and compares with Natura’s own standalone valuation multiple of ~14x.
  • The transaction could attract particular scrutiny from the antitrust authorities in Brazil, which represents the single largest market for both Natura and AVP. According to data from Euromonitor, Natura maintains a commanding lead in Brazil’s direct sales market for cosmetics with an estimated 31% market share followed by a ~ 16% share for AVP. That being said, the direct sales market is based around independent consultants/reps, many of whom already offer both Natura and Avon products in Brazil. 
  • The double-digits merger spread that prevails (14% at the time of the insight) could offer a lucrative opportunity for arbs. The complicating factor is that Natura is listed on the Brazilian Stock exchange (B3) and denominated in an historically volatile currency, the Brazilian Real, while AVP shares trade on the NYSE in US$. As some AVP shareholders may not want to own or are restricted from owning shares that trade on a non-US exchange, Natura will offer AVP shareholders the option to receive Natura shares in the form of Level-II ADRs to be traded on the NYSE or shares listed on B3. Natura does not currently have an ADR in issue.

(link to Robert Sassoon‘s insight: MergerTalk: Natura & Co/Avon Products -“Ding Dong, The Avon Spread Calling”)

STUBBS/HOLDCOS

Singapore Airlines (SIA SP) / Sia Engineering (SIE SP) 

SIE gained 15% the previous week, rekindling privatisation talks by SIA.  Despite the share price increase, SIE trades around November 2009 levels. SIE is not aware of any reasons for the jump. The stub is not terribly exciting with SIE accounting for 18% and 22% of NAV and market cap, and barely makes the grade with SIE trading ~US$1mn/day.

  • Last year’s privatisation of HAECO (44 HK) at $72/share (63.2% premium to last close) by Swire Pacific Ltd Cl A (19 HK) – which held 74.9% prior to the Offer – is not lost on investors. The takeover PER was 35x vs. 19x currently for SIE. Peer comps trade at 24x. SIE only appears fairly valued on an EV/EBITDA metric on account of the earnings from associated companies and JVs.
  • SIE is a maintenance, repair & overhaul company providing aircraft & component overhaul, fleet management and line maintenance services. The company also has material stakes in associated companies and JVs which contribute 71% of the Group’s profits in FY19, up from 58% in FY18.
  • The outcome, should an Offer be pitched, would cost SIA ~S$700mn to take out the shares it does not own. Not chump change, and it might have a slightly negative impact on SIA as it removes one layer of transparency. But given the stub weakness, the focus would be on the SIE arbitrage. I would not want to be short SIE here.

(link to my insight: StubWorld: Just Rumours (For Now) As SIA Engineering Pops)

SHARE CLASSIFICATIONS

My share class monitor provides a snapshot of the premium/discounts for 322 share classifications –  ADRs, Korean prefs, dual class, Thai (F/L) & A/Hs – around the region.

(link to my insight: Share Classifications: A Year In Review)

OTHER M&A 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 – like Madison Holdings Group Ltd (8057 HK) on the 5 July.  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, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

ISP Global (8487 HK)
50.50%
Bluemont
Outside CCASS
Camsing (2662 HK)
Great Roc
Founder
18.20%
Kingston
Citi
Source: HKEx

2. ECM Weekly (13 Jul 2019) – Budweiser APAC IPO Cancelled, Douyu Listing Next Week

Total deals since inception accuracy rate since inception  chartbuilder%20%281%29

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

It’s an unfortunate week for Asia’s ECM market as Budweiser Brewing Company APAC (1876 HK) was not able to price its IPO on Friday and, as of this morning, AB InBev announced that the IPO has been called off. Perhaps the massive deal size without cornerstone investors and the tight valuation discount were too much for investors to digest. In any case, it will likely affect the sentiment of any upcoming mega IPOs in Hong Kong.

Beyond that, next week will be filled with trading debuts. In Hong Kong, there are Zhongliang Holdings (2772 HK), Edvantage Group (382 HK), and Jinshang Bank Co Ltd (2558 HK) listing on Tuesday and Thursday. Zhongliang priced close to the bottom of its price range while Edvantage and Jinshang priced at and slightly above their mid-point respectively.

In Singapore, Prime Us Reit (PRIME SP) is listing on Friday while Douyu International Holdings (DOYU US) is listing on Wednesday. We heard that Douyu’s books have already been covered.

Beyond that, this week’s IPO performance in Hong Kong had been lacklustre. CIMC Vehicle Group Co Ltd (1839 HK) closed below its IPO price on the first day while IVD Medical (1931 HK) struggled and closed right at its IPO price.

Accuracy Rate:

Our overall accuracy rate is 72.5% for IPOs and 64% for Placements 

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

New IPO filings this week

  • SinoMab Bioscience (Hong Kong, ~US$200m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

Source: Aequitas Research, Smartkarma

News on Upcoming IPOs

Analysis on Upcoming IPOs

NameInsight
Hong Kong
Alibaba

Alibaba IPO/Secondary Listing – The Real IPO Only Begins on the 11th Day Post Listing ​

AscentageAscentage Pharma (亚盛医药) IPO: Too Early for an IPO
Ascentage

Ascentage Pharma (亚盛医药) IPO: Updates and Thoughts on HQP1351 (3rd Gen Bcr-Abl TKI) ​

Ant FinancialAnt Financial IPO Early Thought: Understand Fintech Empire, Growth & Risk Factors
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) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

Clarity

Clarity Medical (清晰医疗) IPO: Proxy to HK SMILE Surgery Demand

China Feihe

China Feihe (中国飞鹤) IPO: New Numbers, New Red Flag, and Demographic Risk 

Helenbergh

Helenbergh (海伦堡) Early Thoughts – The Usual Red Flag – Related Party Transactions

Hut Chi-Med

Hutchison-China Med (和黄医药) H-Share Listing: MNC Partnerships Endorsed Its R&D Capabilities

JS Global

JS Global Lifestyle (JS 环球生活) Early Thoughts – Declaring US$470m Dividend Before IPO 

MicuRxMicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
Renrui

Renrui Human Resources (人瑞人才) Pre-IPO Review – Riding on China’s Unicorns 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Not an Impressive Biosimilar Portfolio 

SH Henlius

Shanghai Henlius (复宏汉霖) IPO: Valuation of Four Biosimilars

Topsports Topsports International Holdings Pre-IPO – Performing Well but All Proceeds Will Likely Go to Belle 
Topsports Topsports Pre-IPO – Quick Take – Nike & Adidas Data Throws up Some Interesting Nuggets 
TOT Bio TOT Biopharm (东曜药业) IPO: An Unimpressive Pipeline 
TubatuTubatu Group Pre-IPO – Performing Better than Qeeka but Growing Much Slower, US$1bn a Stretch
TubatuTubatu Group Pre-IPO – Online -> Online + Offline -> Online -> ?
India
ASK ASK Investment Managers Pre-IPO – Riding on a Wave of Wealth 
Aakash EduAakash Education Pre-IPO – Fast Growth in an Attractive Sector
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotels

Bharat Hotels Pre-IPO – Catching up with Peers 

CMS InfoCMS Info Systems Pre-IPO – When a PE Sells to Another PE… Only One Gets the Timing Right
Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
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 Emami 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
MazagonMazagon Dock IPO Preview: A Monopoly Submarine Yard in India with Captive Navy Spending
Mrs. BectorMrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Sta

Lodha

Lodha Developers Pre-IPO – Second Time Lucky but Not Really that Much Affordable
LodhaLodha Developers IPO: Presence in Affordable Segment Saves Lodha the Blushes in a Sluggish Mkt
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Sterling Sterling and Wilson Solar Pre-IPO – Potentially India’s Largest IPO This Year – Ain’t No Sunshine 
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food
The U.S
AMTDI AMTD International (尚乘国际) Pre-IPO – Avoid at All Costs 
DouyuDouyu (斗鱼直播) IPO: Leader At a Cost
DouyuDouyu (斗鱼直播) IPO: Comparison with Huya (Part 2)
Douyu Douyu (斗鱼直播) IPO: Latest Numbers Bode Well for Listing (Part 3) 
Douyu Douyu (斗鱼直播) IPO: Detailed E-Sports Broadcasting Comparison with Huya 
MetenMeten International Edu (美联国际教育) Early Thoughts – Unclear Strategies
Wanda SportsWanda Sports (万达体育) Early Thoughts – Convoluted by Contracts and Cyclicality
Wanda Sports Wanda Sports (万达体育) Pre-IPO – Closer Look at the Business Segments ​

3. Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession)

Singapore’s real GDP grew 0.1% YoY in 2Q 2019 (according to the advance estimate based mainly on April-May data), the weakest quarterly reading in a decade. At the seasonally-adjusted annualized rate (saar, the way the US reports its quarterly GDP), Singapore’s GDP contracted 3.4%QoQ in 2Q 2019, essentially giving back almost all of the 3.8%QoQ expansion in 1Q 2019. That followed a slight expansion of 0.8% QoQ in 3Q 2018, and a contraction of -0.8%QoQ in 4Q 2018 — which essentially implied that Singapore’s economy has stalled (recording average quarterly growth of 0.1%QoQ) for the past 1 year (4 quarters, from 3Q 2018 to 2Q 2019). 

As a trade-dependent economy, Singapore is the most direct victim of China’s slumping domestic demand, which has caused China’s imports to decline sharply since November 2018, severely weakening the global semiconductor/electronics sector — and dragging Asia’s economies down with it. China reported that its imports were down 7.3% YoY in June 2019 (only marginally better than its record -8.5%YoY reading for May). This will imply that Singapore’s exports (and NODX) remain extremely weak in June 2019 as well, thereby ensuring that the actual 2Q 2019 GDP print will not be much different from this weak advance estimate. Taiwan and Korea are likely to also succumb, albeit less so because of their willingness to deploy an earlier fiscal stimulus.   

Singapore has ample fiscal resources — including large, recurring investment income and land sale proceeds which Singapore does not even count as government revenue. With its cyclical manufacturing sector contracting for 3 consecutive quarters, it is already time for Singapore to announce a large fiscal stimulus — reduced employer contributions to CPF, removal of caps on the income and corporate tax rebates, and possibly even a temporary reduction in GST rate. However, the last is highly unlikely, and other measures are likely only after it is clear that the whole economy is in recession. Fiscal and monetary stimulus in October 2019 will be too late to prevent Singapore falling into recession, and the gloom is likely to worsen in the near-term. We recommend being Underweight Singapore.  

4. REIT Discover: Prime US REIT IPO Brief Review

In this issue of REIT Discover, we take a look at the initial public offer (IPO) of Prime Us Reit (PRIME SP). The offer will close at noon on 15th July and trading of the units is expected to commence at 2pm on 19th July. The units are priced at US$0.88 each, representing an indicative distribution yield of 7.4% in 2019 and 7.6% in 2020, and a slight premium to book at 1.05x. The offering is expected to raise gross proceeds of US$813mn.

PRIME is a Class A US Office REIT. We like the high quality Class A and freehold office portfolio of 11 properties which boasts a high average occupancy of 96.7%. The portfolio is supported by relatively long leases with periodic rental step-up provisions for income visibility and organic growth. The detailed growth potential of PRIME deserves a deeper coverage in a separate insight. For now based on the ownership structure of the REIT and Manager, peer valuation and near-term risks, we gauge that the IPO seems fairly valued and may offer limited upside on the first day.   

 The Sponsor, KBS Asia Partners, is associated with KBS, one of the largest US commercial real estate managers with US$11.6 billion of assets currently under management. We recall that it was only recently in November 2017 that KBS partnered with Keppel Capital to list Class B Office REIT, Keppel-Kbs Us Reit (KORE SP) , on the SGX. Less than a year after listing, KORE announced a huge rights issue to fund an acquisition. We are cognizant of the fact that the management went ahead with a dilutive rights issue under turbulent market conditions and we view this management style as rather aggressive. We are therefore concerned about a déjà vu with PRIME in the near term.  We ascribe to this IPO a 2.5-star out of 5 stars rating.

5. EGM Alliance Mineral (AMS SP): Galaxy Investment Approved by Shareholders. Next Stop: Full Takeover?

Share%20price%20chart%20july%202019

Alliance Mineral Assets (AMS SP) hosted an EGM to ask its shareholders for approval to issue shares to competitor Galaxy Resources (GXY AU). See details in my previous insight Alliance Mineral (AMS SP): Galaxy Resources Now Largest Shareholder, Tick Tock Until Full Takeover?

The capital injection was approved by a majority of AMS’ investors and will make GXY the largest investor in AMS. AMS will also change its name to Alita Resources.

GXY paid 0.20 AUD/share which gives them an 11.81% stake in the company. Recently, AMS’ share price has been under continued selling pressure falling to 0.134 SGD, which equates to a market valuation of only 200M SGD. While sentiment among the lithium names is negative (for the bearish case read Lithium Market – Phlegmatic Growth, Terrible Investment! by Gaius King ) we note that Alliance has guaranteed offtake agreements for 50% of its production, has the highest quality spodumene available in the market and its contractual selling price is significantly higher ($700+) than its costs ($500-550). 

GXY is now ‘half-pregnant‘ and given the company’s low reserve life (less than 5 years) and AMS’ ongoing exploration program we predict it is only a matter of time before a full takeover of AMS is considered by GXY management. In this respect, we note that GXY’s new CEO, Simon Hay, just started his role on 01/07/19 and will surely need to consider GXY diminished market valuation and short mine life.

Should GXY fail to act we shouldn’t discount the possibility that larger players such as Wesfarmers Ltd (WES AU) could be looking to consolidate the space after its recent purchase of Kidman Resources (KDR AU)

Fair Value is reduced to 0.30 SGD (was 0.35 SGD before dilution effect).

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Brief Singapore: This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans and more

By | Daily Briefs, Singapore

In this briefing:

  1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  2. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

2. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

Highlight

ESR-REIT announced an S$100 million private placement and S$75 million preferential offerings for the existing unitholders. In this insight, we will provide our thoughts on the deal and score the deal in our ECM framework. 

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Brief Singapore: ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes and more

By | Daily Briefs, Singapore

In this briefing:

  1. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes
  2. April Semiconductors Down Again, 14.6% Year/Year

1. ESR-REIT Placement: Acquisition and AEI Are DPU Accretive but Debt Payment Dilutes

Highlight

ESR-REIT announced an S$100 million private placement and S$75 million preferential offerings for the existing unitholders. In this insight, we will provide our thoughts on the deal and score the deal in our ECM framework. 

2. April Semiconductors Down Again, 14.6% Year/Year

Wsts%203mma%20revenues

The World Semiconductor Trade Statistics (WSTS) reveal that monthly semiconductor revenues for April were 14.6% below those of April 2018.  This painful point was to be expected in what will be a very oversupplied year following a year of high prices.

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