In this briefing:
- New Pride Rights Offer: Tempting but Tricky
- LG Chem Share Class: Another Pref to Watch as Div Yield Gap at 4Y High
- Daelim Industrial Share Class: One of Prefs to Arb Trade on Div Payout Record Date
- Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
- Singapore REIT – Preferred Picks 2019
1. New Pride Rights Offer: Tempting but Tricky
- New Pride Corp (900100 KS) announced a ₩36.2bil rights offer. This is a public offering, so there won’t be subscription rights to trade. Pricing will be done as 3-day VWAP on Jan 9~11 at a 30% discount.
- Supposedly, we can have ample opportunity to arb trade. This may be what the company is hoping. Simply, we wait until Jan 16~17 (subscription period) and see the spread. At this much discount, there must be a huge spread opening.
- Proration risk can be much more annoying than a usual stockholder offering. In the previous public offering event by New Pride, subscription rate went as high as 370 to 1. It should be way much lower this time. But still this is risky enough.
2. LG Chem Share Class: Another Pref to Watch as Div Yield Gap at 4Y High
- LG Chem Ltd (051910 KS) 1P is now at a 44.20% discount to Common. Div would be the same as last year of ₩6,000 despite lower earnings. Payout would be 28%. Div yield for Common will be 1.68%, and 3.03% for 1P. Div yield difference stands at 1.35%p. This is a record high at least since 2014.
- 1P’s discount to Common is hovering at the highest level in 2 years. On a 20D MA, it is close to +1 σ. It may not be tempting enough for those seeking high yields. Otherwise, this’d be worth giving it a shot. Liquidity shouldn’t be an issue. Short recovering risk on Common also appears to be limited.
3. Daelim Industrial Share Class: One of Prefs to Arb Trade on Div Payout Record Date
- Daelim Industrial (000210 KS) is one of the main targets of local activist movement. This makes a setting for higher dividends. Common div yield to 1.58% and Pref to 4.18%. Difference is 2.59%p. This is the widest gap in many years.
- Pref is currently at a 60.89% discount to Common. Among those > ₩100bil MC prefs, it is the second highest discounted pref, only behind CJ Cheiljedang 1P (097955 KS). Local street expects at least ₩1,600 div per share. This should be a conservative estimate. On a 20D MA, Pref is above +1 σ.
- Dec 26 is record date of dividend payout. I expect a price catchup movement tomorrow in favor of Pref. I’d go long Pref and short Common as early in the morning as possible.
4. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
Highlights of significant recent happenings include:
- Feeding the Dragon – Sumitomo Corp (8053 JP) buying into massive Chile copper project; Mitsui & Co Ltd (8031 JP) and Tokyo Gas (9531 JP) announced plans to be long-term buyers of Mexican LNG.
- Local News on Global Companies – Huawei Technology (40978Z CH)‘s to do “whatever is required” to meet Canada’s 5G security standards; Ant Financial (1051260D CH)’s Sesame Credit be used to apply for Canadian visas; Facebook Inc A (FB US) offered data to Netflix Inc (NFLX US) and Royal Bank Of Canada (RY CN); BlackBerry Ltd (BB CN)‘s high-security reputation increasingly valuable; Fedex Corp (FDX US) and United Parcel Service Cl B (UPS US) deny negative impact from Amazon.com Inc (AMZN US)‘s Amazon Air operations; and Anheuser Busch Inbev Sa (Adr) (BUD US) and Tilray Inc (TLRY US) are doing “joint” product development.
- Trade Deals & No Deals – Bosideng Intl Hldgs (3998 HK) got an unexpected boost, while Canada Goose Holdings (GOOS CN) took an unexpected hit as a consequence of the U.S.A. Government’s problems with Huawei Technology (40978Z CH) .
- Outliers – Another “silver lining” to global warming? The Warming Arctic Opens the Northwest Passage as a Potential Maritime Superhighway
5. Singapore REIT – Preferred Picks 2019
With the FTSE ST REIT index’s decline of 9.3% year-to-date, value has emerged for some of the bellwether names in the Singapore REITs sector. The forward yield spread between these REITs and the Singapore government 10-year bond yield (2.13%) currently stand at least 390 basis points. In view of the increasing concerns over global economic growth, rising interest rates and the ongoing trade tension between the US and China, I present three quality REITs with fortified portfolios that are well-positioned to weather the near-term market uncertainties. They possess growth potential from acquisitions, positive rental reversions and deliver resilient forward distribution yield of more than 6%. Some of the bellwether names in the more resilient retail REIT sector, while offering lower yield of around 5.0% – 5.7%, are also in my buy list.
