Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> has corrected sharply over the last 6 months despite showing stellar results. We believe that the correction in the stock is due to: </p><ul>
<li>A small probability of the parent ( <a href="https://www.smartkarma.com/entities/times-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:8085:1" rel="noopener">Times China (1233 HK)</a> ) breaching the three red lines.</li>
<li>Tightening by the Chinese government in the property sector.</li>
<li>IPO fatigue in the sector. 2020 featured the listing of several property management companies that raised lots of cash, casting doubt on the companies ability to make acquisitions at good prices to fuel its future growth.</li>
<li>Pivot by the company from a more acquisitive to a third party strategy + expansion of community VAS services.</li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/199/869/original/image_15589350561618115623007.png?1618115619" class="editor-image img-responsive" data-smartkarma-image-id="199869"></figure><p><em>Source: Bloomberg</em></p><h3>Why do we like <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a>?</h3><ul>
<li>We believe that with the current valuation of 12.4x FY21/8.6x FY22 and 5.8x FY23 implying &gt;50% CAGR EPS growth from FY21-23,  <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> could potentially be an acquisition target for larger groups like <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>, <a href="https://www.smartkarma.com/entities/china-resources-mixc-lifestyle-services" target="_blank" data-smartkarma-citation="entities:29285:1" rel="noopener">China Resources Mixc Lifestyle Services (1209 HK)</a>, <a href="https://www.smartkarma.com/entities/a-living-services-co-ltd" target="_blank" data-smartkarma-citation="entities:26728:1" rel="noopener">A-Living Services (3319 HK)</a> or <a href="https://www.smartkarma.com/entities/sunac-services-holdings" target="_blank" data-smartkarma-citation="entities:29239:1" rel="noopener">Sunac Services Holdings (1516 HK)</a> that are targeting aggressive growth over the next 2-3 years. We admit that we don't know if the controlling shareholders of <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> desire to sell out. Recently though, with the <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> founders having sold out to <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK), </a>we believe this may be the first step towards increased M&amp;A activity in the listed company space. We believe this acquisition's consummation will lead to a rerating of the cheaper companies like <a href="https://www.smartkarma.com/entities/aoyuan-healthy-life-group-company-limited" target="_blank" data-smartkarma-citation="entities:29130:1" rel="noopener">Aoyuan Healthy Life Group (3662 HK)</a>, <a href="https://www.smartkarma.com/entities/central-china-new-life" target="_blank" data-smartkarma-citation="entities:28953:1" rel="noopener">Central China New Life (9983 HK), </a>and <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a>.</li>
<li>
<a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a>  has demonstrated good execution in its short time period as a listed company. </li>
</ul><p>We believe that <a href="https://www.smartkarma.com/entities/times-neighborhood-holdings" target="_blank" data-smartkarma-citation="entities:28666:1" rel="noopener">Times Neighborhood (9928 HK)</a> could double from here, trading up to 25x FY21 with a target PEG of 0.6x.</p>

Times Neighborhood (9928 HK) has corrected sharply over the last 6 months despite showing stellar results. We believe that the correction in the stock is due to: 
A small probability of the parent ( Times China (1233 HK) ) breaching the three red lines.
Tightening by the Chinese government in the property sector.
IPO fatigue in the sector. 2020 featured the listing of several property management companies that raised lots of cash, casting doubt on the companies ability to make acquisitions at good prices to fuel its future growth.
Pivot by the company from a more acquisitive to a third party strategy + expansion of community VAS services.
Source: BloombergWhy do we like Times Neighborhood (9928 HK)?
We believe that with the current valuation of 12.4x FY21/8.6x FY22 and 5.8x FY23 implying &gt;50% CAGR EPS growth from FY21-23,  Times Neighborhood (9928 HK) could potentially be an acquisition target for larger groups like Country Garden Services Holdings (6098 HK), China Resources Mixc Lifestyle Services (1209 HK), A-Living Services (3319 HK) or Sunac Services Holdings (1516 HK) that are targeting aggressive growth over the next 2-3 years. We admit that we don't know if the controlling shareholders of Times Neighborhood (9928 HK) desire to sell out. Recently though, with the Sichuan Languang Justbon Service Group (2606 HK) founders having sold out to Country Garden Services Holdings (6098 HK), we believe this may be the first step towards increased M&amp;A activity in the listed company space. We believe this acquisition's consummation will lead to a rerating of the cheaper companies like Aoyuan Healthy Life Group (3662 HK), Central China New Life (9983 HK), and Times Neighborhood (9928 HK).

Times Neighborhood (9928 HK)  has demonstrated good execution in its short time period as a listed company. 
We believe that Times Neighborhood (9928 HK) could double from here, trading up to 25x FY21 with a target PEG of 0.6x.

Times Neighborhood - Value+Growth, Could It Be an Acquisition Target?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Sichuan Languang Justbon Service Group / Event-Driven

<div>
<p>Back on the 25 February, property management service provider <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> ("SLJS") <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0225/2021022500961.pdf" target="_blank" rel="noopener">announced</a> its major shareholder had entered into a MOU with <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> (CGS) to sell 115,090,200 H-shares or a 64.62% stake. The seller is Languang Hejun, a wholly-owned entity of <a href="https://www.smartkarma.com/entities/sichuan-languang-development-co-ltd" target="_blank" data-smartkarma-citation="entities:7403:1" rel="noopener">Sichuan Languang Development (600466 CH)</a>. Terms under the MOU were RMB42.1105/share. No HK$-equivalent figure was quoted, but at the prevailing exchange rate, this was roughly ~HK$50.61/share, or a ~30% premium to last close.</p>
</div>
<div>
<p>On the 11 March, SLJS <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0311/2021031101126.pdf" target="_blank" rel="noopener">announced</a> some subtle changes to the MOU, such that shares to be acquired include 115,090,200 H shares AND 750,000 domestic shares or 65.04% of shares out. The price per H shares was also revised up to RMB42.8546/share.</p>
</div>
<h3>The New News</h3>
<p>Late last night SLJS <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0322/2021032201066.pdf" target="_blank" rel="noopener">announced</a> a possible unconditional mandatory general Offer (MGO) from CGS for the H shares (at HK$51.0571/share) and domestic shares (at RMB42.8547/share).</p>
<p>CGS has also proposed a voluntary delisting, and if the delisting resolution is approved by independent H-shareholders and the listing acceptance condition (yep, one with an infamous 90% handle) is satisfied, H-shareholders will receive HK$54.30/share and domestic shareholders RMB45.5768/share.</p>
<p>The MGO appears a lock, so you have an effective floor of HK$51.0571. The question, therefore, is: do you chase the delisting bump?</p>
<p>More below the fold.</p>


Back on the 25 February, property management service provider Sichuan Languang Justbon Service Group (2606 HK) ("SLJS") announced its major shareholder had entered into a MOU with Country Garden Services Holdings (6098 HK) (CGS) to sell 115,090,200 H-shares or a 64.62% stake. The seller is Languang Hejun, a wholly-owned entity of Sichuan Languang Development (600466 CH). Terms under the MOU were RMB42.1105/share. No HK$-equivalent figure was quoted, but at the prevailing exchange rate, this was roughly ~HK$50.61/share, or a ~30% premium to last close.


On the 11 March, SLJS announced some subtle changes to the MOU, such that shares to be acquired include 115,090,200 H shares AND 750,000 domestic shares or 65.04% of shares out. The price per H shares was also revised up to RMB42.8546/share.

The New News
Late last night SLJS announced a possible unconditional mandatory general Offer (MGO) from CGS for the H shares (at HK$51.0571/share) and domestic shares (at RMB42.8547/share).
CGS has also proposed a voluntary delisting, and if the delisting resolution is approved by independent H-shareholders and the listing acceptance condition (yep, one with an infamous 90% handle) is satisfied, H-shareholders will receive HK$54.30/share and domestic shareholders RMB45.5768/share.
The MGO appears a lock, so you have an effective floor of HK$51.0571. The question, therefore, is: do you chase the delisting bump?
More below the fold.

Languang Justbon (2606 HK): Be Wary Of Chasing The Delisting Bump

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/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> has entered into agreements with three vendors to purchase a combined 71.17% of outstanding shares in <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> for RMB42.8546 (equivalent to HK$51.0569).</p><p>As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. On 11 March, the MOU was updated such that Languang Hejun will sell Country Garden Services 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The acquisition price was modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. </p><p>On completion of the agreements, Country Garden Services will be required to make an unconditional mandatory cash offer under Rule 26.1 of the Takeovers Code. The unconditional mandatory cash offer (base offer) for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share). Notably, Country Garden Services proposes to delist Languang Justbon by offering an enhanced cash offer of HK$54.3000 per H-share (RMB45.5768 per domestic share). The enhanced share offer, which is payable only if the delisting is approved, is a 3.6% premium to the last close of HK$52.40 and a 39.41% premium to the unaffected price of HK$38.95 (22 February 2021 prior to the first trading halt). </p><div class="content-highlight"><p>The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Independent H-shareholders shareholders represent 51.0 million shares which are 28.62% of outstanding shares. Consequently, the 10% blocking stake is 5.1 million shares which is 2.86% of the outstanding shares. Overall, as we think that the enhanced offer price is reasonable, the delisting proposal will likely succeed. </p></div>

Country Garden Services Holdings (6098 HK) has entered into agreements with three vendors to purchase a combined 71.17% of outstanding shares in Sichuan Languang Justbon Service Group (2606 HK) for RMB42.8546 (equivalent to HK$51.0569).As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. On 11 March, the MOU was updated such that Languang Hejun will sell Country Garden Services 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The acquisition price was modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. On completion of the agreements, Country Garden Services will be required to make an unconditional mandatory cash offer under Rule 26.1 of the Takeovers Code. The unconditional mandatory cash offer (base offer) for all the issued shares is HK$51.0571 per H-share (RMB42.8547 per domestic share). Notably, Country Garden Services proposes to delist Languang Justbon by offering an enhanced cash offer of HK$54.3000 per H-share (RMB45.5768 per domestic share). The enhanced share offer, which is payable only if the delisting is approved, is a 3.6% premium to the last close of HK$52.40 and a 39.41% premium to the unaffected price of HK$38.95 (22 February 2021 prior to the first trading halt). The two key conditions for the delisting will be approval by at least 75% independent H-shareholders (&lt;10% of all independent H-shareholders rejection) and the satisfaction of the minimum acceptance condition (90% of H-shares held by independent H-shareholders). Independent H-shareholders shareholders represent 51.0 million shares which are 28.62% of outstanding shares. Consequently, the 10% blocking stake is 5.1 million shares which is 2.86% of the outstanding shares. Overall, as we think that the enhanced offer price is reasonable, the delisting proposal will likely succeed. 

Languang Justbon’s Mandatory Offer and Voluntary Delisting Proposal from Country Garden Services

<p><a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> provided an update pursuant to Rule 3.7 of the Hong Kong Code on Takeovers and Mergers. As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. </p><p>The MOU has been updated such that Languang Hejun will sell Country Garden Services also 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The total represents Languang Hejun entire shareholding of 115.8 million shares, which represents 65.04% of the outstanding shares. Also, the acquisition price has been modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. </p><p>Country Garden Services will also pay a deposit of RMB1,985.67 million to Languang Hejun and Languang Hejun shall execute a share charge over 106.9 million H shares (60.00% of the outstanding shares) in favour of Country Garden Services.</p><p>If the potential transaction materialises it may lead to a general offer at the higher of (i) the price paid to Languang Hejun, and (ii) the HK$ equivalent of RMB42.8546 (HK$51.30 per share at an FX rate of 0.8353). </p><div class="content-highlight"><p>We think that this latest development takes the transaction one step closer to completion. At the last close price of HK$47.55, the gross spread to the possible general offer price of HK$51.30 per share is 7.9%. The downside risk to a failed agreement remains low as Languang Justbon is trading close to its break price, in our view. The forward P/E of 9.7x implied by the last close price is 11% above the 6-month forward P/E multiple of 8.7x but 9% below the 1-year average forward P/E of 10.7x (calculated up to 22 February prior to the trading halt). </p></div>

Sichuan Languang Justbon Service Group (2606 HK) provided an update pursuant to Rule 3.7 of the Hong Kong Code on Takeovers and Mergers. As a reminder on 25 February 2021, Languang Justbon announced that Languang Hejun, the controlling shareholder, entered a memorandum of understanding (MOU) with Country Garden Services Holdings (6098 HK) to sell 115.1 million H shares (64.62% of the outstanding shares) at a price of RMB42.1105 per H share. The MOU has been updated such that Languang Hejun will sell Country Garden Services also 0.75 million domestic shares (0.42% of the outstanding shares) in addition to the previously agreed 115.1 million H shares (64.62% of the outstanding shares). The total represents Languang Hejun entire shareholding of 115.8 million shares, which represents 65.04% of the outstanding shares. Also, the acquisition price has been modestly bumped 1.8% from RMB42.1105 per H share to RMB42.8546 per H share or per domestic share. Country Garden Services will also pay a deposit of RMB1,985.67 million to Languang Hejun and Languang Hejun shall execute a share charge over 106.9 million H shares (60.00% of the outstanding shares) in favour of Country Garden Services.If the potential transaction materialises it may lead to a general offer at the higher of (i) the price paid to Languang Hejun, and (ii) the HK$ equivalent of RMB42.8546 (HK$51.30 per share at an FX rate of 0.8353). We think that this latest development takes the transaction one step closer to completion. At the last close price of HK$47.55, the gross spread to the possible general offer price of HK$51.30 per share is 7.9%. The downside risk to a failed agreement remains low as Languang Justbon is trading close to its break price, in our view. The forward P/E of 9.7x implied by the last close price is 11% above the 6-month forward P/E multiple of 8.7x but 9% below the 1-year average forward P/E of 10.7x (calculated up to 22 February prior to the trading halt). 

Languang Justbon’s General Offer from Country Garden Services - A Step Closer

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Smoore International Holdings / Event-Driven

<p>On 1 March, Hang Seng Indexes (HSIL) announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".</p><p>The main takeaways are an increase in the number of <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> constituents to 80 by mid-2022 and ultimately to 100, balanced representation across 7 Industry group with a market coverage of not less than 50%, a 3 month minimum listing history requirement, a representation of 20-25 Hong Kong companies in the index, and a rationalisation in the weighting cap to 8% for all stocks (including Secondary Listings and WVR Securities).</p><p>There is no timeline of how HSIL intends to reach the 80 constituent target count by mid-2022 or to the 100 constituents beyond that. HSIL has not updated the index methodology file either which adds another layer of uncertainty.</p><p>In this Insight we look at stocks that could be higher probability inclusions in the index at the June review based on the current index methodology and the proposed changes to the methodology and come up with 9 potential inclusions and 2 potential exclusions.</p>

On 1 March, Hang Seng Indexes (HSIL) announced the conclusions of the market consultation on the "Proposal to enhance the Hang Seng Index as regards continuing to serve as the most representative and important benchmark of the Hong Kong stock market".The main takeaways are an increase in the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80 by mid-2022 and ultimately to 100, balanced representation across 7 Industry group with a market coverage of not less than 50%, a 3 month minimum listing history requirement, a representation of 20-25 Hong Kong companies in the index, and a rationalisation in the weighting cap to 8% for all stocks (including Secondary Listings and WVR Securities).There is no timeline of how HSIL intends to reach the 80 constituent target count by mid-2022 or to the 100 constituents beyond that. HSIL has not updated the index methodology file either which adds another layer of uncertainty.In this Insight we look at stocks that could be higher probability inclusions in the index at the June review based on the current index methodology and the proposed changes to the methodology and come up with 9 potential inclusions and 2 potential exclusions.

HSI Index Rebalance Preview: Potential Changes in June

China

Country Garden Services Holdings Company Limited provides real estate development services. The Company develops residential apartments, multi-functional complex buildings, government and public facilities, industrial parks, highway service stations, and schools. Country Garden Services Holdings serves clients in China.

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Country Garden Services (6098 HK)

Times Neighborhood - Value+Growth, Could It Be an Acquisition Target?

This insight highlights an opportunity in the property management company Times Neighborhood, having a 50% CAGR in profits from 2020-23 and trading...

Sameer Taneja

Languang Justbon (2606 HK): Be Wary Of Chasing The Delisting Bump

The MGO price is all but assured. The delisting offer price less so. But it does avail investors to a possible free option. This is a buy in the...

David Blennerhassett

Languang Justbon’s Mandatory Offer and Voluntary Delisting Proposal from Country Garden Services

CGS has announced a voluntary delisting proposal at HK$54.3000 per H-share subject to shareholder approval and min acceptance conditions. We think...

Arun George

Languang Justbon’s General Offer from Country Garden Services - A Step Closer

The MOU has been updated such that Languang Hejun will sell CG Services its entire shareholding of 115.8 m shares at slightly improved terms...

Arun George

HSI Index Rebalance Preview: Potential Changes in June

Following the proposed changes to the HSI, we identify potential inclusions and exclusions at the June review. Turnover will be high due to changes...

Brian Freitas

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