Event-Driven: LINE Corp, Jiangsu Expressway (H), Sohu.com Inc, Samsung Electronics Pref Shares, Samsung Electronics Pref Shares and more

In today’s briefing:

  • LINE (3938) – This Is Not the Kitchen Sink You Are Looking For
  • Chinese Expressways: A Step In The REIT Direction
  • Sohu – The Better Play on Sogou
  • Samsung Electronics – Preferred Shares Underperforming on Liquidity
  • Samsung 1P At -2.4σ & 16.2% Disc: Entry Point Despite Intel Factor?

LINE (3938) – This Is Not the Kitchen Sink You Are Looking For

By Travis Lundy

Since writing my two insights describing how I thought betting on a LINE bump was not the best trade out there in Bump-Land, I have received no small amount of pushback by investors who are long the bump trade. 

My response?   That’s what makes a market. 

Today, LINE Corp (3938 JP) announced its Q2 earnings, showing both a normal operating loss and additional extraordinary losses from write-downs. That will not encourage some and I expect there may be some accusations of LINE kitchen-sinking their earnings before a Special Committee (and this has its own issues) decides to revisit the fair price valuation through a re-valuation and an updated Fairness Opinion. 

For those worried about that, I offer the following:

More discussion below.

Previous insights related to this situation and the names involved are listed below.

Relevant Insights

DateAuthorTitle

About Cashless Payments

13 Mar 2019 Michael Causton  Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 
2 Apr 2019 Mio Kato, CFA  Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 
28 Jun 2019 Supun Walpola  Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 
6 Jan 2020 Michael Causton  Lawson and KDDI Join Forces in Cashless Payments War 
24 Jan 2020 Michael Causton  Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 
15 Feb 2020 Michael Causton  Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 
20 Mar 2020 Michael Causton  Some Resistance to Cashless Payments in Japan 
28 Apr 2020 Michael Causton  Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 
29 July 2020 Supun Walpola  Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 

About This Deal

14 Nov 2019Travis Lundy Z and LINE, Sitting in a Tree… M.E.R.G.I.N… G…? 
18 Nov 2019Travis Lundy LINE and Z, Sitting in a Tree… M.E.R.G.I.N.G! And a Tender Offer! 
26 Dec 2019Travis LundyNEW Deal for LINE (A Lot Like the Old Deal)
6 July 2020Travis Lundy Market Is Pricing a LINE Bump – Should It? 
22 July 2020travis Lundy A LINE Bump – The Other Argument Against 

Chinese Expressways: A Step In The REIT Direction

By David Blennerhassett

2020 has been a bumpy journey for Chinese toll roads. China’s State Council first increased the toll-free period over the Chinese New Year to 16 days, up from seven days in a normal year. This was followed by a directive from the Ministry of Transport such that charges for using the toll roads would be waived for users from the 17 February until a later date – an exemption which was finally lifted on the 6 May.

The sector was already being scrutinized after an ETC (E-Toll discount) policy was introduced in July of last year; and a truck toll charge implemented on the 1 January of this year, with respect to toll-by-weight compared to toll-by-vehicle.

Collectively, yield-starved investors have questioned the defensiveness of the sector. Shares are off 22% on average YTD, versus 12% for the HSI.

The New News

On the 30 April, the China Securities Regulatory Commission and the National Development and Reform Commission jointly announced (Chinese-only) a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), which are ostensibly a mechanism to fund infrastructure projects such highways and airports; and only for such infrastructure which has been operational for three years.  

Details are still to be fully fleshed out, not least how China’s complex tax regime will be addressed. But it is worth exploring which toll road companies may be best suited to being taken private and repackaged as a REIT.

What’s Original?

The CSRC and NDRC’s announcement of a pilot program for public infrastructure REITs opens the door for the potential restructuring of listed toll road companies.

This in-depth insight canvasses the key Chinese toll road operators listed in Hong Kong, and assesses which companies may be targeted for acquisition, from both a financial and regulatory perspective, to spearhead this new policy.


Sohu – The Better Play on Sogou

By Mio Kato, CFA

With Tencent making a non-binding offer for Sogou, both Sogou and major shareholder Sohu have seen their stock prices surge from depressed levels. In this insight we piggyback of David Blennerhassett’s suggestion that Sohu is worth another look. We strongly agree and actually feel this could be the better play on the Sogou acquisition than Sogou itself.


Samsung Electronics – Preferred Shares Underperforming on Liquidity

By Brian Freitas

Samsung Electronics has two classes of stock: ordinary shares Samsung Electronics (005930 KS) and the preferred shares Samsung Electronics Pref Shares (005935 KS). Typically, these two classes trade in a tight band and arbitrageurs move in when the ratio of the two securities reaches either end of the band.

Currently, the preferred shares are trading at the cheaper end of the short term band due to investors demanding liquidity and finding it on the common shares. This has been exacerbated by the jump in the stock price following Intel Corp (INTC US)‘s announcement that its 7nm chip technology was six months behind schedule and the market expects the company to outsource more chip manufacturing. 

We expect the preferred shares to outperform the ordinary shares in the near term by around 5% absolute.


Samsung 1P At -2.4σ & 16.2% Disc: Entry Point Despite Intel Factor?

By Sanghyun Park

Samsung 1P discount has soared lately.

It is now at 16.19%, which is close to the 120D high. It is getting near the 2-yr mean.

On a 20D MA, 1P is now at -2.4σ relative to the ordinary share. This much diversion? It is the widest YTD. 


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