In this briefing:
- The Hanergy Dilemma: Vote For The Scheme
- CyberAgent (4751 JP) 2Q Earnings Update: AbemaTV Continues to Impress
- China Tower: Onwards and Upwards (For Now).
- Yunji IPO: Price Range Is a No-Go
The terms remain unchanged from the initial announcement on the 26 February – the proposal is one SPV share for each Scheme share.
The ultimate objective of the proposal is to list the company on a stock exchange in the PRC; however, it is not certain whether the A-share listing can be achieved.
The IFA, in a heavily disclaimed summary, recommends shareholders vote for the Scheme.
We now know the SPV is incorporated in the BVI. Hanergy is incorporated in Bermuda. Upon the Scheme becoming effective, the SPV will be 100% owned by independent shareholders who face “no restrictions … to sell or transfer their SPV shares in private through the over-the-counter trading“. Whatever price that may be.
An Increase in Independents
Independent shareholders of Hanergy now comprise 40.51% of shares out, up from 32.49% in the February announcement. The shares held by the Offeror – Hanergy Mobile Energy Holdings Limited – in concert with subsidiaries, has fallen to 40.14% (16.9bn shares) from 20.3bn, apparently after the enforcement of a share mortgage. As a result of this adjustment, the 10% blocking stake at the court meeting has increased to 4.05% from 3.25%.
What to Do?
The questions remain as to the ease in which independent shareholders can sell unlisted shares, should the Scheme fail, under Bermuda Company Law and the Articles – a delisting procedure will commence if Hanergy does not resume trading before the end of July – or sell SPV shares should the Scheme pass, under BVI rules and the SPV constitution.
At a guess, from perusing various rules and regulations, there’s little to distinguish between the two.
For shareholders angling for A-share exposure, the SPV route appears preferable, or at least fast-tracks proceedings, as it silos independent shareholders into a separate entity.
The Offeror has sought advice from its PRC legal advisers and according to the advice of the PRC legal advisers, it is not feasible to achieve the A-Share Listing if the Company has a large number of non PRC Independent Shareholders as it is the case currently. Further, the Offeror’s PRC legal advisers confirmed that it is feasible under the PRC laws and regulations for the A-Share Listco to make application for A-Share Listing if the Independent Shareholders hold the entire share capital of the SPV and the SPV is one of the shareholders of the A-Share Listco.
For the Offeror, the SPV facilitates the A-share application – although it does not guarantee its approval. And even if shareholders do not choose to exit the SPV AND the A-share listing is approved, the SPV’s holding into the A-share can theoretically be diluted via the introduction of new shareholders in a pre-IPO allotment.
Nevertheless, on account of this perceived accelerated A-share application submission under the SPV, I recommend shareholders vote for the Scheme.
Cyberagent Inc (4751 JP) reported 2Q FY09/19 financial results on Wednesday (24th April). CyberAgent reported revenue of ¥117.3bn (+7% YoY) and OP of ¥8.6bn (-25% YoY) for 2Q FY09/19. Both Revenue and OP were above consensus estimates of ¥113.6bn and ¥7.0bn respectively.
The slowdown in the Internet Advertisement business continues, as segment’s revenue was up by only 10.8% YoY in 2QFY09/19, compared to the average growth of around 20% YoY seen in the last two years. The Game business also remains sluggish, down 1% YoY, as the new hit game title, Dragalia Lost, failed to impress for the second consecutive quarter.
In the meantime, Media business revenue was up by 29% YoY, with growth seems to be coming mainly from the AbemaTV front; the number of AbemaTV premium subscribers was up 12% QoQ (an increase of around 43K in absolute terms).
We have revised our FY09/19E revenue expectation upwards for AbemaTV by around JPY4bn (which is around a 30% increase from our previous forecast of ¥12bn) to reflect robust growth in the number of subscribers and advertisement revenue. Our revenue and OP forecasts for the Internet Advertisement and Game businesses remain unchanged.
Our revised SOTP valuation for CyberAgent gives a FY1 target price of ¥4,750, which implies an upside of 10% from Wednesday’s close, with potential for further upside in the medium term.
China Tower (788 HK) recently reported strong 1Q19 results, boosted by the adoption of IFRS16 (big positive impact to EBITDA). Revenue growth has accelerated as the company laps price cuts in 1Q18. With the higher EBITDA, we look for China Tower’s strong rally to continue as measured EV:EBITDA is lower and the company looks very cheap vs global peers. We remain buyers of the stock with a target price of HK$2.30, but recognize conditions may be ripe for prices to move even higher as the stock re-rates. It is a long way from their post IPO experience, when poor IPO disclosures pushed the stock to HK$1.00.
Yunji Inc. (YJ US) is a leading membership-based social e-commerce platform in China which primarily sells merchandise through its Yunji app. It announced its IPO price range of $11.00-13.00 per ADS. At the mid-point of the IPO price range, So-Young will raise net proceeds of $145.8 million, resulting in a fully diluted market cap of $2.7 billion.
We had previously expressed our concerns in Yunji IPO Preview: Balance Sheet Points to Waning Engagement about Yunji’s challenging fundamentals. Overall, we believe that the proposed IPO price range in unattractive and would avoid the IPO.