In this briefing:
- Maoyan Entertainment IPO: The Trouble with Blockbusters
- Jeans Mate Posts a Profit at Last
- JD.com (JD): Lawsuit Over, Price Falling Back to First Trading Day, Defensive in Bear Market
- Nongshim Holdings Stub Trade: Time for Holdco To Catch Up
- M1 Offer Coming – Market Odds Suggest a Bump But…
1. Maoyan Entertainment IPO: The Trouble with Blockbusters
Maoyan Entertainment, formerly Entertainment Plus (EPLUS HK), is the largest online movie ticketing service provider in China. According to press reports, Maoyan has started pre-marketing to raise $0.3 billion (down from earlier indication of $0.5-1.0 billion) through a Hong Kong IPO. Maoyan is backed by Beijing Enlight Media (300251 CH) (20.0% shareholder), Tencent Holdings (700 HK) (16.3% shareholder) and Meituan Dianping (3690 HK) (8.6% shareholder).
Maoyan is yet another proxy in the battle between Tencent and Alibaba Group Holding (BABA US). However, we believe that challenges abound for Maoyan and would be cautious about participating in the IPO.
2. Jeans Mate Posts a Profit at Last
While Rizap Group (2928 JP) has seen its share price crash and its CEO bow in apology after profit warnings and a plan to radically cut back on M&A, Jeans Mate Corp (7448 JP), which Rizap acquired last year, has quickly moved to modernise stores. It has just replaced its Shibuya store with a new concept called JEM that could mean the end of the Jeans Mate name altogether and posted its first operating profit in years. While many of Rizap’s acquisitions were dubious, Jeans Mate is one business that could be turned around into a modestly successful casual apparel retailer.
3. JD.com (JD): Lawsuit Over, Price Falling Back to First Trading Day, Defensive in Bear Market
- Minnesotan Authorities declined to charge the founder of JD.
- JD’s stock price has already plunged 52% in 2018. We believe JD is a defensive equity for portfolios, as the NASDAQ Composite just plunged 50% at most in the financial crisis of 2008.
- Compared to 2014, today’s JD has a higher market share in the larger e-commerce market. However, JD’s stock price is at the same level as the first trading day in 2014.
- JD continued to generate operating cash inflows in 2018 as previous years despite of its zero net margins.
- We are not concerned about the programmer layoff in December, as we believe JD overly invested in “hi-tech” that will not bring revenues in the near future.
- Based on historical Price / GMV, we believe there is an upside of 270% for JD’s stock price.
4. Nongshim Holdings Stub Trade: Time for Holdco To Catch Up
- Nongshim Co Ltd (004370 KS) is responsible for 70% of Nong Shim Holdings Co (072710 KS) NAV. Holdco is currently at a 54% discount to NAV. This is a 2 year low.
- Thanks to improved Korea-China relation, Opco (004320 KS) shares have nicely rebounded lately. Nongshim Holdco hasn’t caught up. This created the highest price ratio gap in 2 years. On a 20D MA, they are close to the mean. But on a 2 year mean, Holdco is currently and still severely undervalued.
- Liquidity has played a major role in the recent price gap widening. At a rebounding cycle like this, liquidity must have been a huge factor. But it shouldn’t be too long until Holdco catches up. Opco has kinda drifted sideways for a while now. This should be time for Holdco to begin a catchup.
5. 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.
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