IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p><a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> is Australia’s largest airport and the only listed airport on ASX. Sydney Airport has rejected a revised conditional, non-binding indicative offer of A$8.45 per share from a consortium (Sydney Aviation Alliance). The revised indicative offer of A$8.45 per share is a 45% premium to the unaffected price of A$5.81 (2 July). The revised indicative offer is also a marginal 2.4% bump to the original offer of A$8.25 per share received from the consortium on 5 July. </p><p>The Board rejected the revised offer as it continues to undervalue Sydney Airport and is opportunistic considering the COVID-19 pandemic. The Board argues that Sydney Airport has a 74-year lease on one of Australia’s most important valuable pieces of infrastructure. </p><p>Pushing for a better price is part of the M&amp;A game. The consortium responded to the Board’s rejection by warning that they are prepared to walk away but at the same time failing to declare that the A$8.45 per share revised offer was its final offer. The Board is open to engaging with the consortium if they lift the offer and is said to be seeking a price around A$9.00 per share, according to press reports. </p><p>The issue is complicated by the different methodologies used by the Board and the consortium to determine the rights adjusted share price to account for the dilutive raise in August 2020. The Board also argues that any proposal should be benchmarked against the pre-COVID share price high of A$9.20 per share reached on 6 December 2019. We think that the revised indicative offer is in line with the pre-COVID-19 rights adjusted share price high reached in December 2019. </p><p>The Board is facing increasing shareholder pushback to at least engage with the consortium and facilitate due diligence. UniSuper, the largest shareholder, has branded the rejection of the revised offer as “<em>disappointing</em>” and wants the Board to engage with the consortium.</p><div class="content-highlight"><p>Overall, the gamesmanship suggests both sides are now invested in securing a deal and the 6.5% valuation differential (A$9.00 Board’s value vs A$8.45 bid) suggest the two sides are not far apart on price. At the last close price of A$7.70, the shares are trading at a 9.7% gross spread to the revised indicative offer. The interim results will be announced on 20 August before market open.</p></div>

Sydney Airport (SYD AU) is Australia’s largest airport and the only listed airport on ASX. Sydney Airport has rejected a revised conditional, non-binding indicative offer of A$8.45 per share from a consortium (Sydney Aviation Alliance). The revised indicative offer of A$8.45 per share is a 45% premium to the unaffected price of A$5.81 (2 July). The revised indicative offer is also a marginal 2.4% bump to the original offer of A$8.25 per share received from the consortium on 5 July. The Board rejected the revised offer as it continues to undervalue Sydney Airport and is opportunistic considering the COVID-19 pandemic. The Board argues that Sydney Airport has a 74-year lease on one of Australia’s most important valuable pieces of infrastructure. Pushing for a better price is part of the M&amp;A game. The consortium responded to the Board’s rejection by warning that they are prepared to walk away but at the same time failing to declare that the A$8.45 per share revised offer was its final offer. The Board is open to engaging with the consortium if they lift the offer and is said to be seeking a price around A$9.00 per share, according to press reports. The issue is complicated by the different methodologies used by the Board and the consortium to determine the rights adjusted share price to account for the dilutive raise in August 2020. The Board also argues that any proposal should be benchmarked against the pre-COVID share price high of A$9.20 per share reached on 6 December 2019. We think that the revised indicative offer is in line with the pre-COVID-19 rights adjusted share price high reached in December 2019. The Board is facing increasing shareholder pushback to at least engage with the consortium and facilitate due diligence. UniSuper, the largest shareholder, has branded the rejection of the revised offer as “disappointing” and wants the Board to engage with the consortium.Overall, the gamesmanship suggests both sides are now invested in securing a deal and the 6.5% valuation differential (A$9.00 Board’s value vs A$8.45 bid) suggest the two sides are not far apart on price. At the last close price of A$7.70, the shares are trading at a 9.7% gross spread to the revised indicative offer. The interim results will be announced on 20 August before market open.

Sydney Airport's Rejection of a Revised Offer Is Likely Not the Final Act

<p><a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> is Australia’s largest airport and the only listed airport on ASX. Sydney Airport revealed a conditional, non-binding indicative offer from a consortium (Sydney Aviation Alliance) comprising of IFM, QSuper and Global Infrastructure Partners. The indicative offer of A$8.25 per share is a 42% premium to the unaffected price of A$5.81 (2 July). The offer price will be reduced by any dividends declared or paid prior to the scheme taking effect. The proposed transaction would be implemented via a scheme of arrangement.</p><p>The Board noted the offer was below its pre-pandemic share price and said it would review the proposal, which is contingent on granting due diligence and unanimous recommendation by the Board in the absence of a superior offer. </p><p>Crucially, the offer is conditional on UniSuper agreeing to reinvest its equity interest for an equivalent equity interest in the consortium’s holding vehicle. UniSuper is the largest shareholder who represents 15.28% of the outstanding shares. In response to the indicative offer, UniSuper said that it saw “<em>merit in Sydney Airport being converted from a publicly listed company to an unlisted company. UniSuper also has a favourable view of the consortium partners.</em>" UniSuper will make a final decision after all details have been considered.</p><p>We think that the indicative offer is opportunistic as it offers a modest premium to pre-COVID-19 share prices. However, airports in Australia have been hard hit by tough international travel restrictions, sporadic lockdowns and slow vaccination roll-out. The timing and the shape of a recovery (particularly the crucial international travel) remains highly uncertain suggesting the shares are more suited to the patient long-term investor.</p><div class="content-highlight"><p>Nevertheless, this non-binding indicative offer lays a marker for the intrinsic value of the shares, gives the Board an opportunity to negotiate a bump or entice other infrastructure bidders to start a bidding war. At the last close price of A$7.78, the shares are trading at a 6% gross spread to the indicative offer.</p></div>

Sydney Airport (SYD AU) is Australia’s largest airport and the only listed airport on ASX. Sydney Airport revealed a conditional, non-binding indicative offer from a consortium (Sydney Aviation Alliance) comprising of IFM, QSuper and Global Infrastructure Partners. The indicative offer of A$8.25 per share is a 42% premium to the unaffected price of A$5.81 (2 July). The offer price will be reduced by any dividends declared or paid prior to the scheme taking effect. The proposed transaction would be implemented via a scheme of arrangement.The Board noted the offer was below its pre-pandemic share price and said it would review the proposal, which is contingent on granting due diligence and unanimous recommendation by the Board in the absence of a superior offer. Crucially, the offer is conditional on UniSuper agreeing to reinvest its equity interest for an equivalent equity interest in the consortium’s holding vehicle. UniSuper is the largest shareholder who represents 15.28% of the outstanding shares. In response to the indicative offer, UniSuper said that it saw “merit in Sydney Airport being converted from a publicly listed company to an unlisted company. UniSuper also has a favourable view of the consortium partners." UniSuper will make a final decision after all details have been considered.We think that the indicative offer is opportunistic as it offers a modest premium to pre-COVID-19 share prices. However, airports in Australia have been hard hit by tough international travel restrictions, sporadic lockdowns and slow vaccination roll-out. The timing and the shape of a recovery (particularly the crucial international travel) remains highly uncertain suggesting the shares are more suited to the patient long-term investor.Nevertheless, this non-binding indicative offer lays a marker for the intrinsic value of the shares, gives the Board an opportunity to negotiate a bump or entice other infrastructure bidders to start a bidding war. At the last close price of A$7.78, the shares are trading at a 6% gross spread to the indicative offer.

Sydney Airport Gets an Opportunistic Indicative Offer

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<div><p>S&amp;P Dow Jones Indices will announce changes to the <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> as part of the September index review on 3 September and the changes will be effective after the close of trading on 17 September.</p></div><div>We are almost three quarters of the way through the review period. There are 3 potential inclusions at the review - <a href="https://www.smartkarma.com/entities/centuria-capital-group" target="_blank" data-smartkarma-citation="entities:15546:1" rel="noopener">Centuria Capital (CNI AU)</a>, <a href="https://www.smartkarma.com/entities/pinnacle-investment-manageme" target="_blank" data-smartkarma-citation="entities:20624:1" rel="noopener">Wilson (PNI AU)</a> and <a href="https://www.smartkarma.com/entities/sealink-travel-group-ltd" target="_blank" data-smartkarma-citation="entities:6400:1" rel="noopener">Sealink Travel (SLK AU)</a> while the potential deletions are <a href="https://www.smartkarma.com/entities/nuix-limited" target="_blank" data-smartkarma-citation="entities:31040:1" rel="noopener">Nuix Limited (NXL AU)</a>, <a href="https://www.smartkarma.com/entities/nrw-holdings-ltd" target="_blank" data-smartkarma-citation="entities:9271:1" rel="noopener">NRW Holdings (NWH AU)</a> and <a href="https://www.smartkarma.com/entities/g8-education-ltd" target="_blank" data-smartkarma-citation="entities:581:1" rel="noopener">G8 Education (GEM AU)</a>.</div><div></div><div>
<a href="https://www.smartkarma.com/entities/galaxy-resources-ltd" target="_blank" data-smartkarma-citation="entities:13914:1" rel="noopener">Galaxy Resources (GXY AU)</a> is placed in the inclusion zone but is unlikely to be added to the index given its pending merger with <a href="https://www.smartkarma.com/entities/orocobre-ltd" target="_blank" data-smartkarma-citation="entities:3572:1" rel="noopener">Orocobre Ltd (ORE AU)</a>.</div><div></div><div>
<a href="https://www.smartkarma.com/entities/de-grey-mining-ltd" target="_blank" data-smartkarma-citation="entities:6192:1" rel="noopener">De Grey Mining (DEG AU)</a> is a close add and the corresponding deletion is <a href="https://www.smartkarma.com/entities/westgold-resources-ltd" target="_blank" data-smartkarma-citation="entities:24269:1" rel="noopener">Westgold Resources (WGX AU)</a>.</div><div></div><div>There is a large impact expected on the inclusions while the impact on the deletions is lower.</div><div></div><div>For <a href="https://www.smartkarma.com/entities/g8-education-ltd" target="_blank" data-smartkarma-citation="entities:581:1" rel="noopener">G8 Education (GEM AU)</a>, the short interest is close to the estimated passive selling. For the other two deletes, short interest is a lot smaller than the estimated passive selling and there will be more shorts created from now to rebalance implementation day.</div>

S&amp;P Dow Jones Indices will announce changes to the S&amp;P/ASX 200 (AS51 INDEX) as part of the September index review on 3 September and the changes will be effective after the close of trading on 17 September.We are almost three quarters of the way through the review period. There are 3 potential inclusions at the review - Centuria Capital (CNI AU), Wilson (PNI AU) and Sealink Travel (SLK AU) while the potential deletions are Nuix Limited (NXL AU), NRW Holdings (NWH AU) and G8 Education (GEM AU).
Galaxy Resources (GXY AU) is placed in the inclusion zone but is unlikely to be added to the index given its pending merger with Orocobre Ltd (ORE AU).
De Grey Mining (DEG AU) is a close add and the corresponding deletion is Westgold Resources (WGX AU).There is a large impact expected on the inclusions while the impact on the deletions is lower.For G8 Education (GEM AU), the short interest is close to the estimated passive selling. For the other two deletes, short interest is a lot smaller than the estimated passive selling and there will be more shorts created from now to rebalance implementation day.

ASX200 Sep21 Index Rebalance Preview: Large Impact Names

Founder of Antler Capital

Stanley Tsai, CFA

Equity Bottom-Up

<p><strong>BOC Aviation | BOCAVI <a href="https://www.smartkarma.com/entities/boc-aviation" target="_blank" data-smartkarma-citation="entities:22689:1" rel="noopener">(2588 HK)</a> </strong></p>
<p>As a follow-up on <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a>'s Smartkarma Original <a href="https://www.smartkarma.com/insights/asia-pac-airports-ups-but-mostly-downs" target="_blank" data-smartkarma-citation="insights:51855" rel="noopener">Asia-Pac Airports: Ups, But Mostly Downs</a>, we take a look at BOCAVI, which, in our view, is a compelling alternative to APAC airport operators and airlines as a post-Covid trade.</p>
<p><strong>BOCAVI is a highly geared play on the resumption of air travel. </strong>The stock has gone through periods of significant out/underperformance against the APAC airports and airlines and may continue to give investors high beta in either direction. The geographical exposure is broad, but there is a heavy skew towards short-haul flights, which will see the earliest acceleration in passenger traffic.</p>
<p><strong>Management's countercyclical capex expansion increasingly looks like a shrewd bet. </strong>At its core, BOCAVI is in the capital management business. Strong liquidity and BOC's explicit backing have allowed the lessor to grow its purchase-and-leaseback portfolio through the depths of the pandemic. While airlines are still hemorrhaging cash, over 99% of BOCAVI's aircraft remain cash-generating.  </p>
<p><strong>We expect the firm's undiscounted committed revenues to top USD20bn in 2021.</strong> By year-end, the value of the portfolio will have doubled since 2014. We estimate the present value of this cashflow stream to be HKD72.80/share. We are essentially getting free growth optionality. </p>
<p><strong>We are buyers at book value.</strong> The stock is trading at 8x P/E and 1.1x P/B on a 12M forward basis. BOCAVI is reasonably liquid, with a market cap of USD6bn and average daily turnover of USD3.5mn. Besides the obvious risk of protracted lockdowns globally, a well-functioning USD bond market and BOC's funding support are critical to our investment case.</p>
<p>Attachment: BOCAVI Financial Summary</p>

BOC Aviation | BOCAVI (2588 HK) 
As a follow-up on David Blennerhassett's Smartkarma Original Asia-Pac Airports: Ups, But Mostly Downs, we take a look at BOCAVI, which, in our view, is a compelling alternative to APAC airport operators and airlines as a post-Covid trade.
BOCAVI is a highly geared play on the resumption of air travel. The stock has gone through periods of significant out/underperformance against the APAC airports and airlines and may continue to give investors high beta in either direction. The geographical exposure is broad, but there is a heavy skew towards short-haul flights, which will see the earliest acceleration in passenger traffic.
Management's countercyclical capex expansion increasingly looks like a shrewd bet. At its core, BOCAVI is in the capital management business. Strong liquidity and BOC's explicit backing have allowed the lessor to grow its purchase-and-leaseback portfolio through the depths of the pandemic. While airlines are still hemorrhaging cash, over 99% of BOCAVI's aircraft remain cash-generating.  
We expect the firm's undiscounted committed revenues to top USD20bn in 2021. By year-end, the value of the portfolio will have doubled since 2014. We estimate the present value of this cashflow stream to be HKD72.80/share. We are essentially getting free growth optionality. 
We are buyers at book value. The stock is trading at 8x P/E and 1.1x P/B on a 12M forward basis. BOCAVI is reasonably liquid, with a market cap of USD6bn and average daily turnover of USD3.5mn. Besides the obvious risk of protracted lockdowns globally, a well-functioning USD bond market and BOC's funding support are critical to our investment case.
Attachment: BOCAVI Financial Summary

BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Guangzhou Baiyun International Airport / Equity Bottom-Up

<p>Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The <a href="https://www.bloomberg.com/quote/280456Z:CN" target="_blank" rel="noopener">International Air Transport Association</a> said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, <a href="https://www.icao.int/Newsroom/Pages/2020-passenger-totals-drop-60-percent-as-COVID19-assault-on-international-mobility-continues.aspx" target="_blank" rel="noopener">according</a> to the International Civil Aviation Organization.</p>
<p>But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.</p>
<p>Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</a> (SZAC) is at level pegging with <em>overall</em> traffic numbers in 2019, and domestic flow into SZAC, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> all exceed 2019 levels. </p>
<p>Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> -  the outlook remains subdued, and largely uncertain.</p>
<p>Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. </p>
<p>Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.</p>
<div class="content-highlight">
<p><strong>What's Original?</strong></p>
<p>This insight presents a comprehensive view of the key Chinese airports (<a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a>, Shenzhen Airport, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a>, together with <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a>, <a href="https://www.smartkarma.com/entities/malaysia-airports-hldgs-bhd" target="_blank" data-smartkarma-citation="entities:117:1" rel="noopener">Malaysia Airports Hldgs (MAHB MK)</a>, <a href="https://www.smartkarma.com/entities/japan-airport-terminal-co" target="_blank" data-smartkarma-citation="entities:18034:1" rel="noopener">Japan Airport Terminal Co (9706 JP)</a>, <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> and <a href="https://www.smartkarma.com/entities/auckland-intl-airport-ltd" target="_blank" data-smartkarma-citation="entities:597:1" rel="noopener">Auckland Intl Airport (AIA NZ)</a>.</p>
</div>

Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The International Air Transport Association said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, according to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. Shenzhen Airport Co A (000089 CH) (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH) all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for Airports of Thailand (AOT TB) -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.

What's Original?
This insight presents a comprehensive view of the key Chinese airports (Beijing Capital International Airport (BCIA) (694 HK), Shenzhen Airport, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH), together with Airports of Thailand (AOT TB), Malaysia Airports Hldgs (MAHB MK), Japan Airport Terminal Co (9706 JP), Sydney Airport (SYD AU) and Auckland Intl Airport (AIA NZ).


New Zealand

Auckland International Airport Limited owns and operates the Auckland International Airport.  The Airport includes a single runway, an international terminal and two domestic terminals.  The Airport also has commercial facilities which includes airfreight operations, car rental services, commercial banking center and office buildings.

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Auckland International Airport (AIA AU)

Sydney Airport's Rejection of a Revised Offer Is Likely Not the Final Act

The Board rejects a revised offer of A$8.45, a 2.4% bump to the previous offer. At the last close price of A$7.70, the shares are trading at a...

Arun George

Sydney Airport Gets an Opportunistic Indicative Offer

The non-binding indicative offer lays a marker for the intrinsic value of the shares, gives the Board an opportunity to negotiate a bump or entice...

Arun George

ASX200 Sep21 Index Rebalance Preview: Large Impact Names

We see 3 potential changes to the ASX200 at the Sep rebalance with CNI, PNI and SLK being included and NXL, NRW and GEM being deleted. Passive...

Brian Freitas

BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

As downstream players continue to hemorrhage cash, over 99% of BOCAVI’s aircraft are still cash-generating. Valuation is undemanding for a high...

Stanley Tsai, CFA

Asia-Pac Airports: Ups, But Mostly Downs

Domestic passenger flow into Shenzhen Airport (000089 CH), Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport...

David Blennerhassett

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