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Most Read: Dragon Crown Group, Ishares Esg Aware Msci Usa, Wynn Macau Ltd, SK Telecom, Samsung Electronics and more

In today’s briefing:

  • Dragon Crown (935 HK)’s VGO Is A Done Deal
  • ESG Funds & Indices: Do They Really Outperform?
  • Wynn Macau (1128 HK) – Gaming Law Revisions and Impact on Financial Covenants
  • SK Square & SK Telecom – Valuation Analysis Post Split
  • Lee Family to Sell 2.2 Trillion Won Worth of Samsung Group Affiliates to Pay for Inheritance Tax

Dragon Crown (935 HK)’s VGO Is A Done Deal

By David Blennerhassett

Liquid chemical storage and handling outfit Dragon Crown Group (935 HK) (DCG) has announced a pre-conditional Offer from Guangdong Great River Smarter (002930 CH) (GGRS).

The Offer price is HK$1.28/share, a 8.47% premium to last close, and a 20.75% premium to the average closing price over the previous 60 trading days. The Offer price will NOT be increased. No dividends are expected to be declared. 

The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, SAFE, the Shenzhen Stock Exchange, plus shareholder approval from GGRS.

The key condition to the Offer is valid acceptances of not less than 90% of shares out. Irrevocables totalling 86.91% (primarily from Ng Wai Man, the founder, chairman & CEO) have been received, therefore this requires a further 3.09% to get over the line.

This appears a relatively clean deal. The Long Stop date for the pre-cons is the 9 February 2022.

More below the fold.


ESG Funds & Indices: Do They Really Outperform?

By Brian Freitas

As flows into ESG funds and ETFs have continued over the last few years and accelerated over the last couple of years, investor scrutiny has grown as questions are being asked regarding the performance of these indices and funds and how the index composition differs from indices that do not incorporate ESG factors into their construction.

There have been numerous articles in the media on the performance of ESG funds and how they are beating the S&P 500 (SPX INDEX). Recent articles have also focused on the recent rally in energy and materials stocks that could lead to ESG funds and ETFs underperforming the non ESG focused indices. 

In this Insight, we take a look at the performance of some of the largest ESG ETFs and their sector breakdown and compare their performance to the index that they are derived from to see if there is any real outperformance.


Wynn Macau (1128 HK) – Gaming Law Revisions and Impact on Financial Covenants

By Jason Yap, CFA

Macau’s top gaming stocks lost a record USD18 billion in combined market value on 15 September 2021 after the Macau administration announced a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. 

Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government’s direct supervision of casino operations drew the most consternation from investors and analysts. 

The sweeping revisions compound the woes of Macau’s casino operators, such as Wynn Macau Ltd (1128 HK)  and Sands China Ltd (SCHYY US), which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.

While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October’s Golden Week was down 93.7% on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. 

Amongst its peers, Wynn Macau Ltd (1128 HK)  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.

In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on Wynn Macau Ltd (1128 HK)‘s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.


SK Square & SK Telecom – Valuation Analysis Post Split

By Douglas Kim

Sum of the value of SK Square and SK Telecom post split – Using our base case valuations of SK Square and SK Telecom post split, the combined market caps of these two companies would be 30.2 trillion won, which is 38% higher than the current market cap of 21.9 trillion won.

  • Our base case valuation of SK Square (post split) is 48% higher than the initial  value of SK Square.
  • Our base case valuation of SK Telecom (post split) is 31% higher than the initial value of SK Telecom. 

Our base case valuation of SK Square is an implied market cap of 12.8 trillion won, which would be 48% higher than the initial market cap of 8.6 trillion won for SK Square (using current market cap of 21.9 trillion won for SK Telecom and split ratio of (0.607:0.393). Our base case valuation of SK Square uses a 40% holdco discount rate. The biggest component of the NAV include SK Square’s stake in SK Hynix (13.7 trillion won), ADT Caps (2.5 trillion won), and 11st (2.2 trillion won).

Our base case valuation of SK Telecom (post split) is implied market cap of 17.5 trillion won, which would be 31% higher than the initial market cap (adjusted for split ratio) of 13.3 trillion won for the company. We have used EV/EBITDA ratio of 5x using our estimated EBITDA of 4.5 trillion won for the company in 2022.


Lee Family to Sell 2.2 Trillion Won Worth of Samsung Group Affiliates to Pay for Inheritance Tax

By Douglas Kim

It was announced that Hong Ra-Hee (wife of the late Samsung Chairman Lee Gun-Hee) will sell about 1.43 trillion won worth of Samsung Electronics (005930 KS) in order to pay for inheritance taxes. This represents 19.94 million shares at 71,500 won per share of Samsung Electronics.

In addition to Hong Ra-Hee’s sale of Samsung Electronics, her daughters Lee Bu-Jin and Lee Seo-Hyun will sell 0.73 trillion won worth of Samsung Sds (018260 KS) and Samsung Life Insurance (032830 KS). Thus, the total amount of Samsung Group related shares (including Samsung Electronics) to be sold in this sale is about 2.2 trillion won ($1.8 billion).

The stake sale of Samsung Electronics could be quickly absorbed by the market while the sale sales of Samsung SDS and Samsung Life Insurance could take more time to digest. In addition, this will be a recurring event every year for the next five years with the Lee family continuing to sell down their stakes in Samsung Electronics and other Samsung affiliates in order to pay off the exorbitant amount of inheritance taxes. We believe that there could be continued concerns about this inheritance tax sale of Samsung SDS, Samsung Life Insurance, and Samsung Electronics which could further pressure these stocks negatively in the near term. 


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