Daily BriefsEvent-Driven

Event-Driven: SK Telecom, Yorkey Optical International Cayman, Kakao Pay, Cashrewards, Kirin Holdings, Falck Renewables SpA, Krafton Inc and more

In today’s briefing:

  • SK Telecom Post-Split Valuation Studies
  • Yorkey Optical (2788 HK): Time To Buy
  • Kakao Pay IPO – Bookbuilding Results Amid Insane Demand
  • Cashrewards (CRW AU)’s Offer Is 34% Below Last December’s IPO
  • Kirin: Holdco Discount Could Unwind As Institutional Investors Return Following Myanmar JV Troubles
  • IIF/Falck Renewables: Acquisition of Majority Stake
  • End of Lock-Ups for Kakao Bank, Krafton, SK IET, & HHI in 4Q 2021 and Increasing Short Volumes

SK Telecom Post-Split Valuation Studies

By Sanghyun Park

Post-split valuation will be an essential factor in determining whether to invest after SK Telecom’s relisting. From a short-term point of view, event trading will have the most significant impact on the share price, but whether the spin-off will unlock valuation soon after relisting is bound to emerge as the most crucial factor.

So, let’s take a look at each valuation of SK Telecom and SK Square. As shown below, each post-split company takes the following subsidiaries.

SK TelecomSK Square
SK BroadbandSK Hynix
SK TelinkADT Caps
PS&Marketing11st Street
F&S Credit InfoT Map Mobility
Service TopOne Store
Service AceContents Wavve
SK O&SDream Us Company
SK Planet
Nano N Tech
Spark Plus
SK Telecom CST1
SK Telecom TMT Investment
ID Quantique
Source: SK Telecom

Assuming the company’s equity-based split ratio (60.74% for SK Telecom and 39.26% for SK Square) reflects the fair value of both companies, post-split SK Telecom currently has a valuation of ₩13.61T and SK Square is valued at ₩8.80T.

ValuationSK TelecomSK Telecom, post-splitSK Square, post-split
Split ratio100.00%60.74%39.26%
Current market cap₩22.41T₩13.61T₩8.80T
Source: SK Telecom & KRX

Then, let’s examine whether these valuations properly reflect the intrinsic value of both companies. 

Yes, as you can imagine, SK Square is relatively much easier to value, given that it is essentially a holding company. Then, the key thing should be how we value the traditional telecom business (network operation + media) that will remain in SK Telecom.

Yorkey Optical (2788 HK): Time To Buy

By David Blennerhassett

When Yorkey Optical Intl Cayman (2788 HK announced an Offer on the 15 October, by way of a Scheme, from Asia Optical Co (3019 TT) at $0.88/share (not declared final), I wrote in Yorkey Optical (2788 HK)’s Scheme: What Will Webb Do? a bump in terms cannot be ruled out.

In Yorkey Optical (2788 HK): Webb Bumps… Will Asia Optical?, it became self-evident this required a bump from Asia Optical otherwise it was a non-starter. 

And now we have new information which makes me even more confident this needs a bump. And still shares trade well below terms. Get involved.

More below the fold. 

Kakao Pay IPO – Bookbuilding Results Amid Insane Demand

By Brian Freitas

A few hours ago, Kakao Pay (377300 KS) disclosed the results of its institutional book building and confirmed that the offer price has been set at KRW 90,000/share, the high end of the IPO range.

Bids came in for 16.03bn shares resulting in an oversubscription of 1714 times the shares offered to institutions with domestics outbidding foreign investors in terms of number of shares. Bids at or above KRW 90,000 came from 96% of the shares that were bid for.

Over 70% of the shares that were bid for came with lock-up commitments ranging from 1 month to 6 months. If the final allocations come in line with the bookbuilding results, there is no chance for the stock to be included in the MSCI Korea and FTSE All-World indices. A large part of the shares locked up could also result in KRX using a free float of less than 10% and this would preclude the entry of the stock in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX).

ESOP subscriptions will be open only on 25 October, while the subscription period for retail and institutional investors will run from 25-26 October. Payment date is 28 October and the stock is expected to list on 3 November.

Cashrewards (CRW AU)’s Offer Is 34% Below Last December’s IPO

By David Blennerhassett

Back on 13th July this year, Australia-based ready-made meal delivery company Youfoodz Holdings (YFZ AU) entered into a Scheme Implementation Deed with multinational meal-kit delivery company HelloFresh AG (HFG GR). This was discussed in Janaghan Jeyakumar, CFA‘s insight: Youfoodz (YFZ AU): HelloFresh’s Lowball Takeover Offer Difficult to Block But Not UnBumbable

The Offer Price of A$0.93/share was 38% lower than the IPO Price of A$1.50/share in December 2020. This was a friendly all-cash Deal. Or as Janaghan put it, a Rescue Offer. Shareholders approved the Offer at the Scheme Meeting on the 8 October. 

This brings us to online shopping rewards platform Cashrewards (CRW AU), which has announced it has entered into a Bid Implementation Deed with ANZ Bank’s innovation and investment arm 1835i Group.

The Offer price of A$1.135/share is a 19.5% premium to last close, but a 35% discount to its IPO price last December.

Nevertheless, the Offer has unanimous board support, and Andrew Clarke, Alium Capital & M&S Skyleisure, with 39.4%, will tender into the Offer, in the absence of a superior proposal. 1835i currently holds 19%.

This looks done. It may jog a competing Offer, but ANZ has an effective lock on the company.

Kirin: Holdco Discount Could Unwind As Institutional Investors Return Following Myanmar JV Troubles

By Oshadhi Kumarasiri

  • Kirin Holdings (2503 JP)’s share price has underperformed its peers, Asahi Group Holdings (2502 JP) and Sapporo Holdings (2501 JP) by 47.5% and 36.8% respectively during the last 10 months as big foreign funds such as Franklin Resources, Morgan Stanley and Canada Pension Plan Investment Board decided to trim their stakes, amidst human rights violation allegations regarding Kirin’s JV partner in Myanmar, Myanmar Economic Holdings (MEHL).
  • We expect Kirin to settle the matter with MEHL before February 2022. In addition, we expect the consumption of alcoholic beverages to increase following the complete removal of the state of emergency in Japan from the 1st of October 2021.
  • Meanwhile, institutional investors have started to increase their holdings over the last few months, perhaps in anticipation of a settlement for the Myanmar JV issues. We expect this change in investor sentiment to unwind Kirin’s holdco discount, which is currently at a multi-year low level.

IIF/Falck Renewables: Acquisition of Majority Stake

By Jesus Rodriguez Aguilar

Infrastructure Investments Fund, a vehicle advised by J.P. Morgan Investment Management, agreed to buy a 60% stake in Falck Renewables SpA (FKR IM) from Falck SpA, at €8.81/share. IIF is paying a premium of 29.2% to the 3-month VWAP. Deal authorization will be subject to Italian Government Golden Power, as the energy sector is deemed strategic. 

Deal value (for the 60% stake) is c. €1,529 million; the implied equity value is c. €2,548 million and the implied EV is €3,508 million. Multiples: 8x EV/Fwd revenue, vs. the 6.3x median of previous sector transactions and 7.1x at which comps are trading, 16.3x EV/Fwd EBITDA and 59.6x Fwd P/E. Interest for renewables is very strong with pension funds investing in both solar and wind farms as well as clean energies projects, which is leading to large M&A premiums.

IIF invests in infrastructure, with a focus on contracted energy assets and utilities. The deal will increase IIF’s exposure in the renewable energies since Falck Renewables has exposure to Italy, the United Kingdom, Germany, France and other countries.

Falck Renewables said the stake transaction should complete by end of Q1 2022. Upon closing of the transaction, IIF will launch a mandatory cash tender offer for Falck Renewables’s remaining share capital at €8.81/share, with the intention to delist the company.

Fair valuation (multiples based) is €6.73/share, the level at which the share was trading prior to the deal announcement. On this basis, the premium offered implies a full price, in my view, and the market believes the deal will complete. The deal authorization will be subject to Italian Government Golden Power, as the energy sector is deemed strategic.

On 20 October, Falck Renewables closed 14% higher. Gross spread is an unexciting 1.4% for a mandatory offer that could take up to a year to complete.

End of Lock-Ups for Kakao Bank, Krafton, SK IET, & HHI in 4Q 2021 and Increasing Short Volumes

By Douglas Kim

In this insight, we discuss the end of lock-up periods for Hyundai Heavy Industries (329180 KS)SK IE Technology (361610 KS), Krafton Inc (259960 KS), and KakaoBank (323410 KS) in 4Q 2021 and 1Q 2022. 

  • In particular, there are lock up periods ending for these four stocks in November and December.
  • There are also end of lock-up periods for Krafton and Kakao Bank in early February 2022.
  • Typically, investors tend to focus on the end of the lock-up periods in Korea about 1-2 months ahead of the actual end of these lock-up periods.

In addition to analyzing the end of these lock-up periods, we analyze the recent shorts balance of these stocks in recent weeks. 

  • Although Kakao Bank’s share price has performed well since the IPO (up 54% from IPO price), its share price is down 22% from the end of the one month lock-up period. The amount of shares that could be sold after the end of the three months and six months lock-up periods are much bigger (18.3 million shares combined) as compared to the 3.1 million shares that could be sold after the one month lock-up period. Therefore, there are continued concerns about additional selling of Kakao Bank shares in November (after the end of the three months lock-up period).
  • Krafton’s share price has not performed well after the IPO (down 2% from the IPO price of 498,000 won). With the upcoming end of the 3 month lock-up period, there could be continued negative pressure for additional selling from the existing shareholders.

Before it’s here, it’s on Smartkarma