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Most Read: Celltrion Healthcare, Tencent, Fuyao Glass Industry Group, Japara Healthcare, Aggreko PLC and more

In today’s briefing:

  • Korea Short Selling: Service Resumes Monday
  • Tencent: Regulators Probe TME’s Previous Deals; The Battering Has Just Begun
  • Fuyao Glass Placement – Expected Deal but Expensive Valuation
  • Japara Healthcare (JHC AU): Here Comes The Calvary
  • Aggreko: Shareholders’ Meeting, Spread Turned Positive

Korea Short Selling: Service Resumes Monday

By Brian Freitas

Normal service resumes for short selling in Korea from Monday, 3 May – but will be limited to constituent stocks of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX).

Short interest in the KOSPI and KOSDAQ markets have plummeted as the indices have rallied. We highlight stocks that have seen the largest short covering and have exhibited patterns that stand out – rapid price rises as short interest drops followed by price drops as short interest flatlines.

Other stocks that will be in the spotlight are potential deletions from the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX), KOSDAQ 150 Index (KOSDQ150 INDEX) and MSCI indices that will be announced in the next few weeks and implemented a few weeks after the announcement.

Preferred stocks that are trading at a deep discount to the ordinary shares and near their widest levels will also be on the radar since the ordinary shares can be short sold while the preferred shares will not be short sell eligible.

Tencent: Regulators Probe TME’s Previous Deals; The Battering Has Just Begun

By Shifara Samsudeen, ACMA, CGMA

Reuters reported yesterday that the State Administration of Market Regulation (SAMR) in China is preparing a substantial fine for Tencent Holdings (700 HK)  as part of its ongoing antitrust probe.

The SAMR imposed a fine of RMB18.2bn on Alibaba for violating anti-monopoly rules and abusing its market dominant position on 10th April. Reuters states that the fine on Tencent will be less than that which was imposed on Alibaba, but that Tencent should expect a penalty of at least RMB10bn.

The antitrust investigation on Tencent is partly focused on its past acquisitions and investments while other areas include anticompetitive practices in some of its businesses with a particular focus on Tencent Music Entertainment (TME).

In our previous insight Tencent: Only Fintech Restructuring or Losing the Edge on WeChat User Data? , we highlighted that Tencent’s past M&A deals could attract regulatory scrutiny and in March 2021, the company was fined RMB500k for its investment in online education app Yuanfudao in 2018 for not seeking prior approval for the deal, which was in violation of the country’s anti-monopoly laws. The fines for not properly reporting past M&A deals are capped at RMB500k per case in China.

Fuyao Glass Placement – Expected Deal but Expensive Valuation

By Zhen Zhou, Toh

Fuyao Glass Industry Group (3606 HK) is looking to raise about US$559m in its primary placement.

In this note, we will share our thoughts on deal dynamics, its valuation relative to peers and historical average, and discuss the scores on our ECM framework. 

Japara Healthcare (JHC AU): Here Comes The Calvary

By David Blennerhassett

An Australian Royal Commission on aged care providers was issued on the 26 February 2021 with 148 recommendations to address what was deemed a weak and ineffective regulatory arrangement, including a new aged care act, the introduction of a system of star rating system for facilities, and some form of aged care levy for the funding of the system. The government also made an initial pledged of $452mn in additional funding.

The share price reaction to the report from the three key aged-care Aussie listed operators – Regis Healthcare (REG AU), Estia Health (EHE AU), and Japara Healthcare (JHC AU) – was largely one of “meh”. Nevertheless, the ongoing speculation as to the Royal Commission findings, in tandem with COVID, had resulted in Japara’s shares trading down 75% in the last five, and ~60% a-piece for Regis and Estia in the same time frame, at that time.

Neither company, to date, has comprehensively addressed the conclusions of the report.

The New News

JHC announced this morning it had received an unsolicited, indicative, conditional, and non-binding Offer from Little Company of Mary Health Care – otherwise known as Calvary – by way of a Scheme, at A$1.04/share.

JHC said it is reviewing its options.

My initial reaction is that this is an opportunistic bid. This is the third Offer in this space in the last year. Metlifecare Ltd (MET NZ) was eventually taken private.  Regis fielded an Offer from its co-founder and Washington H. Soul Pattinson And Co. (SOL AU) in September last year, which was subsequently withdrawn, despite a bump in terms. Regis has outperformed the market since.

More below the fold.

Aggreko: Shareholders’ Meeting, Spread Turned Positive

By Jesus Rodriguez Aguilar

The resolution to approve the scheme for the recommended cash acquisition of Aggreko PLC (AGK LN) was passed at the Court Meeting and the special resolution to implement it was passed at the EGM. Still awaiting antitrust clearance and foreign investment clearance.

In the meantime, there has no been further news of interloper risk (Platinum Equity was mentioned by Bloomberg in early March) and no further news regarding shareholders opposing the deal. Thus spread (negative at the time of my last Insight Aggreko – PE Consortium: Recommended Cash Acquisition) has been steadily decreasing and is now positive.

This, I believe, is a great outcome for the shareholders of Aggreko, as the charts below show.

The offer price represents 20x Fwd P/E, above its 10 year average of 16.1x, and 14.1x EV/EBITA, again above 10 year average of 9.9x (source: Capital IQ consensus).

Gross spread is 2%, c. 8% annualised assuming a 3 month completion (although it is expected to become effective at the beginning of Q3). Recommendation is long Aggreko, TP 880p.

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