In this briefing:
- M1 Ltd (M1 SP): Take the Offer, Axiata Unlikely to Start a Bidding War
- Nissan: Overlooked Personnel Moves Suggest the Alliance Will Not Survive Long Term
- China East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
- Japanese Telcos: What to Look for in 2019. Earnings May Surprise on the Upside.
- HK Connect Discovery Weekly: CR Beer, Great Wall Motors, and Kingsoft (2019-01-07)
1. M1 Ltd (M1 SP): Take the Offer, Axiata Unlikely to Start a Bidding War
M1 Ltd (M1 SP), the third largest telecom operator in Singapore, is subject to a bid. On 7 January 2019, Konnectivity launched a voluntary conditional offer (VGO) at S$2.06 cash per share. Konnectivity is jointly owned by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP).
M1’s shares are trading a touch above the VGO price of S$2.06 per share as the market is betting that Axiata Group (AXIATA MK) may ride in with its competing offer. However, we believe that shareholders should accept the offer as Axiata is unlikely to engage in a bidding war due to several factors.
2. Nissan: Overlooked Personnel Moves Suggest the Alliance Will Not Survive Long Term
While most news coverage is intensely focused on former Chairman Carlos Ghosn’s first public statements, defence strategy and Japan’s rather arcane justice system, we believe that news regarding the sudden “leave” of two Nissan executives is worth paying attention to as it may have ramifications for the fate of the alliance overall. We discuss the details below.
3. China East Education (中国东方教育) Pre-IPO – The Company Known for Its Culinary School
China Xinhua Education (2779 HK) listed in Q1 of 2018 and we wrote in our insight that the founder had vocational schools that have been separated from China Xinhua that seemed to be his prized asset. Fast forward to December 2018, the prized asset has finally filed its draft prospectus under the entity China East Education (CEE HK) and it is looking to raise US$400m in its IPO.
In this insight, we will analyze the company’s financial and operating performance, compare it to listed education companies, and provide some questions we have for management.
4. Japanese Telcos: What to Look for in 2019. Earnings May Surprise on the Upside.
The Japanese telecom market was more volatile in 2018 than anticipated. However, Chris Hoare remains broadly positive on the sector for 2019. While pressure on the revenue line is intensifying, we do do not expect a price war to break out. In fact, we look for volatility to ease as the year progresses. Operators point to opex reductions and handset subsidy reductions to offset revenue weakness. We think that earnings are likely to surprise on to the upside. Over time we also look for dividend payout ratios to gradually rise, with the Softbank Corp (9434 JP) (KK) listing the long term catalyst. For Softbank Group (9984 JP) (SB) we look for market confidence to improve on the Vision Fund strategy, as profitable exits/up-valuations of assets such as Uber are announced.
The sector is recovering from NTT Docomo’s (9437 JP) price cut announcements but we don’t think they will slash prices (cuts will be selective). Our top pick is now KDDI (9433 JP) which could actually benefit from Rakuten’s (4755 JP) entry (as the roaming partner). DoCoMo is most affected but there are plenty of cost cutting opportunities. NTT (Nippon Telegraph & Telephone) (9432 JP) has optimistic guidance with substantial opex and capex cost cuts planned. Our order of preference for the stocks is now: KDDI (Buy), followed in order by NTT (Buy), SB Group (Buy), DoCoMo (Buy) and SB Corp (Neutral). We do not currently cover Rakuten.
5. HK Connect Discovery Weekly: CR Beer, Great Wall Motors, and Kingsoft (2019-01-07)
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainlanders in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.
In the past week, there were only three and a half days trading on the Hong Kong Stock Exchange last week. Hence the flow numbers were not as significant as a typical 5 trading day week. Having said that, we find it interesting that the Chinese were buying China Resources Beer Holdin (291 HK), Great Wall Motor Company (H) (2333 HK). In addition, Yichang Hec Changjiang Pharm (1558 HK) is a rare health care stock that experienced inflow last week despite overall poor sector performance last week.
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