UK alcoholic drinks conglomerate Diageo Plc (DGE LN) bought a stake in Sichuan Swellfun Co Ltd A (600779 CH) in 2007, then through a 49% stake in Sichuan Chengdu Quanxing Group which owned ~40% of the Chinese baiju maker. In 2011 Diageo raised its stake in Sichuan Chengdu Quanxing Group from 49% to 53% by paying US$21mm to Chengdu Yingsheng Investment Holding Co. which lowered its stake to 47%.
In 2013, Diageo spent £233m to buy out Chengdu Yingsheng Investment Holding Co.’s 47% to go from a consolidated 21.05% to 39.71% in Swellfun (which is also named Sichuan Shui Jing Fang, after one of its brands).
Last summer, Diageo offered to buy 20.29% of the shares outstanding in a Partial Tender Offer (PTO) which was announced June 25th leading to a brief pop to RMB 60.0, and then launched a few weeks later at RMB 62.00 a share, which was a 22.6% premium to the then-current share price. The shares paid a RMB 0.62 dividend on August 1st and the PTO price was lowered to RMB 61.38 accordingly.
Last year’s Partial Tender was for 99,127,820 shares to be acquired out of a total free-float of 294,546,100 shares, which gave a minimum pro-ration of 36.65%. Surprisingly, pro-ration ended up being quite low at ~40.1%. The shares fell sharply and buy-and-tender trades done at the low were OK but in the mid 50s were not.
The shares languished as the economy softened, real estate transactions slowed, and conspicuous consumption continued to be frowned upon, and buy-and-tender-and-own-back-end trades did not do well (though owning A-shares in general did not do well either) as the shares troughed at less than half the tender offer price.
The New News
On 26 February 2019, Diageo announced it had approached the board of directors of Sichuan Swellfun with a proposal to increase its stake from 60% to 70% at RMB 45.00. This was a 19.33% premium to the last close and a 40.05% premium to the 30-day average.
The proposal was announced on the Shanghai Stock Exchange as well in Chinese.
This deal obviously has a lower minimum pro-ration, and the shares have jumped limit up this morning to RMB 41.48 leaving only 8.49% upside if you can buy at limit up today. At 25% pro-ration, breakeven is RMB 40.31, 6.9% higher than yesterday’s close. Assuming yesterday’s close is The Right Price, today’s limit up would give an implied expected pro-ration of 55%, implying only 18.2% of the remaining 40% of shares outstanding would tender.
What To Do?
That is the question. A-shares are on a tear, with the SSE-SZSE 300 up 23% ytd. Historically, bull markets are good to buy. Consensus forecasts have come down so there is a reason why the shares fell to where they did, but even though consensus EPS for 2019 as of six months ago is now the consensus EPS estimate for Dec 2020, on 2019 the shares at the Proposed Tender Offer Price are at less than 30x PER and less than 24x Dec 2020.
If you are buying these to get the minimum pro-ration on a target price equivalent to the offered Tender Offer Price, don’t bother. If you are looking at this as a cheap put because you may decide to downsize your position if the A-share rally sees the brakes applied, this is more interesting.
This is a trader’s trade rather than an arbitrageur’s trade and should be dealt with accordingly.
Breakeven Arb Grids for Price, PER, PBR, EV/EBITDA below.
Common is widening pref discount today as it is generating the highest gain mainly on the Elliott pushing. As of now (1PM in Korea time), Common and 1P/2PB gain difference is nearly 1.5%p. This is putting price ratio at nearly 120D high. On a 20D MA, both Common/1P and Common/2PB are above 200% of σ. We see this level for the first time since mid Dec last year.
It is unlikely that Elliott’s ₩4.5tril dividend demand will get shareholder approval in the upcoming Mar 22 AGM. But it is enough to create a market mood that Hyundai Motor will hand out more generous shareholder friendly measures. Generally, common gets favored market sentiment as we move into AGM cycle. This time should be different. Each time Elliott factor came in, HM Pref tended to outperform Common.
This should be time again for HM Pref to shine more. Both 1P and 2PB are sufficiently undervalued relative to Common. Div yield difference to Common is also at the highest for both pref types. I’d go short Common and long 1P or 2PB now. 1P seems a little more safe bet. But 2PB is more liquid. Either way wouldn’t go terribly wrong.
China Tobacco International (Hong Kong), a subsidiary of the China Tobacco International, is seeking a listing in Hong Kong. Per media reports, the company plans to raise USD 100 million. In this insight, we will discuss the following topics:
NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy.
Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.
In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators.
SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:
positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.
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Common is widening pref discount today as it is generating the highest gain mainly on the Elliott pushing. As of now (1PM in Korea time), Common and 1P/2PB gain difference is nearly 1.5%p. This is putting price ratio at nearly 120D high. On a 20D MA, both Common/1P and Common/2PB are above 200% of σ. We see this level for the first time since mid Dec last year.
It is unlikely that Elliott’s ₩4.5tril dividend demand will get shareholder approval in the upcoming Mar 22 AGM. But it is enough to create a market mood that Hyundai Motor will hand out more generous shareholder friendly measures. Generally, common gets favored market sentiment as we move into AGM cycle. This time should be different. Each time Elliott factor came in, HM Pref tended to outperform Common.
This should be time again for HM Pref to shine more. Both 1P and 2PB are sufficiently undervalued relative to Common. Div yield difference to Common is also at the highest for both pref types. I’d go short Common and long 1P or 2PB now. 1P seems a little more safe bet. But 2PB is more liquid. Either way wouldn’t go terribly wrong.
China Tobacco International (Hong Kong), a subsidiary of the China Tobacco International, is seeking a listing in Hong Kong. Per media reports, the company plans to raise USD 100 million. In this insight, we will discuss the following topics:
NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy.
Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.
In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators.
SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:
positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.
Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.
Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a failure for price to make headway labels the sideways range as corrective in a stair case sequence.
Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
China Tobacco International (Hong Kong), a subsidiary of the China Tobacco International, is seeking a listing in Hong Kong. Per media reports, the company plans to raise USD 100 million. In this insight, we will discuss the following topics:
NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy.
Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.
In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators.
SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:
positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.
Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.
Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a failure for price to make headway labels the sideways range as corrective in a stair case sequence.
Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.
The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.
Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy.
Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.
In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators.
SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:
positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.
Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.
Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a failure for price to make headway labels the sideways range as corrective in a stair case sequence.
Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.
The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.
Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago.
In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.
Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.
Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market.
Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.
Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19.
Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.
Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:
positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.
Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.
Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a failure for price to make headway labels the sideways range as corrective in a stair case sequence.
Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.
The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.
Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago.
In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.
Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.
Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market.
Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.
Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19.
Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.
Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.
Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:
Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend.
IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more.
Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Lg Electronics (066570 KS) is seeing a rejection from 74.5k resistance that acts as an important intermediate if not macro inflection level. Weakness below 74k implies a test on lower pattern support.
Daily MACD rising wedge accompanied by a flat or triangle corrective range, typically is a bear set-up for a break lower. Making the 74k level pivotal and a short level with a stop above 75k. Very often indicators gyrating higher to relieve oversold conditions with a failure for price to make headway labels the sideways range as corrective in a stair case sequence.
Shorts need to focus on the 75k pivot as the stop and risk level. Longer term investors will need to remeasure lower entry points barring a break above pivot resistance which would initiate upside bull targets.
The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.
Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago.
In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.
Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.
Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market.
Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.
Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19.
Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.
Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.
Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:
Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend.
IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more.
Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
The US Securities and Exchange Commission (SEC) requested a federal judge to hold Tesla CEO Elon Musk in contempt of court yesterday regarding recent misleading tweets about the company’s unit production volumes for 2019. This latest move comes not long after Musk bragged that he does not respect the SEC and that his tweets were not being censored by the Board according to the terms of the agreement reached with the SEC following his controversial “Am considering taking Tesla private at $420. Funding secured” tweet on August 8’th last.
Separately, Musk has been talking up the capabilities of the company’s Autopilot technology, claiming that it will deliver “Full Self Driving” by the end of the year, that its in-house developed hardware is 2000% better than NVIDIA’s and that by the end of next year, it would be safe for somebody to fall asleep with Autopilot in control. We find these claims to be ludicrous and Elon Musk delusional in thinking that the SEC would stand idly by while he publicly admits to ignoring the terms of his settlement with them barely four months ago.
In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.
Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.
Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market.
Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.
Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19.
Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.
Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.
Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:
Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend.
IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more.
Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China.
In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK). A calendar of upcoming catalysts is also attached.
More details can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.
Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.
Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market.
Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments.
Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19.
Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.
Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.
Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:
Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend.
IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more.
Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China.
In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK). A calendar of upcoming catalysts is also attached.
More details can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding.
Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe.
On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.
This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.
The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight).
My words then still stand.
And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.
The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Jcontentree Corp (036420 KS) is the second largest drama production firm in Korea after Studio Dragon (253450 KS). The company has three key catalysts that could positively impact its share price in the next 6-12 months:
Expansion of OTT Service by the Global Giants – One of the most favorable investment themes in the next several years is the tremendous growth of the global OTT services by global giants such as Netflix, Disney, and Amazon. These giants want to provide the very best contents that could be popular on a global basis and the Korean dramas have been becoming increasingly popular all over the world and Jcontentree should also be one of the key beneficiaries of this trend.
IPO of Megabox – The company also has a controlling stake in Megabox Joongang, which is the third largest movie theater chain in Korea. On February 19th, 2019, Jcontentree sent a RFP to eight securities firms for the IPO of Megabox. The company will soon finalize the securities firms for the IPO and plans to complete the IPO in 1H 2021. Various media have estimated the value of Megabox to be around 700 billion won or more.
Korean dramas may be re-aired in China in 2019 – The Korean dramas were blocked in China in the past two years but there are some cautious optimism that the Chinese regulators will allow some of the Korean dramas to air in 2019.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China.
In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK). A calendar of upcoming catalysts is also attached.
More details can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding.
Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe.
On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.
This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.
The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight).
My words then still stand.
And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.
The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.
An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.
As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn.
A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.
DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.
For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.
The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.
Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.
The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK)made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.
If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out).
So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.
When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.
Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough.
This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself.
After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. Doable, but as it is an agreed deal, Travis doesn’t see the need to push it.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier – alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.
Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done. 45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?
Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop.
Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.
In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).
Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.
This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.
There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.
Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt. Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.
Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.
Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme. The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED, holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.
MYOB Group Ltd (MYO AU)announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal. At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Issuance of the new shares and common stock to be delisted from the Tokyo Stock Exchange
C
Japan
Descente
Off-Mkt
14-Mar
Tender Offer Close Date
C
Japan
JIEC
Off-Mkt
18-Mar
Tender Offer Close Date
C
Japan
Veriserve
Off-Mkt
18-Mar
Tender Offer Close Date
C
Japan
ND Software
Off-Mkt
25-Mar
Tender Offer Close Date
C
Japan
Showa Shell
Scheme
1-Apr
Close of merger
E
Japan
U-Shin
Off-Market
17-Apr
Tender Offer Close Date
C
NZ
Trade Me Group
Scheme
5-Mar
First Court Date
C
Singapore
Courts Asia Limited
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
4-Mar
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Taiwan
Yungtay Engineering
Off Mkt
17-Mar
Closing date of offer
C
Thailand
Delta Electronics
Off Mkt
26-Feb
Tender Offer Open
C
Finland
Amer Sports
Off Mkt
7-Mar
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina Welttransport
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this week’s HK Connect Discovery, we highlight the strong inflow to automobile stocks and Sands China.
In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK). A calendar of upcoming catalysts is also attached.
More details can be found below.
Best of luck for the new week – Rickin, Venkat and Arun
On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding.
Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe.
On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.
This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.
The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight).
My words then still stand.
And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.
The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.
An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.
As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn.
A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.
DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.
For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.
The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.
Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.
The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK)made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.
If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out).
So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.
When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.
Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough.
This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself.
After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. Doable, but as it is an agreed deal, Travis doesn’t see the need to push it.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier – alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.
Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done. 45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?
Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop.
Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.
In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).
Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.
This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.
There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.
Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt. Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.
Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.
Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme. The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED, holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.
MYOB Group Ltd (MYO AU)announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal. At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Saputo Inc (SAP CN) and Dairy Crest (DCG LN) today announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement which the two parties say is likely to close in Q2 2019.
Saputo is a Canada-listed dairy company which has grown through serial acquisition – more than 30 acquisitions in the last twenty years – but curiously none of the acquisitions have left it with any operations in the UK. Dairy Crest is a leading UK-based dairy and cooking staples company whose best-known products are Cathedral City Cheddar Cheese, Clover margarine, Country Life butter, and Frylight cooking oil as well as other minor butter-similars and butter-replacement spreads.
This would be Saputo’s largest purchase in ten years – by a factor of three over their second largest – the purchase of Warrnambool Cheese & Butter Factory in Q1 2014.
Shares are trading through terms early, perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
At a decent premium (13.9x TTM EV/EBITDA at 620p) to where the rest of the smaller-cap dairy products sector trades (below 10x on a median basis), and the highest EV/Revenue or EV/EBITDA multiple that I can find Saputo having paid, asking for more may not get you more, but investors clearly think it worth a try.
An extra 10% would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. It would put March 2019 PER at just under 20x and just under 13.9x March 2019 expected EV/EBITDA.
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