Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

<p>Whilst Q4's list posted strong price performance it was a case that a rising tide floated most boats. As in the previous few quarters, we are on the watch for the risk of deteriorating credit metrics, but in particular during H1 2021. In Q1, the Altman Z score is at a market-cap-weighted 1.03 times, a significant decrease on the 1.52 in Q4. This deterioration needs to be monitored since earnings continue to be adjusted by analysts and their limited visibility of any bottoming. 25 stocks appear in our Q1 2021 screen, versus 15 in Q4 2020.</p>

Whilst Q4's list posted strong price performance it was a case that a rising tide floated most boats. As in the previous few quarters, we are on the watch for the risk of deteriorating credit metrics, but in particular during H1 2021. In Q1, the Altman Z score is at a market-cap-weighted 1.03 times, a significant decrease on the 1.52 in Q4. This deterioration needs to be monitored since earnings continue to be adjusted by analysts and their limited visibility of any bottoming. 25 stocks appear in our Q1 2021 screen, versus 15 in Q4 2020.

Screening the Silk Road: Q1 2021 High Risk Names to Avoid

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>On the 27 September, Jingang Trade, a company wholly-owned by <a href="https://www.smartkarma.com/entities/inner-mongolia-yili-indus-a" target="_blank" data-smartkarma-citation="entities:3220:1" rel="noopener">Inner Mongolia Yili Industrial Group (A) (600887 CH)</a>, and the Zhang Group <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0927/2020092700065.pdf" target="_blank" rel="noopener">entered</a> into a Share Subscription Agreement (SSA) with the Offeror,  a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group would transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror would hold 43.75% and be obligated to make a Mandatory General Offer (MGO) for all shares not owned. The MGO would be HK$1.132/share (an 11% premium to last close). The Offer price will not be increased.</p>
<p>The MGO is subject to a 50% (of all shares out) acceptance condition.</p>
<p>The SSA was completed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0111/2021011100722.pdf" target="_blank" rel="noopener">11 January</a> and the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0117/2021011700009.pdf" target="_blank" rel="noopener">Composite Doc</a> was despatched last night. The first close is the 8 February.</p>
<p>The Offeror has received 14 irrevocable undertakings (IU) from shareholders to accept the Offer in respect of 1,377,008,000 shares or 52.83% of shares out. Therefore, once the IU shareholders tender, the acceptance condition will have been met. Accordingly, the Offer is expected to become unconditional on or prior to the seventh day after the date of this Composite Doc.</p>
<p>The percentage of the Offer Shares made up by all of the IU shares is ~93.92%, therefore compulsory acquisition under section 88 of the Cayman Islands Companies Act and Rule 2.11 of the Takeovers Code will have been met.</p>
<p>As always, more below the fold.</p>
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On the 27 September, Jingang Trade, a company wholly-owned by Inner Mongolia Yili Industrial Group (A) (600887 CH), and the Zhang Group entered into a Share Subscription Agreement (SSA) with the Offeror,  a vehicle jointly held by Yili and the Zhang Group, such that Jingang Trade and the Zhang Group would transfer 432.641mn shares and 707.878mn shares respectively to the Offeror at HK$1.132/share. Upon completion of the SSA, the Offeror would hold 43.75% and be obligated to make a Mandatory General Offer (MGO) for all shares not owned. The MGO would be HK$1.132/share (an 11% premium to last close). The Offer price will not be increased.
The MGO is subject to a 50% (of all shares out) acceptance condition.
The SSA was completed on the 11 January and the Composite Doc was despatched last night. The first close is the 8 February.
The Offeror has received 14 irrevocable undertakings (IU) from shareholders to accept the Offer in respect of 1,377,008,000 shares or 52.83% of shares out. Therefore, once the IU shareholders tender, the acceptance condition will have been met. Accordingly, the Offer is expected to become unconditional on or prior to the seventh day after the date of this Composite Doc.
The percentage of the Offer Shares made up by all of the IU shares is ~93.92%, therefore compulsory acquisition under section 88 of the Cayman Islands Companies Act and Rule 2.11 of the Takeovers Code will have been met.
As always, more below the fold.






Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> may have outperformed <a href="https://www.smartkarma.com/entities/health-and-happiness-h-h-int" target="_blank" data-smartkarma-citation="entities:20582:1" rel="noopener">Health And Happiness (H&amp;H) (1112 HK)</a> but the pair trade of long <a href="https://www.smartkarma.com/entities/yuanshengtai-dairy-farm-ltd" target="_blank" data-smartkarma-citation="entities:17091:1" rel="noopener">Yuanshengtai Dairy Farm (1431 HK)</a> and short <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> have made <strong>42%</strong> since the initiation in <a href="https://www.smartkarma.com/insights/china-feihe-6186-flying-no-more" target="_blank" data-smartkarma-citation="insights:39842" rel="noopener">China Feihe (6186): Flying No More?</a> .</p>
<p>The recent news that China Feihe is buying out YST has effectively collapsed the previously available valuation gap therefore it is time to also close the trade by selling YST and buy-to-cover China Feihe. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/619/original/image_10140919521599523419732.png?1599523420" class="editor-image img-responsive" data-smartkarma-image-id="157619"></figure>

China Feihe (6186 HK) may have outperformed Health And Happiness (H&amp;H) (1112 HK) but the pair trade of long Yuanshengtai Dairy Farm (1431 HK) and short China Feihe (6186 HK) have made 42% since the initiation in China Feihe (6186): Flying No More? .
The recent news that China Feihe is buying out YST has effectively collapsed the previously available valuation gap therefore it is time to also close the trade by selling YST and buy-to-cover China Feihe. 


YST (1431) VS China Feihe (6186): Time to Close

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.

<p><a href="https://www.smartkarma.com/entities/yuanshengtai-dairy-farm-ltd" target="_blank" data-smartkarma-citation="entities:17091:1" rel="noopener">Yuanshengtai Dairy Farm (1431 HK)</a>/YST Diary is one of the leading dairy farming companies in China as measured by herd size and production volume. YST has six dairy farms in Heilongjiang Province and one dairy farm in Jilin Province. On Sunday, <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a> announced a conditional voluntary general offer to acquire all the YST shares at HK$0.63 in cash per share. The offer is conditional on the offeror and its concert parties holding at least 50% of the voting rights. The offeror and its concert parties currently hold 0.13% of the outstanding shares and have not received irrecovables. </p><div class="content-highlight"><p>The offer is unlikely to see shareholders clamouring to accept the offer as the shares are up 110% YTD and the offer is a marginal 1.6% premium to the share price on the last trading date (3 September). China Feihe is YST’s largest customer and the offer is largely defensive move to limit <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a>’s growing importance to YST, in our view. China Feihe’s offer price is final and there is a good chance the offer could fail due to the small premium. However, several of China Feihe’s peers including Mengniu have invested in raw milk suppliers to secure sufficient supply. Consequently, we would be inclined to have a long position as there is some chance that China Feihe’s bid could force out rival bidders.  </p></div>

Yuanshengtai Dairy Farm (1431 HK)/YST Diary is one of the leading dairy farming companies in China as measured by herd size and production volume. YST has six dairy farms in Heilongjiang Province and one dairy farm in Jilin Province. On Sunday, China Feihe (6186 HK) announced a conditional voluntary general offer to acquire all the YST shares at HK$0.63 in cash per share. The offer is conditional on the offeror and its concert parties holding at least 50% of the voting rights. The offeror and its concert parties currently hold 0.13% of the outstanding shares and have not received irrecovables. The offer is unlikely to see shareholders clamouring to accept the offer as the shares are up 110% YTD and the offer is a marginal 1.6% premium to the share price on the last trading date (3 September). China Feihe is YST’s largest customer and the offer is largely defensive move to limit China Mengniu Dairy Co (2319 HK)’s growing importance to YST, in our view. China Feihe’s offer price is final and there is a good chance the offer could fail due to the small premium. However, several of China Feihe’s peers including Mengniu have invested in raw milk suppliers to secure sufficient supply. Consequently, we would be inclined to have a long position as there is some chance that China Feihe’s bid could force out rival bidders.  

Chine Feihe Lobs a Conditional Voluntary Offer for YST Dairy

<p><a href="https://www.smartkarma.com/entities/china-feihe" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (FEIHE HK)</a> is the leading player in the China IMF (infant milk formula) market as measured by retail sales value in 2018, according to Frost &amp; Sullivan. It is backed by Morgan Stanley Private Equity Asia, which is a 21.7% shareholder. Feihe is set to start pre-marketing for a Hong Kong IPO to raise a potential $1 billion, according to press reports. </p><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/china-feihe-ipo-preview-the-winning-formula" target="_blank" rel="noopener">our initiation note</a>, we stated that the Feihe’s equity story offers more positives than negatives, and we would place it on our must-look IPO watchlist. The PHIP which discloses 2Q19 metrics reinforces this view.</p></div>

China Feihe (FEIHE HK) is the leading player in the China IMF (infant milk formula) market as measured by retail sales value in 2018, according to Frost &amp; Sullivan. It is backed by Morgan Stanley Private Equity Asia, which is a 21.7% shareholder. Feihe is set to start pre-marketing for a Hong Kong IPO to raise a potential $1 billion, according to press reports. In our initiation note, we stated that the Feihe’s equity story offers more positives than negatives, and we would place it on our must-look IPO watchlist. The PHIP which discloses 2Q19 metrics reinforces this view.

China

China Modern Dairy Holdings Ltd. is an industrialized agricultural company. The Company operates dairy farms and produces raw milk in China.  China Modern Dairy Holdings Ltd focuses on large-scale industrialized free-stall dairy farming.

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China Modern Dairy (1117 HK)

Screening the Silk Road: Q1 2021 High Risk Names to Avoid

As in the previous few quarters, we are on the watch for the risk of deteriorating credit metrics, but in particular during H1 2021. 25 stocks...

David Lepper

Zhongdi Dairy (1492 HK): Doc Out. Compulsory Acquisition Afforded

Done deal. Expect shares to be suspended next month. Buy a spread or two below terms if available - currently trading through terms at HK$1.15...

David Blennerhassett

YST (1431) VS China Feihe (6186): Time to Close

China Feihe (6186 HK) may have outperformed Health And Happiness (H&H) (1112 HK) but the pair trade of long Yuanshengtai Dairy Farm (1431 HK)...

Henry Soediarko

Chine Feihe Lobs a Conditional Voluntary Offer for YST Dairy

$ is the one of the leading dairy farming companies in China as measured by herd size and production volume. YST has six dairy farms in...

Arun George

China Feihe IPO: Uncowed

China Feihe (FEIHE HK) is the leading player in the China IMF (infant milk formula) market as measured by retail sales value in 2018, according to...

Arun George

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