In this briefing:
- M1 Offer Coming – Market Odds Suggest a Bump But…
- Tesla: Down to the Wire
- Tesla Motors Inc: Come Hell or High Water
- FutureBright (703 HK): Typhoon Dampens 3Q Results
- Hyosung Holdings: 10%p Drop in Discount to NAV Should Be Reverted Soon
1. M1 Offer Coming – Market Odds Suggest a Bump But…
Singapore telecom firm M1 announced on the 28th of December 2018 that Konnectivity Pte. Ltd. (a company jointly owned by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP)) had made a Voluntary Conditional General Offer following the satisfaction of the pre-condition (IMDA approval) mentioned in the pre-conditional offer made in September.
The offer is to buy a minimum of 16.69% of the total share capital of M1 at a price of S$2.06 in order to increase the collective holding of the acquirer and its related parties from the current level of 33.32% to 50+% of fully-diluted shares (current shares out + 26.826mm Options + ~2.1mm Award shares).
The Offerors will buy all shares tendered if they get to a minimum of 50+%.
The other terms and conditions of this deal will be set out in the offer document which is expected to be despatched in mid-January 2019 (14-21 days from 28 December).
The offer price of S$2.06 translated to a premium of 26.4% to the undisturbed price before the trading halt for the pre-conditional offer. At the time of writing, the stock is trading at S$2.10 which is higher than the proposed Offer Price, indicating the market is expecting a bump or an overbid.
We’ll see.
2. Tesla: Down to the Wire
With the fourth quarter just a few hours from closing, CEO Elon Musk says he is keeping Tesla Motors (TSLA US) stores open until midnight so buyers can still get the coveted $7,500 tax credit on a new car before it gets cut in half January 1st.
This is interesting since Tesla started warning months ago that buyers need to order by October to be guaranteed delivery by December 31st since said demand was purportedly so hot the company couldn’t make its cars fast enough. It remains to be seen how many early birds rushed in, because as time passed that deadline has been extended through November and then December. I snapped this from Tesla’s website yesterday:
The takeaway here is that despite months of extraordianary sales efforts, price erosion, and declining production, Tesla’s inventory remains troublingly bloated, conditions I warned about in the third quarter as accelerating threats for the fourth quartert and likely through 2019 (see my report “Great Magic Trick Tesla; Now Do It Again,” 11/29/18).
Monthly sales trends for October and November also signalled that Tesla needs strong December performance if it still hopes to meet ambitious guidance for profits and free cash flow the company desparately needs to generate sufficiently sustainable cash flow to support operations plus hefty nearterm debt maturities, much less its burgeoning R&D and capex obligations where it’s already fallen behind.
Otherwise Tesla is likely to get really creative, again, with accounting and cash managment strategies to keep up the illusion of progress and stability.
Read more as Bond Angle Analysis continues.
3. Tesla Motors Inc: Come Hell or High Water
It is our view, that come hell or high-water, in 2019, Tesla Motors (TSLA US) will establish itself as the pre-eminent large-cap growth stock. Those that are short would cover the position at a loss and those that are long are looking at another Apple Inc (AAPL US) or Amazon.com Inc (AMZN US) in the making. The ride may be volatile, but will be worth it.
4. FutureBright (703 HK): Typhoon Dampens 3Q Results
We recently met with management to discuss the company’s 3Q results and outlook for the coming year.
There was clear disappointment that goals for 2018 had not been achieved: rising opex dampened the recovery in EBITDA, despite solid SSSg, the Hengqin Land sale is racked with yet further delays, and the key rental property is still untenanted. That said, we feel much of the frustration is due to positive outcomes on all front being just around the corner.
This note aims to give a brief update on the key pillars forming our thesis.
5. Hyosung Holdings: 10%p Drop in Discount to NAV Should Be Reverted Soon
- Hyosung Corporation (004800 KS) had fallen 16% just in two days. Holdco is now at a 50% discount to NAV. This is a 10%p drop from 10 days ago (Dec 19). Holdco price must have been overly corrected. The ongoing police investigation on Cho Hyun-joon’s alleged crime won’t lead to a delisting. 10%p drop in discount to NAV must be a price divergence, not a sensible price correction.
- Trade volume remained steady. Local hedge funds led the selling on Dec 27. Even they changed their position the following day. No short selling spike has been seen either. Hyosung is one of the highest yielding div holdco stocks. Hyosung Capital liquidation and Anyang Plant revaluation would be another short-term plus.
- I’d exploit this price divergence. It would soon revert to the Dec 19 discount level. It should at least stay at the peer average.
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