Consumer

In this briefing:

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO
2. Nintendo Offering & Buyback: The Import & The Dynamics
3. Last Week in Event SPACE: Rakuten/Lyft, Delta, Kosaido, Ophir, Dairy Crest, Panalpina, BGF

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

2. Nintendo Offering & Buyback: The Import & The Dynamics

On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding. 

Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe. 

On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.

This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.

The real reason why this selldown is happening – also noted in the Offering Document “reason for the offering” – is because of the heightened focus on policy cross-holdings highlighted in the changes to the Corporate Governance Code (especially Principle 1.4) which went live June 1 2018. The major changes were discussed in Japan’s Corporate Governance Code Amendments – A Much Bigger Stick for Activists and Stewards at that time, but the hint of how this might play out was discussed in Japan Crossholdings: Japan Exchange’s Sale of SGX Shares Sets A Precedent – Watch Closely from 1 April 2018. In an announcement after the close on the last day of the last fiscal year, Japan Exchange Group (8697 JP) announced it would sell down its 4.95% stake in Singapore Exchange (SGX SP) over the space of three years. 

The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight). 

My words then still stand.

And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.

The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.

3. Last Week in Event SPACE: Rakuten/Lyft, Delta, Kosaido, Ophir, Dairy Crest, Panalpina, BGF

Last Week in Event SPACE …

• The question mark over the size of Rakuten Inc (4755 JP)‘s stake in Lyft may be known in the coming two weeks.
• Delta Electronics Thai (DELTA TB)‘s Tender Off document fails to clarify how the FY18 dividend will be treated.
• An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
• Ophir Energy (OPHR LN)‘s shareholders ratchet up their opposition to Medco Energi Internasional T (MEDC IJ)‘s Offer.
• A bump seems envisaged against an already healthy price, but it may not need be a big one to get the Dairy Crest (DCG LN) deal done.
  
• DSV A/S (DSV DC)‘s Offer either comes down to price, or it comes down to loyalty to Panalpina Welttransport Holding (PWTN SW)‘s management.
• The BGF Co Ltd (027410 KS) set up trade has provided a decent return recently, but could still run further.
• Plus CCASS movements and expected upcoming events for key M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

Rakuten Inc (4755 JP) (Mkt Cap: $10.2bn; Liquidity: $51mn)

Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.

• As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn. 
• A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.

(link to Travis’ insight: Will Rakuten Get A Near-Term Lyft?) 

Doosan Heavy Industries (034020 KS) (Mkt Cap: $868mn; Liquidity: $78.5mn)
Doosan Engineering & Construction (011160 KS) (Mkt Cap: $91mn; Liquidity: $0.4mn)

DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.

• For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
• For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
• ₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.

link to Sanghyun Park‘s insights:
Doosan E&C Rights Offer: Conditions & Timetable
DHICO (Doosan Heavy) Rights Offer: Conditions & Timetable.

Delta Electronics Thai (DELTA TB) (Mkt Cap: $2.8bn; Liquidity: $3mn)

The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.

• Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
• Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.

(link to my insight: Delta Thailand’s Tender Offer: Updated Timetable)

M1 Ltd (M1 SP) (Mkt Cap: $1.4bn; Liquidity: $3mn)

The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.

• If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out). 
• So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.

(link to Travis’ insight: M1 Offer Unconditional as Axiata Tenders)

Kosaido Co Ltd (7868 JP) (Mkt Cap: $160mn; Liquidity: $1mn)

When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.

• Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough. 
• This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
• The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself. 

(link to Travis’ insight: Kosaido TOB (7868 JP) Situation Gets Weird – Activists and Independent Opposition to an MBO)

Briefly …

• After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
• Xingfa Aluminium (98 HK) announced both China Lesso Group Holdings (2128 HK) (26.3% shareholder) and Sure Keen (11.5%, ED Liao Yuqing’s vehicle), collectively holding  37.81% of shares out, will NOT tender their shares into the offer. (Guangxin Reloads A Peculiar Low-Ball Offer For Xingfa Aluminium)

Dairy Crest (DCG LN) (Mkt Cap: $1.3bn; Liquidity: $4.5mn)

Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.

• At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
• Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
• One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017.  Doable, but as it is an agreed deal, Travis doesn’t see the need to push it. 

(link to Travis’ insight: Saputo to Buy Crest Dairy; Initial Market Response Wants a Bump)

Ophir Energy (OPHR LN) (Mkt Cap: $509mn; Liquidity: $6mn)

Petrus Advisors (3.5% shareholder) has dialed up the pressure on its opposition to Medco Energi Internasional T (MEDC IJ)‘s £0.55/share offer for Ophir Energy (OPHR LN), specifically calling into question Bill Schrader’s (Ophir’s Chairman) business acumen.

• In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
• Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier –  alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
• Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.

(link to my insight: Petrus Doubles Down On Ophir Energy)

Panalpina Welttransport Holding (PWTN SW) (Mkt Cap: $3.7bn; Liquidity: $22mn)

Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done.  45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?

• Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
• DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
• It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
• If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop. 

(link to Travis’ insight: The Panalpina Conundrum)

Mahindra & Mahindra (MM IN) 

Curtis Lehnert backs out a discount to NAV of 42%, the widest since at least 2015. His proposal to structure the trade is to use a market-cap weighted hedge on the two largest listed subsidiaries, Tech Mahindra (TECHM IN) and Mahindra & Mahindra Fin Services Ltd. (MMFS IN) along with a core business hedge using Maruti Suzuki India (MSIL IN) to hedge the core automotive business. 

• Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
• The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.

(link to Curtis’ insight: TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise)

BGF Co Ltd (027410 KS) / Bgf Retail (282330 KS)

On January 8th, Douglas Kim initiated a setup trade of going long BGF Co and going short BGF Retail. (Korean Stubs Spotlight: A Pair Trade Between BGF Co. & BGF Retail) This setup has worked out well (7.5% return) and he now think this is a good time to close the trade.

• In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).

links to:
Douglas’ insight: Korean Stubs Spotlight: Close the Pair Trade Between BGF Co. & BGF Retail
Sanghyun’s insight: BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

Can One Bhd (CAN MK) / Kian Joo Can Factory (KJC MK)

Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.

• This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
• For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.

(link to my insight: StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels)

Briefly …

• Sanghyun recommended long Hansae Yes24 Holdings Co, Ltd. (016450 KS), short Hansae Co Ltd (105630 KS), now that the Holdco/Sub ratio  is at -227% of σ or a 120D low. Using his numbers, I see the discount to NAV at 49% against a one-year average of 44%; while the implied stub is at a one-year low. (link to Sanghyun’s insight: Hansae Holdco/Sub Trade: Huge Divergence Now, Sub Price Rally Should Be Resisted Here)

Hyundai Glovis (086280 KS) / Hyundai Mobis (012330 KS)

There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.

• Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt.  Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
• This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.

(link to Sanghyun’s insight: Glovis/Mobis Pair Trade: Glovis Being Overpriced Relative to Mobis on Unsubstantiated Speculation)

• Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.

• Hopewell Holdings (54 HK) and the Offeror are still in the course of finalising the information to be included in the Scheme Document. No date for the dispatch has been announced.

• ESR’s offer for Propertylink Group (PLG AU) has turned unconditional after Centuria Capital (CNI AU) tendered. 

• The composite doc for Harbin Electric Co Ltd H (1133 HK), initially due out this past week, has been further postponed until the 29 March – on or before – ostensibly to incorporate the FY18 financials.

• Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme.  The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED,  holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.

• MYOB Group Ltd (MYO AU) announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal.  At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

In this briefing:

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO
2. Nintendo Offering & Buyback: The Import & The Dynamics
3. Last Week in Event SPACE: Rakuten/Lyft, Delta, Kosaido, Ophir, Dairy Crest, Panalpina, BGF
4. Saputo to Buy Dairy Crest; Initial Market Response Wants a Bump

1. Last Week in GER Research: Best World, Graincorp, Myob and New Century IPO

In this version of the GER weekly research wrap, we assess the controversy surrounding potentially inflated revenue concerns for Best World International (BEST SP) . Secondly, we dig into the latest M&A situation for Graincorp Ltd A (GNC AU) amidst a testy AGM and a slow resolution to a binding bid which may limit a bump. In addition, we update on the KKR bid for MYOB Group Ltd (MYO AU) which Arun contends is unlikely to receive a counter bid due to KKR’s blocking stake. Finally, we initiate on the IPO of hotelier Zhejiang New Century Hotel Management Group (ZHEKAIH HK).  A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

2. Nintendo Offering & Buyback: The Import & The Dynamics

On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding. 

Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe. 

On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.

This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.

The real reason why this selldown is happening – also noted in the Offering Document “reason for the offering” – is because of the heightened focus on policy cross-holdings highlighted in the changes to the Corporate Governance Code (especially Principle 1.4) which went live June 1 2018. The major changes were discussed in Japan’s Corporate Governance Code Amendments – A Much Bigger Stick for Activists and Stewards at that time, but the hint of how this might play out was discussed in Japan Crossholdings: Japan Exchange’s Sale of SGX Shares Sets A Precedent – Watch Closely from 1 April 2018. In an announcement after the close on the last day of the last fiscal year, Japan Exchange Group (8697 JP) announced it would sell down its 4.95% stake in Singapore Exchange (SGX SP) over the space of three years. 

The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight). 

My words then still stand.

And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.

The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.

3. Last Week in Event SPACE: Rakuten/Lyft, Delta, Kosaido, Ophir, Dairy Crest, Panalpina, BGF

Last Week in Event SPACE …

• The question mark over the size of Rakuten Inc (4755 JP)‘s stake in Lyft may be known in the coming two weeks.
• Delta Electronics Thai (DELTA TB)‘s Tender Off document fails to clarify how the FY18 dividend will be treated.
• An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
• Ophir Energy (OPHR LN)‘s shareholders ratchet up their opposition to Medco Energi Internasional T (MEDC IJ)‘s Offer.
• A bump seems envisaged against an already healthy price, but it may not need be a big one to get the Dairy Crest (DCG LN) deal done.
  
• DSV A/S (DSV DC)‘s Offer either comes down to price, or it comes down to loyalty to Panalpina Welttransport Holding (PWTN SW)‘s management.
• The BGF Co Ltd (027410 KS) set up trade has provided a decent return recently, but could still run further.
• Plus CCASS movements and expected upcoming events for key M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week)

Rakuten Inc (4755 JP) (Mkt Cap: $10.2bn; Liquidity: $51mn)

Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.

• As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn. 
• A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.

(link to Travis’ insight: Will Rakuten Get A Near-Term Lyft?) 

Doosan Heavy Industries (034020 KS) (Mkt Cap: $868mn; Liquidity: $78.5mn)
Doosan Engineering & Construction (011160 KS) (Mkt Cap: $91mn; Liquidity: $0.4mn)

DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.

• For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
• For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
• ₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.

link to Sanghyun Park‘s insights:
Doosan E&C Rights Offer: Conditions & Timetable
DHICO (Doosan Heavy) Rights Offer: Conditions & Timetable.

Delta Electronics Thai (DELTA TB) (Mkt Cap: $2.8bn; Liquidity: $3mn)

The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.

• Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
• Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.

(link to my insight: Delta Thailand’s Tender Offer: Updated Timetable)

M1 Ltd (M1 SP) (Mkt Cap: $1.4bn; Liquidity: $3mn)

The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.

• If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out). 
• So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.

(link to Travis’ insight: M1 Offer Unconditional as Axiata Tenders)

Kosaido Co Ltd (7868 JP) (Mkt Cap: $160mn; Liquidity: $1mn)

When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.

• Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough. 
• This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
• The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself. 

(link to Travis’ insight: Kosaido TOB (7868 JP) Situation Gets Weird – Activists and Independent Opposition to an MBO)

Briefly …

• After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
• Xingfa Aluminium (98 HK) announced both China Lesso Group Holdings (2128 HK) (26.3% shareholder) and Sure Keen (11.5%, ED Liao Yuqing’s vehicle), collectively holding  37.81% of shares out, will NOT tender their shares into the offer. (Guangxin Reloads A Peculiar Low-Ball Offer For Xingfa Aluminium)

Dairy Crest (DCG LN) (Mkt Cap: $1.3bn; Liquidity: $4.5mn)

Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.

• At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
• Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
• One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017.  Doable, but as it is an agreed deal, Travis doesn’t see the need to push it. 

(link to Travis’ insight: Saputo to Buy Crest Dairy; Initial Market Response Wants a Bump)

Ophir Energy (OPHR LN) (Mkt Cap: $509mn; Liquidity: $6mn)

Petrus Advisors (3.5% shareholder) has dialed up the pressure on its opposition to Medco Energi Internasional T (MEDC IJ)‘s £0.55/share offer for Ophir Energy (OPHR LN), specifically calling into question Bill Schrader’s (Ophir’s Chairman) business acumen.

• In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
• Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier –  alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
• Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.

(link to my insight: Petrus Doubles Down On Ophir Energy)

Panalpina Welttransport Holding (PWTN SW) (Mkt Cap: $3.7bn; Liquidity: $22mn)

Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done.  45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?

• Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
• DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
• It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
• If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop. 

(link to Travis’ insight: The Panalpina Conundrum)

Mahindra & Mahindra (MM IN) 

Curtis Lehnert backs out a discount to NAV of 42%, the widest since at least 2015. His proposal to structure the trade is to use a market-cap weighted hedge on the two largest listed subsidiaries, Tech Mahindra (TECHM IN) and Mahindra & Mahindra Fin Services Ltd. (MMFS IN) along with a core business hedge using Maruti Suzuki India (MSIL IN) to hedge the core automotive business. 

• Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
• The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.

(link to Curtis’ insight: TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise)

BGF Co Ltd (027410 KS) / Bgf Retail (282330 KS)

On January 8th, Douglas Kim initiated a setup trade of going long BGF Co and going short BGF Retail. (Korean Stubs Spotlight: A Pair Trade Between BGF Co. & BGF Retail) This setup has worked out well (7.5% return) and he now think this is a good time to close the trade.

• In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).

links to:
Douglas’ insight: Korean Stubs Spotlight: Close the Pair Trade Between BGF Co. & BGF Retail
Sanghyun’s insight: BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

Can One Bhd (CAN MK) / Kian Joo Can Factory (KJC MK)

Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.

• This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
• For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.

(link to my insight: StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels)

Briefly …

• Sanghyun recommended long Hansae Yes24 Holdings Co, Ltd. (016450 KS), short Hansae Co Ltd (105630 KS), now that the Holdco/Sub ratio  is at -227% of σ or a 120D low. Using his numbers, I see the discount to NAV at 49% against a one-year average of 44%; while the implied stub is at a one-year low. (link to Sanghyun’s insight: Hansae Holdco/Sub Trade: Huge Divergence Now, Sub Price Rally Should Be Resisted Here)

Hyundai Glovis (086280 KS) / Hyundai Mobis (012330 KS)

There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.

• Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt.  Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
• This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.

(link to Sanghyun’s insight: Glovis/Mobis Pair Trade: Glovis Being Overpriced Relative to Mobis on Unsubstantiated Speculation)

• Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.

• Hopewell Holdings (54 HK) and the Offeror are still in the course of finalising the information to be included in the Scheme Document. No date for the dispatch has been announced.

• ESR’s offer for Propertylink Group (PLG AU) has turned unconditional after Centuria Capital (CNI AU) tendered. 

• The composite doc for Harbin Electric Co Ltd H (1133 HK), initially due out this past week, has been further postponed until the 29 March – on or before – ostensibly to incorporate the FY18 financials.

• Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme.  The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED,  holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.

• MYOB Group Ltd (MYO AU) announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal.  At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

4. Saputo to Buy Dairy Crest; Initial Market Response Wants a Bump

Saputo Inc (SAP CN) and Dairy Crest (DCG LN) today announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement which the two parties say is likely to close in Q2 2019.

Saputo is a Canada-listed dairy company which has grown through serial acquisition – more than 30 acquisitions in the last twenty years – but curiously none of the acquisitions have left it with any operations in the UK. Dairy Crest is a leading UK-based dairy and cooking staples company whose best-known products are Cathedral City Cheddar Cheese, Clover margarine, Country Life butter, and Frylight cooking oil as well as other minor butter-similars and butter-replacement spreads.

This would be Saputo’s largest purchase in ten years – by a factor of three over their second largest – the purchase of Warrnambool Cheese & Butter Factory in Q1 2014.

Shares are trading through terms early, perhaps on expectations the wide open register means shareholders can try to hold out for a higher price. 

At a decent premium (13.9x TTM EV/EBITDA at 620p) to where the rest of the smaller-cap dairy products sector trades (below 10x on a median basis), and the highest EV/Revenue or EV/EBITDA multiple that I can find Saputo having paid, asking for more may not get you more, but investors clearly think it worth a try. 

An extra 10% would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. It would put March 2019 PER at just under 20x and just under 13.9x March 2019 expected EV/EBITDA.

In this briefing:

1. Will Rakuten Get A Near-Term Lyft?
2. A Comparison of Recent Visitors Trend to Korea and Japan

1. Will Rakuten Get A Near-Term Lyft?

Rakuten Inc (4755 JP) is much in the news for many reasons – one of which being a plunge into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, having officially applied for the license in February 2018 and seeing it approved in April.  – the license for which it applied a year ago, with approval received in April 2018. The goal has been to use its initial foray into the MVNO business where it has more than 1.5 million users, and increase its footprint to attract some of its 100+mm Rakuten IDs, 7mm Rakuten Bank accountholders, 3mm Rakuten Securities accountholders, so that it can increase the LTV (LifeTimeValue) of its existing customer base. 

The goal is to introduce service this year (also a requirement of the terms of its license), growing steadily to have 15mm subs in 10 years. The estimated hardware spend is said to be ¥600-700bn on base stations and equipment, initially concentrating on areas in and around mass transit stations in urban areas such as Tokyo and Osaka, and then expand outward. The company has signed deals with numerous partners in electricity distribution such as Tokyo Electric Power Co (9501 JP), Chubu Electric Power Co (9502 JP), and Kansai Electric Power Co (9503 JP) to install transmission equipment on these companies’ power poles and other infrastructure.

The shares have suffered mightily since the plan came to light in mid-December 2015, underperforming the TOPIX Info & Communications Sector Index by more than 20% in the fourteen months through yesterday. The sharp drop on the left hand side of the chart was a two-day sell-a-thon by investors convinced the company was about to waste billions of dollars. The Info & Communications Sector Index also dropped sharply on that day on fears that a fourth entrant with a declared goal of dropping monthly charges by 40% would increase churn at the existing Big Three (NTT Docomo Inc (9437 JP), Softbank Corp (9434 JP), and KDDI Corp (9433 JP)) and possibly cause a price war. The shares dropped from about ¥1140 to ¥1020/share, and then slid another 30-odd percent in the next six months to ¥700/share.

The shares have rebounded, fell back in autumn general market weakness, rebounded a tie-up on payments with KDDI announced Nov1 and decent Q3 numbes announced less than 2 weeks later, got crushed in the sharp global selloff in November and December, then had a v-shaped rebound at the start of 2019. 

At the end of January Rakuten Mobile Network received blanket licenses to transmit on 1.7Ghz in the major regions  covering Tokyo, Kyoto, Osaka, Nagoya and Yokohama from the local Bureaus of Communication, and expects to receive others soon. Last week, Rakuten reported full-year earnings through end-December with revenues up 16.6%yoy to just over ¥1.1 trillion, OP (IFRS) at ¥170.4bn, and Net Income at ¥142bn and on the same day announced Nokia had been granted the contract to deploy a turnkey solution as had been previously tested and speculated. 

There are numerous telecom and retailing experts publishing on Smartkarma who have more expertise on Rakuten’s telecom plans and their plans to compete harder against Amazon Japan and Yahoo Japan and others in the e-tailing space. 

I am not going to pretend to their level of knowledge on telecom or retailing (I found Kirk Boodry’s piece on the upcoming 5G allocations in March to be particularly informative) but I will note that Rakuten has a) the ability to borrow against the hardware and licenses, b) can roll out hardware quarter-by-quarter, and c) the KDDI/Rakuten deal is important. In it, KDDI will give Rakuten access to its nationwide roaming network, and Rakuten will provide KDDI with expertise on mobile payments – especially relevant as KDDI is now building out au Financial as briefly discussed here. 

But There is More NewsFlow To Come, And THAT is Interesting

In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mm in a then just-become-unicorn ride-sharing company called Lyft Inc (0812823D US), which at the end of the Series E round in May 2015 would leave it with ~11.9% of the company at a ~US$2.4-2.5bn post-money valuation. Recent articles suggest that Rakuten remains the top investor (though a WSJ article 2 weeks ago noted there would be golden shares. Hiroshi Mikitani remains a board member of Lyft.

That becomes important as by all accounts I can find (much more detail below), Rakuten continued investing in the four subsequent funding rounds through last summer, leaving the company as the largest single shareholder in Lyft as it prepares for its IPO later this spring. Lyft confidentially filed its IPO paperwork (a “draft S-1”) with the SEC in early December 2018, leaping ahead of Uber in the race to IPO first so the much larger Uber valuation doesn’t block Lyft’s chances for raising funds.

Reuters carried an article Thursday night Asia time saying Lyft planned to start its roadshow the week of March 18th, with an expected valuation of US$20-25 billion, and the first-mover advantage would allow Lyft to set the metrics it wants to use upon which to be judged and priced (if it waited, it would have to be compared to Uber). That could mean more emphasis on the company’s strong suite of self-driving partnerships (drive.ai, Ford, GM, Jaguar, Nutonomy, Waymo, others). A March 18th roadshow would require a full S-1 filing two weeks prior to that.

A successful IPO story based on picking up market share (reportedly doubled to 28% by end-2018 vs end-2016) might make Rakuten’s other investments look good too (Rakuten led Series B, C, D, and E funding for Spanish-language ride-hailing app cabify from 2014-2018 (and reportedly pushed cabify to merge with Lyft last year) and has invested in multiple rounds in SE Asian version GoJek.

The runup to this IPO and the clarity a filing could provide on ownership could provide a near-term fillip to Rakuten’s share price. 

2. A Comparison of Recent Visitors Trend to Korea and Japan

• In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
• According to Korea Ministry of Economy & Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
• As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 

In this briefing:

1. Last Week in Event SPACE: Navitas, Harbin Electric, Yungtay, Kosaido, Ophir, Tesla/CATL, Ecopro
2. Tesla Bonds Go Boom
3. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo
4. After Zozo: Onward Sets Sights on Digital Renaissance
5. Snippets #21: Bremain, TMB Rights Issue

1. Last Week in Event SPACE: Navitas, Harbin Electric, Yungtay, Kosaido, Ophir, Tesla/CATL, Ecopro

Last Week in Event SPACE …

• Agreed deal with no rival bidders coming, expect Navitas Ltd (NVT AU) to trade tight.
• The risk/reward is simply not present in Harbin Electric Co Ltd H (1133 HK)‘s low-ball offer.
• One wonders if there is a “gotcha” coming against the foreigner in Hitachi Ltd (6501 JP)‘s tilt for Yungtay Engineering (1507 TT) 
• We should have seen this coming as Murakami-San Goes Hostile on Kosaido Co Ltd (7868 JP).
  
• Medco Energi Internasional T (MEDC IJ)‘s offer for Ophir Energy (OPHR LN) should get up after a small bump and a chunk of the registry giving an irrevocable undertaking.
• A Tesla Motors (TSLA US) / CATL (A) (300750 CH) tie-in lacks credibility.

• Ecopro Co Ltd (086520 KS) is looking “cheap” as 56%-held Ecopro BM Co Ltd (247540 KS) pops 48% since its IPO, and now is now worth 115% of its market cap.

• Plus other events, CCASS movements and upcoming key dates for M&A transactions.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classification and Events – or SPACE – in the past week

Navitas Ltd (NVT AU) (Mkt Cap: $1.4bn; Liquidity: $4mn)

After 6 months of haggling and due diligence, debt negotiation, and structuring, global education company Navitas has now signed a Scheme Implementation Deed with a consortium led by Australian Private Equity firm BGH Capital consortium, which includes Navitas Founder Rod Jones (also the largest holder at 13%) and AustralianSuper. The Scheme Price of A$5.825 is a 6% uplift from the original A$5.50 offered in the preliminary, indicative, non-binding offer announced on 10 October 2018 and a 34% premium to the undisturbed price of 9 October 2018 of A$4.35/share.

• At an equity valuation of A$2.1bn, this is being done at a TTM EV/EBITDA of ~15.5x (and probably around 0.8 turns less for FY19 forecast, which is healthy, but the company spins off prodigious cashflow, which makes it doable for private equity with leverage. 
• Given the lack of any real news or rumour of competing offer in the last five months, or in the period since the lockup, Travis Lundy doesn’t think it likely we will see one. Because he thinks this deal has very few hurdles, expect it to trade tight.

(link to Travis’ insight: Navitas Gets An Agreed Deal with BGH)

Harbin Electric Co Ltd H (1133 HK) (Mkt Cap: $898mn; Liquidity: $4mn)

Harbin Electric’s (“HE”) composite doc for its merger by absorption has been dispatched. HE’s major shareholder Harbin Electric Corporation, an SOE, is seeking to delist the company by way of a merger by absorption at HK$4.56/share, an 82.4% premium to last close. The offer has been declared final and the IFA considers the offer fair & reasonable. The significant offer premium to last close, the material drop in FY18 profit, and the lack of possibility of a competitive bidder emerging suggests this Offer falls over the line.

• Seeing it blocked at the H-share meeting is a risk, although no single shareholder has the requisite stake to block the deal. The tendering acceptance condition in this two-step hybrid Offer of 90% of H shares out, has been seen in prior PRC-incorporated takeovers.

• However, I still consider a “fair” price to be something like the distribution of net cash (~$3.48/share by my calcs) to zero then taking over the company on a PER with respect to peers. Dissension rights are available, although I am not aware of any precedents from discussions with both the PRC and HK tribunals, nor the calculation methodology of a “fair price” under such a dissension, nor the timing of payment.

• Trading at a wide gross/annualised spread of 8.3%/54.5%, implying a >80% chance of completion. The current downside should this break is 45%. Not an attractive risk/reward.

(link to my insight: Harbin Electric’s Offer: One For The Brave)

Yungtay Engineering (1507 TT) (Mkt Cap: $793mn; Liquidity: $1mn)

On March 6th, a day before Hitachi Ltd (6501 JP)‘s Tender Offer for a minimum of just over a third of Yungtay was expected to close, the closing date was extended to 22 April, as Taiwan regulators (MEIC and FTC) had not signed off. The proposed purchase price was unchanged at NT$60. 

• An EGM called by independent director Chen – who has been against the deal – was expected to take place on the 18 April. It was not clear the underlying purpose of the EGM other than to change the directors in place and gain management rights for the Baojia Group and Hsu Tso-Ming. Perhaps IF the board were to be renewed with less support for Hitachi, then the board could change its support/opinion and that might affect retail investor support for the deal. Retail tends to vote with management. In any event Hitachi filed an injunction to stop the EGM.
• IF Hitachi is unlikely to get the required number of shares, then it could easily be the case that they lose board and management control. If they do get the support, they will effectively control the board and management for the foreseeable future.
• Travis’ expectation was that this deal was still “Safe” and would get done, most likely at NT$60 but with the option of a “kiss” to NT$63 or so in the case of more public awareness and castigation of Hitachi and the board for ignoring competing indications at higher prices.
• Helpfully, after the close on Friday, Hitachi gave it a kiss, raising the Tender Offer price to NT$65/share.
• Travis has opinions on what to do here. Read the insights.

(link to Travis’ insights:
Yungtay Tummy Rumblings Continue But Not Clear To What Avail
Hitachi Bumps Yungtay Bid to NT$65. Take It.

Kosaido Co Ltd (7868 JP) (Mkt Cap: $165mn; Liquidity: $2mn)

On the 8th of March, Bain Capital raised the Tender Offer Price by 14.8% to ¥700/share and extended the Tender Offer by almost two weeks to the 25th of March. It also lowered the amount which needs to be bought to 50.1% from 66.67%. So, on the 21 March, Murakami-san launched a Tender Offer of his own. 

• Murakami-affiliated entities Minami Aoyama Fudosan KK and Reno KK’s Tender Offer at ¥750/share is to buy a minimum of 9,100,900 shares and a maximum of all remaining shares. The entities currently own 3,355,900 shares (13.47%). That minimum should be easier than buying a minimum of 12,456,800 shares at ¥700/share under Bain Capital’s offer.
• There is a theoretical possibility that Japanese retail investors decide to tender their shares into Bain’s bid because it is supported by management rather than sell to a higher bid which is not. Travis doubted it will go this way but stranger things have happened. Bain should be willing to walk.
• After Travis wrote the first two insights listed below with the content above, the stock soared 16.5% on Friday and ended at a 14.5% premium to the Murakami tender of ¥750/share (i.e. closed at ¥859/share). The company maintained its support for the Bain Capital bid at ¥700/share, but withdrew its recommendation that investors tender into it. The company did not yet offer a real opinion on Murakami-san’s offer. That must come in the next 9 business days.
• Travis has opinions on what to do here. Read the insights below.

link to Travis’ insight:
Murakami-San Goes Hostile on Kosaido (7868 JP), Overbids Bain’s “Final” Offer.
Kosaido (7868 JP) – Reno Goes Bigger But TOB Price (This Time) Is Final So What Next?
Kosaido (7868 JP) Reaches Value You Can Sell

Villa World Ltd (VLW AU) (Mkt Cap: $200mn; Liquidity: $1mn)

Australian property developer, Villa World Ltd (VLW AU) announced that it had received an unsolicited proposal, by way of a scheme, from AVID Property Group Australia at an offer price A$2.23, or a 12% premium to last close. AVID’s indicative offer translates to an LTM PER and P/B of 6.4x and 0.9x, with the P/B metric roughly in line peers.

• During 2018, VLW’s share price declined by 36% to A$1.76 from A$2.77, with a large chunk of that downward move occurring in December after VLW withdrew its FY19E earnings guidance. That forecast withdrawal was exacerbated by the fact VLW had maintained the 2019 forward guidance at its mid-November AGM.
• Ho Bee Land Ltd (HOBEE SP), VLW’s largest shareholder and JV partner, responded to AVID’s proposal by buying 2.2mn shares (~1.8% of shares out) at an average of A$1.95/share – and a high of A$2.18/share – lifting its stake to 9.41%. VLW has also recently bought back and cancelled 1.76mn shares or ~1.4% of shares out. The highest price paid was $2.09.
• AVID’s offer looks opportunistic and it’s doubtful VLW will want to engage. VLW is trading below its book, paying out one of the highest yields among its peers, and with ~21% of the share register potentially defending their position- the largest shareholder actively buying – there’s likely upside from here. Shares closed Friday at $2.24.

(link to my insight: Ho Bee Ups Stake In Villa World After AVID Lobs An Offer)

Aveo Group (AOG AU) (Mkt Cap: $806mn; Liquidity: $3mn)

Aveo announced in early February a number of indicative non-binding bids were received for a “whole of company transaction” with the AFR reporting (paywalled) that Lone Star had joined the bidding. Other interested parties are believed to include Blackstone and Cerberus Capital. Aveo’s share price is up ~11% since announcing the receipt of the indicative bids – and closing at $1.97 on Friday – having drifted down from a (recent) closing peak of $2.14 earlier this month.

• Aveo is currently trading at an attractive 0.52x P/B vs. 1.8x for its peer group, with the next closest peer valuation at 0.7x P/B. An offer of >0.7x, a level last traded as recently as June 2018, appears reasonable with ~92% of assets in investment property. 

(link to my insight: Aveo: Take Advantage of the Lull To Take a Second Crack)

Descente Ltd (8114 JP) (Mkt Cap: $1.7bn; Liquidity: $7mn)

The partial offer has successfully closed, with no major surprise in the expected pro-ration and the back end traded higher than one’s purchase price – not down. Some of this may be due to lack of stock borrow, and conversely, some of the strength may be due to those who had shorted their borrow buying back their short.

• That left us with a question – do we want to own a residual here? Or instantiate a new position? The current post-tender price was 35.7% higher than the undisturbed price.
• Travis could not recommend an outright buy on fundamental reasons. He thinks the Itochu story is reasonably compelling, or will be, but the lack of near-term observable fundamental turnaround may disappoint some. There may not be a lot of IR or analyst coverage of the situation either. For that, if you have a residual trade, he would sell it here. 
• This is not a short recommendation. This is a “It was a good arb trade and now the arb trade is over so don’t become a long-term investor just because it is doing better than you thought.”

(link to Travis’ insight: Descente Tamed, Itochu Delicacy Required And Investors Can Probably Wait)

CATL (A) (300750 CH) (Mkt Cap: $28.5bn; Liquidity: $95mn)

CATL which grabbed Panasonic Corp (6752 JP)’s leading position in the battery supplier industry last year now seems to be grabbing the latter’s key customer as well. The news circulating states that CATL could power Tesla Motors (TSLA US)’s Model 3 cars which Tesla is planning to start assembling at Tesla’s new factory near Shanghai.

• However, the news lacks credibility as neither company has commented on the matter, while Tesla has already agreed with Tianjin Lishen to supply batteries for its Chinese Plant.
• But if true, Tesla would be the key one to benefit, while CATL could be taking up a considerable share of risk in terms of stable future orders.

(link to LightStream Research‘s insight: CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?)

Ophir Energy (OPHR LN) (Mkt Cap: $525mn; Liquidity: $7mn)

The boards of Medco Energi Internasional T (MEDC IJ) and Ophir have agreed to increase the Offer price to £0.575 from £0.55, representing a 73.2% premium to the undisturbed price. All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.

• Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer, declared it has no intention to bid. Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.
• Petrus, which previously estimated a £0.64 – £1.42/share range  – just for Ophir’s SEA investments, has yet to respond to the Offer increase; but it’s wholly doubtful their position has altered. Shortly before the bump, it said it would vote its 3.95% stake against the scheme.
• While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. Shares closed at £0.569 on Friday.

(link to my insight: Medco’s Bump For Ophir Won’t Sway Petrus)

Ceva Logistics AG (CEVA SW) (Mkt Cap: $1.7bn; Liquidity: $5mn)

CMA CGM SA (144898Z FP) has 89.47% of CEVA and will now move to squeeze out and delist. The additional tender period will run from 20 March to 2 April. CEVA’s board of directors have reversed their earlier opinion and recommend shareholders to tender. 

• If delisting occurs, it is expected concurrently occur with a squeeze-out, which would be expected to take place in the third quarter of 2019 once all stock exchange and other legal conditions are fulfilled.
• Depending on the final tendered %, the squeeze-out will occur via the simpler market squeeze-out process if CMA gets 98%+; or the more complex off-market merger/squeeze out route if the % tendered is between 90%-98%.

(link to my insight: CEVA Logistics: Okay, Now You Can Tender)

Ecopro Co Ltd (086520 KS)/Ecopro BM Co Ltd (247540 KS)

Ecopro BM is up 48% since its IPO on March 5th. Ecopro, which holds 56% in Ecopro BN is up just 1%. That stake is now worth 115% of its market cap.

• The stub assets primarily comprise a 100% stake in Ecopro Innovation, which is involved in the processing of lithium for lithium ion batteries. Innovation’s net profit increased to ₩26.3bn in the 1Q-3Q18 from ₩10.4bn in 2017. Innovation’s book value also increased to ₩35.3bn at the end of 3Q18 from ₩7.4bn at end of 2017. 
• Douglas Kim recommended going long Ecopro Co and shorting Ecopro BM. Plugging in his numbers, I back out a discount to NAV of 55%. Both legs are pretty liquid.

(link to Douglas’ insight: Korean Stubs Spotlight: A Pair Trade Between Ecopro Co and Ecopro BM)

Amorepacific Group (002790 KS)/Amorepacific Corp (090430 KS)

Curtis Lehnert closes this set-up trade as levels have reverted to the average. Both companies recently reported so-so results, suggesting the core business continues to face declining revenue from “roadshop” brands aimed at the lower-end of the market.

• More surprising was the stock buyback announced at both companies 20 days after the earnings announcement, which spurred a 15% rally in the Group’s share price while Corp rallied nearly 11%. The buyback announcement seems to have caught the market by surprise and also caused the stub to revert to its 6-month average level of ~16% discount to NAV.
• The pair trade made 2.84% ex-costs in two months.

(link to Curtis’ insight: TRADE IDEA – Amorepacific Stub (002790 KS): Buyback Helped, Close the Trade)

Hyosung Corporation (004800 KS)/Hyosung TNC Co Ltd (298020 KS)

Douglas recommended closing the Hyosung unwind trade, which has returned ~8.2% before comms and borrowing cos. 

• The reason for Hyosung TNC’s recent move upwards? Right place, right time it would seem, as its trading value substantially increased, touching  ₩8.9bn on the 19 March, the highest level this year, and the highest level since August 22nd, 2018.

(link to Douglas’ insight: Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp)

Linkbal Inc (6046 JP)(Mkt Cap: $4.2bn; Liquidity: $5mn)

On November 13th last year, Linkbal announced it was looking to move from MOTHERS to the TSE First Section. The stock rallied. Then it fell a lot. On March 5th, the company announced a forthcoming tachiaigai bunbai offering designed to increase the float. This would get it most of the way towards meeting the requirements, but likely not all the way.

• An inclusion is still months off. And there would likely be another sale to increase shareholder count by 800-1000 before then, whether in the form of a Public Offering/Uridashi or in the form of another tachiaigai bunbai.
• The company’s market cap is not large enough to warrant analyst coverage, and float will remain relatively small. I expect the stock to get re-evaluated by small-cap managers. There are some. There probably should be more.
• Travis recommended investors buy the stock – which traded over 2% of shares outstanding at -2% in the first five minutes, and 3% of outstanding in the first 20 minutes, before rising to close +13.6% on Wednesday. The stock fell 6% on Friday.

(link to Travis’ insight: Linkbal (6046 JP) SmallCap Growth Stock: Offering This Morning, TOPIX Inclusion Late Summer 2019?)

• Hopewell Holdings (54 HK)‘s “Egregiously Bad” scheme has passed with 96.27% of disinterested shareholders approving the resolution. Shares will now be suspended at the close of trading on the 17 April. Cheques are expected to be dispatched on the 14 April. Seems like I’m not the only one as David Webb was also unimpressed with the Offer.

• Xenith Ip (XIP AU) has surprisingly concluded IPH’s proposal is not superior to the offer by Qantm Intellectual Property (QIP AU). Also the ACCC will not oppose the Qantm/ Xenith merger. Separately, IPH Ltd (IPH AU) encourages XIP shareholders to vote against the QANTM merger, stating its offer is superior in value.

• After Eclipx (ECX AU) announced a 42.4% decline in NPATA in the first five months vs. FY18, and other significant issues in the Right2Drive and Grays divisions, Mcmillan Shakespeare (MMS AU) said it did “not believe it will be possible to complete the proposed scheme“. Eclipx closed down 60% on the week.

• Brookfield has received FIRB approval in its tilt for Healthscope Ltd (HSO AU). The AFR is reporting (paywalled) that BGH is now out of the running for Healthscope. Which leaves Brookfield’s twin bids ($2.50 via a scheme or $2.40 via an off-market takeover) as the expected winner.  Norges Bank announced it now holds 5.08%.

• Kian Joo Can Factory (KJC MK)‘s offer is now unconditional.

• China Power New Energy Development Co (735 HK) is suspended pending an announcement pursuant to he takeovers Code.
• Larsen & Toubro (LT IN) launched India’s first ever hostile takeover in the tech sector, to acquire a 20.3-66.3% stake in Mindtree Ltd (MTCL IN)through a three-step transaction – 20.3% from Mindtree’s largest shareholder, V G Siddhartha, 15% from the open market, and an open offer for 31%. All purchases up to Rs980/share, a 4% premium to the undisturbed price. (link to Arun George ‘s insight: Mindtree (MTCL IN): L&T’s Hostile Takeover Offer Is an Awkward Opening Gambit)

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

2. Tesla Bonds Go Boom

Remember last week when Tesla Motors (TSLA US) was set to dazzle the world with the eagerly awaited unveiling of the long-promised Model Y, on Pi Day! (see my report Tesla: Now We Know the Y But Not the How). Good times. 

Then, this happened:

• Model Y turned out to look and act just like Model 3, but with unconvincing features (third-row seat? Seriously?) and a much later than expected delivery target in 2020-2021 when, I warned, it could be so outdated it’s competitively irrelevant.
• CEO Elon Musk escalated his fight in the federal court considering the charge of contempt against him lodged by the SEC with a palpably arrogant defense. The SEC said Musk’s “brazen disregard of this court’s order is unacceptable and unworkable going forward.”
• Tesla made dubious claims about orders and deliveries that seems to be more alarming than inspiring to investors already spooked by the company’s calamitous strategy blunders which seem to be increasingly fueled by severe liquidity pressure (see Tesla’s Plan B 2.0; Y Not and Tesla: Now We Know the Y But Not the How).

Which means Tesla stock and bonds closed this week near six-month lows, with the spread on the benchmark 5.3% notes trading at a record 600 bps on Friday as they slumped back to 85.

Read on as Bond Angle analysis continues.

3. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.

It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.

The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.

4. After Zozo: Onward Sets Sights on Digital Renaissance

Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..

With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.

If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.

5. Snippets #21: Bremain, TMB Rights Issue

These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks: 

• Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
• TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
• Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base. 
• Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
• Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.

In this briefing:

1. A Comparison of Recent Visitors Trend to Korea and Japan

1. A Comparison of Recent Visitors Trend to Korea and Japan

• In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
• According to Korea Ministry of Economy & Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
• As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 

In this briefing:

1. A Comparison of Recent Visitors Trend to Korea and Japan
2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

1. A Comparison of Recent Visitors Trend to Korea and Japan

• In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
• According to Korea Ministry of Economy & Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
• As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 

2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

In this briefing:

1. A Comparison of Recent Visitors Trend to Korea and Japan
2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
3. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid

1. A Comparison of Recent Visitors Trend to Korea and Japan

• In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
• According to Korea Ministry of Economy & Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
• As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 

2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

3. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid

Frustration on the slow progress of the LTAP bid came to a head at the recent AGM, where shareholders registered what appeared to be protest votes aimed at Graincorp Ltd A (GNC AU)’s director elections and remuneration. The Board has currently three options to unlock shareholder value – achieve a binding LTAP bid, commence the portfolio review driven sale process or adopt the Tanarra Capital proposal.

In this briefing:

1. A Comparison of Recent Visitors Trend to Korea and Japan
2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
3. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid
4. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies

1. A Comparison of Recent Visitors Trend to Korea and Japan

• In this report, we compare the recent dynamic foreign tourists trend to Korea and Japan. In January 2019, the number of foreign visitors to Japan rose 7.5% YoY to 2.69 million. A total of 0.78 million from South Korea visited Japan in January (DOWN 3% YoY) followed by 0.75 million people from China (up 19.3% YoY).
• According to Korea Ministry of Economy & Finance (MoEF), the number of people from China to Korea increased 35.1% YoY in January 2019.
• As evidenced by the better than expected Chinese visitors to Korea and worse than expected South Korean visitors to Japan in January, there is an increasing indication that this trend could continue in 2019. Many of the Korean related cosmetics stocks have positively reacted to the recent data. One of the interesting trades to be long on a basket of Korean cosmetics related stocks and be short on a basket of Japanese cosmetics related names. 

2. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

3. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid

Frustration on the slow progress of the LTAP bid came to a head at the recent AGM, where shareholders registered what appeared to be protest votes aimed at Graincorp Ltd A (GNC AU)’s director elections and remuneration. The Board has currently three options to unlock shareholder value – achieve a binding LTAP bid, commence the portfolio review driven sale process or adopt the Tanarra Capital proposal.

4. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies

LG Uplus (032640 KS) shares have fallen around 20% from the highs of January when the market was excited by 5G. That always seemed overly optimistic given the lack of viable business cases and unknown investment requirements and we were comfortable with our Sell rating from mid October and KRW15,000 target price.  Following weak results, an easing of 5G  enthusiasm and the recently announced CJ Hello (037560 KS) deal the share price has fallen to around the KRW15,000. Alastair Jones now thinks a lot of bad news is in the price and the available synergies from CJ Hello offset a weaker earnings outlook. 

In this briefing:

1. Tesla Bonds Go Boom
2. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo
3. After Zozo: Onward Sets Sights on Digital Renaissance
4. Snippets #21: Bremain, TMB Rights Issue
5. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?

1. Tesla Bonds Go Boom

Remember last week when Tesla Motors (TSLA US) was set to dazzle the world with the eagerly awaited unveiling of the long-promised Model Y, on Pi Day! (see my report Tesla: Now We Know the Y But Not the How). Good times. 

Then, this happened:

• Model Y turned out to look and act just like Model 3, but with unconvincing features (third-row seat? Seriously?) and a much later than expected delivery target in 2020-2021 when, I warned, it could be so outdated it’s competitively irrelevant.
• CEO Elon Musk escalated his fight in the federal court considering the charge of contempt against him lodged by the SEC with a palpably arrogant defense. The SEC said Musk’s “brazen disregard of this court’s order is unacceptable and unworkable going forward.”
• Tesla made dubious claims about orders and deliveries that seems to be more alarming than inspiring to investors already spooked by the company’s calamitous strategy blunders which seem to be increasingly fueled by severe liquidity pressure (see Tesla’s Plan B 2.0; Y Not and Tesla: Now We Know the Y But Not the How).

Which means Tesla stock and bonds closed this week near six-month lows, with the spread on the benchmark 5.3% notes trading at a record 600 bps on Friday as they slumped back to 85.

Read on as Bond Angle analysis continues.

2. Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.

It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.

The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.

3. After Zozo: Onward Sets Sights on Digital Renaissance

Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..

With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.

If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.

4. Snippets #21: Bremain, TMB Rights Issue

These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks: 

• Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
• TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
• Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base. 
• Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
• Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.

5. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?

The news released on the 11^th of March, about Tesla Motors (TSLA US) choosing CATL (A) (300750 CH) as battery supplier has focused much attention on the two companies and other battery suppliers. CATL which grabbed Panasonic Corp (6752 JP)’s leading position in the industry last year now seems to be grabbing the latter’s key customer as well. The news circulating states that, CATL could power Tesla’s Model 3 cars which Tesla is planning to start assembling at Tesla’s new factory near Shanghai. Following the release of this supposed deal, the stocks of the two companies moved positively, with CATL surging by almost 6.7% while Tesla rose by almost 2.4% during the day.  However, both parties have not commented on this news yet or made any formal announcement regarding such a potential deal. In our Insight, Tesla Drifting Away Could Leave Panasonic Struggling to Gain Traction in China, we mentioned that Tesla was looking to locally source its batteries in China and that CATL could potentially be one such supplier. However, in January this year, it was reported that Tesla had signed a preliminary agreement with China’s Tianjin Lishen to supply batteries for its new Shanghai car factory, making the current news look less believable. Although it seems like the ongoing news about a Tesla-CATL pair up lacks integrity, with CATL sort of denying its intend to work with Tesla (according to an updated news release), the news does look interesting and its effect upon the related companies seems noteworthy.

In this briefing:

1. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans
2. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid
3. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies

1. This Week in Blockchain & Cryptos: Revisiting LINE’s Crypto Plans

LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies. 

Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.

2. GrainCorp (GNC AU): Pressure Mounts, Diminishing the Prospects of a Bump to the LTAP Bid

Frustration on the slow progress of the LTAP bid came to a head at the recent AGM, where shareholders registered what appeared to be protest votes aimed at Graincorp Ltd A (GNC AU)’s director elections and remuneration. The Board has currently three options to unlock shareholder value – achieve a binding LTAP bid, commence the portfolio review driven sale process or adopt the Tanarra Capital proposal.

3. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies

LG Uplus (032640 KS) shares have fallen around 20% from the highs of January when the market was excited by 5G. That always seemed overly optimistic given the lack of viable business cases and unknown investment requirements and we were comfortable with our Sell rating from mid October and KRW15,000 target price.  Following weak results, an easing of 5G  enthusiasm and the recently announced CJ Hello (037560 KS) deal the share price has fallen to around the KRW15,000. Alastair Jones now thinks a lot of bad news is in the price and the available synergies from CJ Hello offset a weaker earnings outlook.