In today’s briefing:
- Samsung C&T Shareholder Return: Directly Related to Lee Family’s Inheritax Tax Issue
- UBTECH ROBOTICS IPO: Bad Idea
- A Pair Trade Between Samsung C&T and Samsung Electronics Amid Big Share Cancellation at Samsung C&T
- Keppel (KEP SP): Keppel O&M/Sembcorp Marine Transaction Moves Towards Completion
- Toyo Construction (1890 JP): The Board Uses the Smokescreen of a Special Committee
- EQT/Va-Q-Tec: Deal Will Complete
- Orient Overseas Intl (316 HK): Still Not Too Late to Be Bearish
- Pentamaster Corp: In The (EV) Driver’s Seat
Samsung C&T Shareholder Return: Directly Related to Lee Family’s Inheritax Tax Issue
- The target volume is 24,718,099 ordinary shares (13.2%) and 159,835 preferred shares (9.8%). That is, C&T will cancel all of its treasury shares in the next five years.
- C&T’s decision to cancel treasury shares clearly indicates that the family’s fundraising strategy is focused on stake sales rather than dividend increases.
- The number of shares inherited will be the volume Lee Seo-hyun will sell in the short term as this is within the range that minimizes the tax liability through LIFO.
UBTECH ROBOTICS IPO: Bad Idea
- UBTech Robotics (1683374D HK) is engaged in smart service robotics solutions in China and has filed for an IPO on the Hong Kong Stock Exchange.
- Though the company operates across a number of business segments, the growth prospects seems limited for most of these businesses.
- UBTECH’s cashflow and liquidity also seems to be getting drained as the company needs to spend heavily on R&D and marketing to keep up with constantly evolving technology.
A Pair Trade Between Samsung C&T and Samsung Electronics Amid Big Share Cancellation at Samsung C&T
- Samsung C&T announced the cancellation of its entire treasury shares over the next five years. It has 24.7 million shares of common shares (accounting for 13.2% of common shares outstanding).
- We like a pair trade between Samsung C&T (go long) and Samsung Electronics (go short). Samsung C&T’s share cancellation is likely to have a positive impact on its shares.
- The recent sell-down of most of its shares in TSMC by Berkshire Hathaway is also likely to be viewed negatively by some investors in Samsung Electronics.
Keppel (KEP SP): Keppel O&M/Sembcorp Marine Transaction Moves Towards Completion
- Sembcorp Marine (SMM SP) shareholders voted overwhelmingly for the merger between Keppel O&M and Sembcorp Marine. The transaction is expected to close by 28 February.
- The divestment of Keppel O&M will further move Keppel Corp (KEP SP) towards a more asset-light and recurring earnings model, providing a helpful tailwind to hit its 15% ROE target.
- Pre-Dividend in specie distribution, our Keppel SoTP valuation based on Sembcorp Marine’s reference issue price (S$0.122) and last close (S$0.136) is S$8.49 and S$8.72 per share, respectively.
Toyo Construction (1890 JP): The Board Uses the Smokescreen of a Special Committee
- Toyo Construction (1890 JP) will set up a special committee to evaluate YFO’s JPY1,100 offer. The Board will decide “after respecting the content of the decision of the special committee.”
- YFO rightly points out the special committee is a ruse and is an attempt by the Board to demonstrate ‘a fair process’ for the predictable decision to reject its proposal.
- The Board’s anxious move shows that protracted conflict is shifting in favour of YFO. At the last close, the gross spread to the tender offer is 10.3%.
EQT/Va-Q-Tec: Deal Will Complete
- The offer price is attractive for shareholders, even more so following an enthusiastic recommendation from the Board and a profit warning during the acceptance period.
- The main hurdle was always the acceptance rate, but at 62.46% on the last count, it is just shy of the minimum threshold condition of 62.5%.
- Some shareholders may feel tempted to explore the benefits of a domination agreement (as in participating in future synergies, with liquidity risk). Spread (gross/annualised) is 1.73%/6.11%. Long and tender.
Orient Overseas Intl (316 HK): Still Not Too Late to Be Bearish
- We believe the 11.4% decline in share price of Orient Overseas International (316 HK) YTD is not sufficient to reflect the plunge in freight rate and weakened load performance.
- Its 4Q22 average revenue/TEU of US$1,822.3 has returned to 2Q21 level; but with latest spot rate already plunged to early-2020 times, there is further downside for OOIL’s realised rate.
- Export outlook is uninspiring as well, indicating pressure on demand. With similar ROE, OOIL only trades at 0.3x P/B in FY20, that makes its current P/B of 0.9x expensive.
Pentamaster Corp: In The (EV) Driver’s Seat
- Automation systems play Pentamaster Corp (PENT MK) expects the supply of semiconductors testers to the electric vehicle business will be key growth driver in 2023.
- PENT estimates half of the orders for its semiconductor testers will be sourced from the EV segment, generating ~40% of the group’s revenue.
- PENT is a curious stock in which its pseudo dual-listed twin trades under Pentamaster International (1665 HK), but at a significant discount.
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