In this briefing:
- China Tower: More Details on Non Telco Growth Suggest Further Upside to Share Price
- ASIC Review of Allocation in Equity Raising – Some Truths, Some Half-Truths – No Improvements
- StubWorld: Time For A BGF Setup? An Unlikely Boost for Kingboard
- A Golden Future?
- Uranium – About to Enter Its Own Nuclear Winter
1. China Tower: More Details on Non Telco Growth Suggest Further Upside to Share Price
After initially being very skeptical of the China Tower (788 HK) IPO given it is essentially a price take to its three largest shareholders, we changed our view in early December to a more positive outlook. What changed our view has been series of calls and meetings with the company that suggested a more shareholder friendly approach than expected and a real opportunity to reduce capex substantially through the use of “social resources” (e.g. electricity grid, local government sites). These can be used to deliver co-locations without building towers and poles and imply much lower capital intensity at a time when revenue growth will be accelerating as 5G is rolled out. Management has also given more detail on non-Tower business prospects which can generate higher returns (not under the Master Services Agreement). While small now (2% of revenue) they are growing rapidly. With lower capex than initially guided and a more shareholder friendly management (i.e. higher dividends are possible) we reduce the SOE discount and raise our forecasts (again). We remain at BUY with a new target price of HK$2.20
2. ASIC Review of Allocation in Equity Raising – Some Truths, Some Half-Truths – No Improvements
Over 2017-18, the Australian Securities & Investments Commission (ASIC) undertook a review of allocation in equity raising transactions. The review involved large and mid-sized licensees (brokers), Issuers, International investors and other international regulators. The results of the review were published by ASIC in Dec 2018. This insight highlights some of the key findings.
It’s good to see that some of the standard practices of banks allocating more to existing clients and participants of earlier deals have at least been acknowledged. Even though some institutional investors have outright labelled the allocation process as a “black box”, ASIC doesn’t seem to want to do much about it.
The area where ASIC is more concerned is the messaging to investors which highlights the different definitions of “well-covered” across banks. Although, the banks seem to have mislead the regulator on interpretation of “real-demand” with ECM bankers saying that all orders are taken at face-value. That raises a whole new level of questions on the messaging around demand for the deal.
3. StubWorld: Time For A BGF Setup? An Unlikely Boost for Kingboard
This week in StubWorld …
- With concerns over its tender offer for BGF Retail (282330 KS) now behind it, now may be the time for a BGF Co Ltd (027410 KS) setup.
- Kingboard Chemical (148 HK) gets a boost after buying properties from its major shareholder, however, the implied yield is uninspiring.
Preceding my comments on BGF and KBC are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed as a % – of at least 20%.
4. A Golden Future?
The ability to have stable prices has great value.
According to Edward Gibbon, the decaying Roman Empire exhibited five hallmarks: 1) concern with displaying affluence instead of building wealth; 2) obsession with sex; 3) freakish and sensationalistic art; 4) widening disparity between the rich and the poor; and 5) increased demand to live off the state. Most DMs and many EMs display similar symptoms today because fiscal and monetary policies, the foundation of both ancient and modern societies, are identical: increasing welfare outlays by artificially inflating the money supply. The Roman Empire took more than four centuries to destroy what the Republic had built in the previous five centuries because clipping and debasing coins inflated currency supplies slowly. Entering debits and credits in the books of commercial and central banks is much more efficient.
5. Uranium – About to Enter Its Own Nuclear Winter
- Quantifying nuclear statistics with substantial discrepancies
- LT contracts & speculative hoarding driving recent 40% spot price increase
- Primary/secondary Uranium supplies currently 112% of 2017 demand
- Uranium supply deficits extremely unlikely before 2022
- Global Uranium demand to fall 25-40% by 2050
- Primary Uranium sector LT SELL
We have independently audited global nuclear construction statistics in order to determine future Uranium demand. Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies. Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen <2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations. In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases. Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.
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