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Most Read: Softbank Corp, Softbank Group, Xiaomi Corp, Oriental Watch and more

By September 15, 2020 No Comments

In today’s briefing:

  • Softbank Corp (9434) – Time To Cover
  • Softbank – Interpreting the Arm Sale
  • Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling
  • Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate
  • Oriental Watch (398 HK): Conditional Partial Offer

Softbank Corp (9434) – Time To Cover

By Travis Lundy

When the Softbank Corp (9434 JP) block was announced on 28 August after the close, it was one of the larger secondary blocks ever placed in Japan, and it was underwritten.

It was always going to get sold rather than bought, and it appears that it has been sold. For some reason I could not figure out, the shares only fell 3-4% or so on the first day and then stayed stable for a few days. I thought it needed more of a wallop to see pricing come out right. 

It has, in the interim, been walloped. 

Now is the time to cover that sale in the market if you shorted, and to buy back if you sold long. 

The implied dividend yield on the offering is now (as I write) above 7%. Suganomics may not favor telcos but I expect the telcos probably have enough leverage to push back from time to time. 

More below the fold.

Softbank – Interpreting the Arm Sale

By Mio Kato

So the Arm sale is finally here, as is the $40bn that Softbank was looking for… sort of. We had commented previously that we felt Softbank’s mark for Arm was optimistic (this could be debated now but we actually feel this acquisition lends credence to this view), the acquisition would probably be heavy on the share component, and that exclusion of Arm’s IoT business from the deal would be a no-confidence vote from Nvidia and a repudiation of Son’s “Vision”. On the latter point we believe we were correct.

Xiaomi Placement – Run-Up in Share Price, Co-Founder Selling

By Sumeet Singh

Xiaomi Corp (1810 HK)‘s co-founder Lin Bin aims to raise around US$1bn via selling some of his stake in the firm.

While he has provided a long lock-up to allay any concerns of an overhang, the shares have run-up a lot going into the index inclusion. 

Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate

By Nicolas Van Broekhoven

Oriental Watch (398 HK)announced it is proposing to buy back a maximum of 83 million shares at 3 HKD (249M HKD). This represents a premium over 57% vs the average 30-day closing price on HKex. Once the shares are bought back they will be canceled which will reduce total shares outstanding from 570 million to 478 million. A Special General Meeting (SGM) will be needed to approve the transaction, details of which are pending an official Offer Document. The full transaction has been covered by David Blennerhassett Oriental Watch (398 HK): Conditional Partial Offer 

As long-time Oriental Watch followers let’s step back and assess what this means:

  • The controlling family’s stake will rise over 30% (depending on uptake 30.85-36.10%) but they won’t have to make a mandatory general offer as they have requested an exemption from HKex. Minority investors need to approve the transaction: we would advise minorities to vote IN FAVOR.
  • The founding family upping its stake at a significant premium to the latest stock price is bullish. 
  • Even at 3 HKD, the shares trade far below their latest book value of 4.04 HKD.
  • With increased ownership management is now more incentivized to keep on paying large dividends going forward. 
  • Mr. Market has been perenially mispricing Oriental Watch at negative enterprise value or barely above net cash over the last 5 years. As discussed at length in various previous insights we think this is wrong and the latest transaction again highlights the underlying value.
  • The company has returned 0.885 HKD/share in dividends over the past four years. When judging Oriental Watch’s share price performance please make sure you look up the total return on your Bloomberg.
  • Mainland China Rolex sales have been seeing YoY SSS increases of 40-80% since April (depending month to month). Once HK opens up SSS comps become very easy after 2019 (riots) and 2020 (Covid-19). Please re-read our insight on Oriental Watch being a way to play Rolex in China Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting 

Oriental Watch (398 HK): Conditional Partial Offer

By David Blennerhassett

After Oriental Watch (398 HK) (“OWH”) was suspended “pursuant to the Codes on Takeovers and Mergers and Share Buy-backs“, the immediate takeaway was to conclude the company would be subject to a Privatization Offer. But in what is becoming increasingly more common, OWH has announced a partial buyback from the company – 14.55% of shares out or 83mn shares, at HK$3.00/share, a 53.85% premium to last close.

This will cost the company HK$0.25bn (US$32mn). OWH had net cash on hand of ~HK$0.65bn as at Mar 2020.

Yeung Ming Biu & concert parties hold 30.85% of shares out and will not tender. That leaves 69.15% of the register subject to the buyback, implying a minimum pro-ration of 21.04%.

Should the partial buyback complete (i.e. fully exercised) Yeung & concert parties will hold 36.10% of shares out, before the exercise of any outstanding share options. That step-up in %-held oversteps Hong Kong’s “creeper rule”, and therefore Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. 

As always, more below the fold. Plus Ye Olde Arb Grids.  

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