Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

As <a href="https://www.cineworldplc.com/sites/cineworld-plc/files/reports-presentation/2019/investor-presentation-acquisition-of-cineplex-16-12-2019.pdf" target="_blank" rel="noopener">announced</a> on December 16th, UK-based movie theatre group Cineworld agreed to acquire all the shares of Canada's largest theatre chain Cineplex in an all-cash deal valuing Cineplex at a market cap of CAD2.15bn. The Offer Price CAD34.00 per share comes at strong premia of 41.6% and 39.3% to Cineplex's undisturbed price and 3-month VWAP respectively.The Deal is conditional on the receipt of shareholder approvals from both the Acquirer and the Target and the receipt of regulatory approvals from authorities in Canada and the US. The boards of both Cineplex and Cineworld have approved the deal and have recommended the deal to their shareholders. The transaction is expected to be completed in the first half of 2020.The shares of Cineplex are currently trading above the Offer Price at CAD34.21. However, a closer look at Cineplex's dividend payments paints a clearer picture of what to expect.

As announced on December 16th, UK-based movie theatre group Cineworld agreed to acquire all the shares of Canada's largest theatre chain Cineplex in an all-cash deal valuing Cineplex at a market cap of CAD2.15bn. The Offer Price CAD34.00 per share comes at strong premia of 41.6% and 39.3% to Cineplex's undisturbed price and 3-month VWAP respectively.The Deal is conditional on the receipt of shareholder approvals from both the Acquirer and the Target and the receipt of regulatory approvals from authorities in Canada and the US. The boards of both Cineplex and Cineworld have approved the deal and have recommended the deal to their shareholders. The transaction is expected to be completed in the first half of 2020.The shares of Cineplex are currently trading above the Offer Price at CAD34.21. However, a closer look at Cineplex's dividend payments paints a clearer picture of what to expect. 

🍿Cineplex🍿 to Be Acquired by Cineworld

Portfolio Manager/Head of Equity Investment, Tandem Investors Limited

Jason Oh

Portfolio Manager/Head of Equity Investment

Tandem Investors Limited

Equity Bottom-Up

Increase the weight in Asia Pacific model portfolio from 2.7% to 4.3% We increased the weight of <a href="https://www.smartkarma.com/entities/2885" target="_blank" data-smartkarma-citation="entities:2885:1">Cj Cgv Co Ltd (079160 KS)</a> in our Asia Pacific long-short model portfolio from 2.7% to 4.3% due to the followings; 1) The company's market share in China is on the rise backed by the successful penetration into 2nd and 3rd cities, while the nationwide B/O (box office) numbers are shrinking, 2) The Turkish business, acquired in Apr 2016, is likely to turnaround, given the high M/S over 40% and strong seasonality  of Turkish market, 3) Our quantitative technical score, TTS(Tandem Technical Score: more information below) is 1.09, implying that the share price is likely to rebound before long.Gaining M/S while China's negative growth is meaningful achievement The company's market share in China B/O is growing to 2.9% (ranked 7th) in 3Q16, which has been growing from below 1% and 20th since 2006. Particularly, the company's direct affiliates mainly in 2nd-3rd tier cities in China are turning black from last year's c. USD10mn deficit. Businesses in 1st tier cities are by JV with local companies and already making money due to prime location. Given the sluggish launching of the blockbuster premieres in 2016, we believe the company will show the meaningful earnings growth in 2017 in China business.Disappointing 3Q16 results were due to one-off cost from Turkey business and already priced-in The company announced the acquisition of No.1 multiplex company (M/S of 42%), Mars Entertainment Group, in Apr 2016. However, the company made a big loss over KRW 13bn in 3Q16 from the acquisition such as financial cost and one-off cost related to the acquisition. After the announce of the acquisition, the share price continues to slide down by c.50% for the past 6 months. We believe now the negatives are fully priced-in and Turkey business will show a strong earnings rebound in 4Q16, due to seasonal effect, high M/S in the market, and lowered interest rate resulting from the refinancing of the debts.

Increase the weight in Asia Pacific model portfolio from 2.7% to 4.3% We increased the weight of Cj Cgv Co Ltd (079160 KS) in our Asia Pacific long-short model portfolio from 2.7% to 4.3% due to the followings; 1) The company's market share in China is on the rise backed by the successful penetration into 2nd and 3rd cities, while the nationwide B/O (box office) numbers are shrinking, 2) The Turkish business, acquired in Apr 2016, is likely to turnaround, given the high M/S over 40% and strong seasonality  of Turkish market, 3) Our quantitative technical score, TTS(Tandem Technical Score: more information below) is 1.09, implying that the share price is likely to rebound before long.Gaining M/S while China's negative growth is meaningful achievement The company's market share in China B/O is growing to 2.9% (ranked 7th) in 3Q16, which has been growing from below 1% and 20th since 2006. Particularly, the company's direct affiliates mainly in 2nd-3rd tier cities in China are turning black from last year's c. USD10mn deficit. Businesses in 1st tier cities are by JV with local companies and already making money due to prime location. Given the sluggish launching of the blockbuster premieres in 2016, we believe the company will show the meaningful earnings growth in 2017 in China business.Disappointing 3Q16 results were due to one-off cost from Turkey business and already priced-in The company announced the acquisition of No.1 multiplex company (M/S of 42%), Mars Entertainment Group, in Apr 2016. However, the company made a big loss over KRW 13bn in 3Q16 from the acquisition such as financial cost and one-off cost related to the acquisition. After the announce of the acquisition, the share price continues to slide down by c.50% for the past 6 months. We believe now the negatives are fully priced-in and Turkey business will show a strong earnings rebound in 4Q16, due to seasonal effect, high M/S in the market, and lowered interest rate resulting from the refinancing of the debts. 

CJ CGV: Preparing for Blooming During Snowy Winter

United Kingdom

Cineworld Group PLC operates cinemas throughout the United Kingdom and Ireland. The Company's cinemas offers a range of venues for corporate or private events where its digital projection facilities can display any type of media, from PowerPoint presentations to feature films.

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Cineworld (CINE LN)

🍿Cineplex🍿 to Be Acquired by Cineworld

As announced on December 16th, UK-based movie theatre group Cineworld agreed to acquire all the shares of Canada's largest theatre chain Cineplex...

Janaghan Jeyakumar, CFA

CJ CGV: Preparing for Blooming During Snowy Winter

Increase the weight in Asia Pacific model portfolio from 2.7% to 4.3% We increased the weight of Cj Cgv Co Ltd (079160 KS) in our Asia Pacific...

Jason Oh

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