Daily BriefsEvent-Driven

Event-Driven: Matsumotokiyoshi Holdings Co., Ltd., Z Energy Ltd, Meituan, SK Telecom, zooplus AG and more

In today’s briefing:

  • MSCI Nov 2021 Index Rebalance Preview: On Your Marks, Get Set…
  • Z Energy (ZEL NZ) Enters Into Scheme With Ampol
  • Ampol Enters a Binding SIA to Acquire Z Energy
  • Meituan Fined RMB3.44bn; Expect Short-Term Gains with Positive Shift in Sentiment
  • SK Square & SK Telecom – Sensitivity Analysis of Dividend Payments & Yields
  • Hellman & Friedman Matches EQT in Contest for Zooplus AG

MSCI Nov 2021 Index Rebalance Preview: On Your Marks, Get Set…

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October, so we have just a week more of trading before we have a better idea of what the changes could be.

Stocks with the largest estimated passive inflows are Mitsui Osk Lines (9104 JP)Taiyo Yuden (6976 JP), Matsumotokiyoshi Holdings Co., Ltd. (3088 JP), Ememory Technology (3529 TT)Godrej Properties (GPL IN), Srf Ltd (SRF IN), Parade Technologies (4966 TT), Open House (3288 JP), IDP Education (IEL AU) and Krafton Inc (259960 KS).

Stocks with the largest estimated passive outflows are United Urban Investment (8960 JP), Nabtesco Corp (6268 JP), Casio Computer (6952 JP), A2 Milk Co Ltd (ATM NZ), Stanley Electric (6923 JP), Tohoku Electric Power Co (9506 JP), Nh Foods Ltd (2282 JP), Toho Gas Co Ltd (9533 JP), Yamada Denki (9831 JP), AGL Energy Ltd (AGL AU), Pigeon Corp (7956 JP) and NSK Ltd (6471 JP).

Stocks that are expected to have the largest impact (in terms of ADV) from passive buying are Voltronic Power Technology (6409 TT), Matsumotokiyoshi Holdings Co., Ltd. (3088 JP), Inari Amertron (INRI MK), CRRC Corp Ltd H (1766 HK), Open House (3288 JP), AC Energy Corp (ACEN PM), IDP Education (IEL AU), Benefit One Inc (2412 JP), Parade Technologies (4966 TT) and Mphasis Ltd (MPHL IN).

Stocks that are expected to have the largest impact (in terms of ADV) from passive selling are MCB Bank Ltd (MCB PA), A2 Milk Co Ltd (ATM NZ), Shenzhen Investment (604 HK), United Urban Investment (8960 JP), Lucky Cement (LUCK PA), Chongqing Rural Commercial Bank (3618 HK), Toho Gas Co Ltd (9533 JP), China Everbright (165 HK), Ipca Laboratories (IPCA IN), China Resources Pharmaceutical (3320 HK) and Habib Bank Ltd (HBL PA).

Recent listings that could be added to the MSCI Standard index are Krafton Inc (259960 KS)Bukalapak (BUKA IJ)Monde Nissin Corp (MONDE PM) and Zomato (ZOMATO IN).

Z Energy (ZEL NZ) Enters Into Scheme With Ampol

By David Blennerhassett

Back on the 23 August, Kiwi fuel distributor Z Energy Ltd (ZEL NZ) announced it had received a non-binding indicative acquisition proposal from Ampol (ALD AU). The Offer of NZ$3.78/share, by way of a Scheme, was a 22% premium to the last closing price, although in Ampol’s separate announcement, the Offer price was a 35% premium to the last close on the 26 July, the day prior to the first press speculation of corporate activity. 

Ampol was granted four weeks of exclusive due diligence. On the 27 September, the DD was extended by a further two weeks. There were rumours in the local press, such as the New Zealand Sun, that Ampol may up its bid to NZ$4/share.

The New News

ZEL and Ampol have now announced a binding Scheme of Arrangement under which ZEL shareholders would receive $3.78/share plus NZ$0.05/share in dividends – or NZ$3.83/share all-in. ZEL shareholders will also be entitled to a further NZ$0.10/share in dividends if the takeover is not completed by the end of March.

The proposal remains subject to approvals from ZEL’s shareholders, and both the New Zealand Commerce Commission and the New Zealand Overseas Investment Office. It is also conditional on the transition of the Marsden Point fuel refinery to an import-only terminal.

Ampol has committed to a full divestment of its Gull service stations in New Zealand to address potential competition issues.

This looks done. OIO approval will likely be the biggest sticking point, although Ampol is already in the good books after receiving OIO approval back in 2017 in its acquisition of Gull.

The shareholder meeting to vote on the Scheme is expected to be held early in 2022 with the transaction expected to be wrapped up in the 1H22. 

Ampol Enters a Binding SIA to Acquire Z Energy

By Arun George

Z Energy Ltd (ZEL NZ) is a fuel distribution and retailing business which owns and manages over 300 fuel stations in New Zealand under the Z and Caltex brands. Z Energy is the market leader in New Zealand and sells 40% of all fuel volumes across New Zealand. 

Z Energy entered into a binding scheme implementation agreement with Caltex Australia (ALD AU)/Ampol. Ampol will offer NZ$3.78 per share, which is unchanged from Ampol’s non-binding indicative proposal revealed on 23 August. Ampol has sweetened its bid by also allowing Z Energy to pay a NZ$0.05 per share interim FY22 dividend. Consistent with the previous proposal, the offer continues to include an adjustment mechanism to pay NZ0.055 cents per share per day for each day the transaction extends beyond 31 March 2022, up to a limit of NZ10 cents per share.

The total offer price of NZ$3.83 per share represents a 24% premium to the share price on 12 August (prior to receipt of the proposal), a 37% premium to the share price on 26 July (prior to media speculation regarding a bid) and a 48% premium to the share price on 1 June (prior to Ampol’s first rejected proposal).

The key conditions are Z Energy shareholder approval and regulatory approvals from the New Zealand Commerce Commission (NZCC) and New Zealand Overseas Investment Office (OIO). Ampol is committed to the full divestment of Gull (trade sale or IPO) to secure NZCC approval. Ampol has agreed a set of commitments with Z Energy to help it secure OIO approval. Deal completion is targeted for 1H22. 

As highlighted in Ampol Lobs an Offer for Z Energy, the Board had rejected Ampol’s previous three offers as they did not represent compelling value. Ampol’s total final offer price of NZ$3.83 is a premium to historical EV/EBITDA multiples and post-COVID-19 share prices. Overall, we think Ampol’s final offer will succeed. At the last close price of NZ$3.61, Z Energy’s shares are trading at a 6.1% gross spread to the total offer price.

Meituan Fined RMB3.44bn; Expect Short-Term Gains with Positive Shift in Sentiment

By Shifara Samsudeen, ACMA, CGMA

The Chinese food delivery giant Meituan (3690 HK) was imposed an antitrust fine of US$534m (RMB3.44bn) on Friday (8th October) for abusing its dominant market position and also ordered to make changes to its business operations. According to the regulators, Meituan was found guilty of pushing merchants to sign exclusive agreements (known as Picking One from Two) with the company and required them to only cooperate with the company and not with any of its rivals taking advantage of its market dominant position. In early August, several news media outlets reported that the antitrust regulators were planning to impose a fine of about US$1bn on the company, and the fine of RMB3.44bn accounts for 3.0% of Meituan’s FY03/2021 revenues of RMB115bn.

This all began when China’s State Administration for Market Regulation (SAMR) launched a probe on Alibaba over its suspected monopolistic practices in December last year. The investigation on Alibaba was concluded on 10th April and the company was fined RMB18.2bn (3.6% of its consolidated FY2020 revenues) for breaching anti-monopoly rules where investigations revealed that Alibaba was abusing its market dominance to prevent other merchants from using other platforms since 2015.

In our previous insight, we highlighted that Meituan was unlikely to be fined anything more than Alibaba’s antitrust fine and mentioned that Meituan would be imposed a fine of around 3-3.5% of its FY2020 revenues (around RMB3.4-4.0bn).

SK Square & SK Telecom – Sensitivity Analysis of Dividend Payments & Yields

By Douglas Kim

In this insight, we provide a detailed sensitivity analysis of the dividend payments and yields of SK Square and SK Telecom on a post split basis. 

SK Square – In the next 2 to 3 years, we expect SK Square to focus on growth and investments rather than on dividends. In our view, the dividend yield for SK Square is likely to be about 1.0-1.4% in the next 2-3 years. SK Square’s focus is likely to be growth and investments rather than paying out high dividends. 

SK Telecom – Overall, we believe that the higher probability scenario is for SK Telecom’s dividend yield to become more competitive with its biggest competitor KT Corp so SK Telecom’s dividend yield is likely to rise to about 4.0% to 4.5% range, in our view. For many dividend seeking investors, dividend yield of 4.0% to 4.5% combined with SK Telecom’s increasing economies of scale of 5G business would be quite attractive indeed.

The dividend guidance that SK Telecom has provided is that the dividends for SKT (existing entity) will be within a range of 30% to 40% of its EBITDA minus CapEx. We estimate SK Telecom to have EBITDA – CapEx of 2.0 trillion won in 2021 and 2.4 trillion won in 2022.  

If we assume the SK Telecom will generate EBITDA – CapEx of 2.0 trillion won in 2021, a 30% of this amount would be 610.7 billion won and a 35% would be worth 712.5 billion won.

Hellman & Friedman Matches EQT in Contest for Zooplus AG

By Jesus Rodriguez Aguilar

On 7 October, Hellman & Friedman (H&F) matched EQT’s €470/share offer for zooplus AG (ZO1 GR), for an implied equity value of c. €3,360 mn. H&F recovers the leading position, as it already counted with the support of the Board of zooplus AG, as well as irrevocable undertakings for c. 17% of zooplus AG’ share capital. Those supports include the Management Board Members and Maxburg Beteiligungen GmbH & Co. KG, a longstanding key investor in zooplus AG who is also represented on its Supervisory Board. Those commitments remain therefore binding. The acceptance period for H&F’s offer will therefore be extended to 3 November.

The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E.
EQT will therefore probably have to better its bid to reach its minimum acceptance condition (50% plus one share). The market certainly expects an increased offer, as the shares closed at €483.2 on 8 October, c. 2.8% above the current bid; Capital IQ consensus 2022e CF yield is 2.4%.

zooplus AG is trading at 1.5x EV/Fwd Sales vs. 1.3x for comparables (median of e-commerce companies). I do not discard a further offer by EQT, but if that happened, it would be a small price increase. Although the private equity battle over zooplus AG is not over yet, the risk reward is looking unfavourable, in my view.

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