Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Keisei Electric Railway Co / Event-Driven

<ul>
<li>The CSRC has announced five capital market cooperation measures for the Hong Kong Southbound Connect programs including  RMB dual counters and REITs. </li>
<li>
<a href="https://www.smartkarma.com/entities/jardine-cycle-carriage-ltd" target="_blank" data-smartkarma-citation="entities:347:1" rel="noopener">Jardine Cycle &amp; Carriage (JCNC SP)</a>'s current implied stub value and simple ratio are both highly elevated.</li>
<li>A simple <a href="https://www.smartkarma.com/entities/keisei-electric-railway-co" target="_blank" data-smartkarma-citation="entities:10876:1" rel="noopener">Keisei Electric Railway Co (9009 JP)</a>model says "this doesn't present me with enough upside to warrant it unless I am also really bullish <a href="https://www.smartkarma.com/entities/oriental-land-co-ltd" target="_blank" data-smartkarma-citation="entities:13517:1" rel="noopener">Oriental Land (4661 JP)</a>."</li>
</ul>


The CSRC has announced five capital market cooperation measures for the Hong Kong Southbound Connect programs including  RMB dual counters and REITs. 

Jardine Cycle &amp; Carriage (JCNC SP)'s current implied stub value and simple ratio are both highly elevated.
A simple Keisei Electric Railway Co (9009 JP)model says "this doesn't present me with enough upside to warrant it unless I am also really bullish Oriental Land (4661 JP)."


Last Week in Event SPACE: HK Southbound, Jardine Cycle, Keisei/Oriental Land, BHP/Anglo American

<ul>
<li>Even if you were an activist, or a trader with an activism tilt, be long <a href="https://www.smartkarma.com/entities/keisei-electric-railway-co" target="_blank" data-smartkarma-citation="entities:10876:1" rel="noopener">Keisei Electric Railway Co (9009 JP)</a> vs. <a href="https://www.smartkarma.com/entities/oriental-land-co-ltd" target="_blank" data-smartkarma-citation="entities:13517:1" rel="noopener">Oriental Land (4661 JP)</a>.</li>
<li>Reportedly, <a href="https://www.smartkarma.com/entities/singapore-telecommunications" target="_blank" data-smartkarma-citation="entities:20:1" rel="noopener">Singtel (ST SP)</a> is negotiating a sale of Optus. Both Singtel and Optus scotch those rumours. </li>
<li>
<a href="https://www.smartkarma.com/entities/alumina-ltd" target="_blank" data-smartkarma-citation="entities:939:1" rel="noopener">Alumina Ltd (AWC AU)</a> and <a href="https://www.smartkarma.com/entities/alcoa-corp" target="_blank" data-smartkarma-citation="entities:6510:1" rel="noopener">Alcoa (AA US)</a> enter into a Scheme. As expected. The key question: is CITIC, with 18.9% of shares out, supportive?</li>
</ul>


Even if you were an activist, or a trader with an activism tilt, be long Keisei Electric Railway Co (9009 JP) vs. Oriental Land (4661 JP).
Reportedly, Singtel (ST SP) is negotiating a sale of Optus. Both Singtel and Optus scotch those rumours. 

Alumina Ltd (AWC AU) and Alcoa (AA US) enter into a Scheme. As expected. The key question: is CITIC, with 18.9% of shares out, supportive?


Last Week in Event SPACE: Keisei Electric /Oriental Land, SingTel, Alumina/Alcoa, Li Ning

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Bloomberg reported on 24 February that <a href="https://www.smartkarma.com/entities/mondi-plc" target="_blank" data-smartkarma-citation="entities:22048:1" rel="noopener">Mondi PLC (MNDI LN)</a> had been "speaking with advisers" about a potential takeover offer for <a href="https://www.smartkarma.com/entities/ds-smith-plc" target="_blank" data-smartkarma-citation="entities:22150:1" rel="noopener">DS Smith PLC (SMDS LN)</a>. Bloomberg added that "deliberations are at an early stage and there is no certainty they will lead to a transaction".
<ul>
<li>DS Smith shares rose on 25 February by 5.7%, the top performer on the FTSE100, having also risen by 3.2% on the previous trading session. Mondi shares fell by 0.1% on 25 February.</li>
<li>Both DS Smith and Mondi declined to comment.</li>
<li>Mondi has a market cap of £8,726 mn vs. £5,568 for DS Smith.</li>
</ul>
The attraction of DS Smith lies in its scale and market share in Europe, exposure to relatively stable end-markets (which has limited the impact of the pandemic), integration between recycling and paper production and geographic diversification.
<ul>
<li>A combined Mondi-DS Smith would help European container board and corrugated box consolidation (price discipline) and would enhance the competitive positioning of the resulting company (c. 16.4% of of European container board capacity).</li>
<li>It would also benefit from the increased demand from e-commerce sales and plastic containers reduction (substitution of plastics by paper and board).</li>
<li>Mondi would also be less exposed to fine paper, which is declining.</li>
<li>
Synergies would not be that relevant, in my view.</li>
<li>
Production optimisation: DS Smith needs more cardboard, so merging would help find a destination for Mondi's capacity, i.e. Mondi supplying virgin fibre to DS Smith for its container board needs. Whilst DS Smith prioritises the use of recycled fibres through its circular business model, a small amount of virgin fibres is required.</li>
</ul>
Both historical and projected EBITDA margins for DS Smith are lower than Mondi's. For the last five FY an average of 20.6% for Mondi vs. 12.8% for DS Smith. Equally, last five FYs average ROCE for Mondi is 15.5% vs. 11.4% for DS Smith. Mondi is also financially more sound, as it is rated BBB+ whilst DS Smith is rated BBB-.
On an EV/Fwd EBITDA (Capital IQ consensus) basis, Mondi is trading at 9.2x while DS Smith is trading at 9.0x.
Based on comparables, the implied median EV/Fwd EBITDA valuation of DS Smith is 419p (vs. a Capital IQ consensus median TP of 405p).
On the back of strong momentum for DS Smith and comparables valuation, I would be long SMDS LN. Theremay be further upside from a potential offer for the company.

Bloomberg reported on 24 February that Mondi PLC (MNDI LN) had been "speaking with advisers" about a potential takeover offer for DS Smith PLC (SMDS LN). Bloomberg added that "deliberations are at an early stage and there is no certainty they will lead to a transaction".

DS Smith shares rose on 25 February by 5.7%, the top performer on the FTSE100, having also risen by 3.2% on the previous trading session. Mondi shares fell by 0.1% on 25 February.
Both DS Smith and Mondi declined to comment.
Mondi has a market cap of £8,726 mn vs. £5,568 for DS Smith.

The attraction of DS Smith lies in its scale and market share in Europe, exposure to relatively stable end-markets (which has limited the impact of the pandemic), integration between recycling and paper production and geographic diversification.

A combined Mondi-DS Smith would help European container board and corrugated box consolidation (price discipline) and would enhance the competitive positioning of the resulting company (c. 16.4% of of European container board capacity).
It would also benefit from the increased demand from e-commerce sales and plastic containers reduction (substitution of plastics by paper and board).
Mondi would also be less exposed to fine paper, which is declining.

Synergies would not be that relevant, in my view.

Production optimisation: DS Smith needs more cardboard, so merging would help find a destination for Mondi's capacity, i.e. Mondi supplying virgin fibre to DS Smith for its container board needs. Whilst DS Smith prioritises the use of recycled fibres through its circular business model, a small amount of virgin fibres is required.

Both historical and projected EBITDA margins for DS Smith are lower than Mondi's. For the last five FY an average of 20.6% for Mondi vs. 12.8% for DS Smith. Equally, last five FYs average ROCE for Mondi is 15.5% vs. 11.4% for DS Smith. Mondi is also financially more sound, as it is rated BBB+ whilst DS Smith is rated BBB-.
On an EV/Fwd EBITDA (Capital IQ consensus) basis, Mondi is trading at 9.2x while DS Smith is trading at 9.0x.
Based on comparables, the implied median EV/Fwd EBITDA valuation of DS Smith is 419p (vs. a Capital IQ consensus median TP of 405p).
On the back of strong momentum for DS Smith and comparables valuation, I would be long SMDS LN. Theremay be further upside from a potential offer for the company.

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

In our previous note, <a href="https://www.smartkarma.com/insights/scg-packaging-ipo-short-term-catalysts-are-not-attractive" target="_blank" data-smartkarma-citation="insights:43675" rel="noopener">SCG Packaging IPO: Short-Term Catalysts Are Not Attractive</a>, we suggested that, while we like SCGP for its longer-term prospects, the company’s short-term performance is likely to be hindered by the sluggish Thai economy. However, we believe these short-term risks are compensated through the company’s valuation, which looks attractive to us even at the higher-end of the indicative IPO price range. We would consider subscribing to the IPO but would not rule out the possibility of a pullback in the short-run under margins pressure.

In our previous note, SCG Packaging IPO: Short-Term Catalysts Are Not Attractive, we suggested that, while we like SCGP for its longer-term prospects, the company’s short-term performance is likely to be hindered by the sluggish Thai economy. However, we believe these short-term risks are compensated through the company’s valuation, which looks attractive to us even at the higher-end of the indicative IPO price range. We would consider subscribing to the IPO but would not rule out the possibility of a pullback in the short-run under margins pressure.

SCG Packaging IPO: Risks-Rewards Attractive at the Higher-End of the IPO Price Range

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<a href="https://www.smartkarma.com/entities/scg-packaging-public-company-limited" target="_blank" data-smartkarma-citation="entities:28684:1" rel="noopener">SCG Packaging (SCGP TB)</a> aims to raise around US$1.2bn in its Thailand IPO. It is a part of the <a href="https://www.smartkarma.com/entities/siam-cement-pcl-the" target="_blank" data-smartkarma-citation="entities:2589:1" rel="noopener">Siam Cement (SCC TB)</a> group.SCGP is a packaging solutions provider in ASEAN offering fiber-based packaging, performance and polymer packaging, food service products, design, printing and other solutions. SCGP is the largest packaging paper and corrugated containers producer in ASEAN, as per Frost &amp; Sullivan. SCGP has been steadily increasing its exposure to the packaging segment via acquiring smaller competitors across ASEAN. Its efforts appear to be paying off as EBITDA and PATMI margins bottomed in 2016 and have been improving since. However, its asset growth has been running ahead of earnings growth for most of the prior years. Since its operating cash flows haven’t been enough to cover its capex needs and acquisition expenses in most of the past few years, this has led to a rise in leverage. Furthermore, a look at its recent financials indicate that most of the growth has been owing to its recent Indonesian acquisition.Our previous coverage of the IPO: <a href="https://www.smartkarma.com/insights/scg-packaging-pre-ipo-shift-to-packaging-has-been-aiding-margins-but-acquisition-drove-up-leverage" target="_blank" rel="noopener">SCG Packaging Pre-IPO - Shift to packaging has been aiding margins but acquisitions have driven up leverage</a>

SCG Packaging (SCGP TB) aims to raise around US$1.2bn in its Thailand IPO. It is a part of the Siam Cement (SCC TB) group.SCGP is a packaging solutions provider in ASEAN offering fiber-based packaging, performance and polymer packaging, food service products, design, printing and other solutions. SCGP is the largest packaging paper and corrugated containers producer in ASEAN, as per Frost &amp; Sullivan. SCGP has been steadily increasing its exposure to the packaging segment via acquiring smaller competitors across ASEAN. Its efforts appear to be paying off as EBITDA and PATMI margins bottomed in 2016 and have been improving since. However, its asset growth has been running ahead of earnings growth for most of the prior years. Since its operating cash flows haven’t been enough to cover its capex needs and acquisition expenses in most of the past few years, this has led to a rise in leverage. Furthermore, a look at its recent financials indicate that most of the growth has been owing to its recent Indonesian acquisition.Our previous coverage of the IPO: SCG Packaging Pre-IPO - Shift to packaging has been aiding margins but acquisitions have driven up leverage

United Kingdom

DS Smith Plc is an International paper company focused on packaging and office products. The Group collects waste paper, manufactures paper, converts corrugated packaging and produces bag-in-box, plastic corrugated and heavy duty corrugated packaging, as well as wholesales office supplies.

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DS Smith PLC (SMDS LN)

Last Week in Event SPACE: HK Southbound, Jardine Cycle, Keisei/Oriental Land, BHP/Anglo American

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Last Week in Event SPACE: Keisei Electric /Oriental Land, SingTel, Alumina/Alcoa, Li Ning

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

DS Smith - Mondi: Potential Combination

Mondi-DS Smith would be + for Euro container board & corrugated box consolidation. Synergies not that relevant. LONG SMDS LN on strong momentum,...

Jesus Rodriguez Aguilar

SCG Packaging IPO: Risks-Rewards Attractive at the Higher-End of the IPO Price Range

In our previous note, SCG Packaging IPO: Short-Term Catalysts Are Not Attractive, we suggested that, while we like SCGP for its longer-term...

Supun Walpola

SCG Packaging IPO - Unexciting

SCG Packaging (SCGP TB) aims to raise around US$1.2bn in its Thailand IPO. It is a part of the Siam Cement (SCC TB) group, which aims to hold at...

Sumeet Singh

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