Consumer

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
4. MAJOR: Impressive 4Q18 Earnings

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. 

4. MAJOR: Impressive 4Q18 Earnings

MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).

• 4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
• Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
• SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.

We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.

In this briefing:

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

1. 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.

2. 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.

3. 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.

4. 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.

5. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

In this briefing:

1. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies
2. MAJOR: Impressive 4Q18 Earnings
3. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

1. 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. 

2. MAJOR: Impressive 4Q18 Earnings

MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).

• 4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
• Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
• SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.

We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.

3. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

• The BGF Holdco/Sub duo is making a very dynamic movement. Yesterday, they made a 2σ jump. Sub went up 5.38%. Holdco stayed flat with a 0.24% gain. The day before yesterday, they made an exact opposite movement. Holdco was up 2%. Sub suffered a 3% loss. This also resulted in a 2σ jump, just the opposite way.
• Still, local street sentiments are heavily divided on Sub’s fundamentals. There is no news or anything that may possibly reverse the tide at this point. Shorting on Sub is still going very strong. It seems that a lot of short-term traders both at home and abroad are trading on the duo lately.
• On a 120D horizon, Holdco is still undervalued relative to Sub by about 10%. The duo should be again reverted back to a mean in favor of Holdco today. I’d suggest going long Holdco and short Sub now if you had closed the previous position which we initiated last week on Feb 13.

In this briefing:

1. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies
2. MAJOR: Impressive 4Q18 Earnings
3. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon
4. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses

1. 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. 

2. MAJOR: Impressive 4Q18 Earnings

MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).

• 4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
• Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
• SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.

We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.

3. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

• The BGF Holdco/Sub duo is making a very dynamic movement. Yesterday, they made a 2σ jump. Sub went up 5.38%. Holdco stayed flat with a 0.24% gain. The day before yesterday, they made an exact opposite movement. Holdco was up 2%. Sub suffered a 3% loss. This also resulted in a 2σ jump, just the opposite way.
• Still, local street sentiments are heavily divided on Sub’s fundamentals. There is no news or anything that may possibly reverse the tide at this point. Shorting on Sub is still going very strong. It seems that a lot of short-term traders both at home and abroad are trading on the duo lately.
• On a 120D horizon, Holdco is still undervalued relative to Sub by about 10%. The duo should be again reverted back to a mean in favor of Holdco today. I’d suggest going long Holdco and short Sub now if you had closed the previous position which we initiated last week on Feb 13.

4. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses

Zhejiang New Century Hotel Management Group (ZHEKAIH HK)  is a leading hotel group in China engaged in the operation and management of mid-scale and upscale hotel chains. New Century has started pre-marketing for a Hong Kong IPO to raise up to $200 million, according to press reports.

In this briefing:

1. Snippets #21: Bremain, TMB Rights Issue
2. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?
3. Is There Still a Bright Future for FutureBright?
4. Navitas Gets An Agreed Deal with BGH
5. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition

1. 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.

2. 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.

3. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

4. Navitas Gets An Agreed Deal with BGH

After 6 months of haggling and due diligence, debt negotiation, and structuring, global education company Navitas Ltd (NVT AU) has now signed a Board-recommended 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 agreed 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.

This history is that the consortium came in at A$5.50 (plus another cash+RollCo scrip offer), a month or so later the company effectively rejected it by not allowing the consortium to do due diligence after management lifted earnings guidance. This upset a number of shareholders. In November the share price ranged from A$4.95-5.25 or so and Chairman Tracey Horton got only 51% support at the AGM that month. The shares fell briefly below A$4.70 in early January this year before BGH came back in mid-January with a “revised indicative offer” of A$5.825 whereupon the shares bounced from about A$4.90 to about A$5.50 then climbed to A$5.60+ on 10mm shares volume in 3 days. 

The shares hovered around A$5.58-5.62 for 6-7 weeks until the beginning of March, briefly traded into the A$5.70s, and then traded back down the last few days this week to the A$5.59-5.63 area.

On Thursday 21 March the shares were halted for the day, StreetTalk had an article about the deal being imminent, and late in the afternoon, the BGH SID was announced. 

Now we start the official process. The Scheme document is expected to be dispatched in May 2019 with a deal completed by end-June or early July. I expect this deal gets up.

5. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition

Navitas Ltd (NVT AU), an Australian-listed education company, entered into a binding agreement to be acquired by the BGH Consortium. As a reminder on 15 January 2019, the BGH Consortium bid against itself by offering a revised proposal of A$5.825 cash per share, 6% higher than its previous rejected offer.

In this briefing:

1. Naspers: Softbank Buyback a Guide for Naspers?

1. Naspers: Softbank Buyback a Guide for Naspers?

Recently, Softbank’s (9984 JP) shares jumped +18% after announcing a $5.5bn share buyback. Using Smartkarma’s holdco monitor, the discount to NAV had widened to around 55% prior to the announcement but is now sitting around 40-45%. There were a few key reasons for the buyback: (1) the Softbank Corp (9434 JP) (KK) IPO netted $20bn, giving the company the flexibility to do the buyback, and (2) Softbank is taking a more disciplined approach to further platform investments.

Both these arguments are also available to Naspers (NPN SJ) management and a move to buy back 5% of market cap is feasible and we believe would narrow the discount. The question is whether management are listening. They have been dismissive of buybacks in the past but this could change.

In this briefing:

1. CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?
2. Is There Still a Bright Future for FutureBright?
3. Navitas Gets An Agreed Deal with BGH
4. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition
5. Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp

1. 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.

2. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

3. Navitas Gets An Agreed Deal with BGH

After 6 months of haggling and due diligence, debt negotiation, and structuring, global education company Navitas Ltd (NVT AU) has now signed a Board-recommended 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 agreed 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.

This history is that the consortium came in at A$5.50 (plus another cash+RollCo scrip offer), a month or so later the company effectively rejected it by not allowing the consortium to do due diligence after management lifted earnings guidance. This upset a number of shareholders. In November the share price ranged from A$4.95-5.25 or so and Chairman Tracey Horton got only 51% support at the AGM that month. The shares fell briefly below A$4.70 in early January this year before BGH came back in mid-January with a “revised indicative offer” of A$5.825 whereupon the shares bounced from about A$4.90 to about A$5.50 then climbed to A$5.60+ on 10mm shares volume in 3 days. 

The shares hovered around A$5.58-5.62 for 6-7 weeks until the beginning of March, briefly traded into the A$5.70s, and then traded back down the last few days this week to the A$5.59-5.63 area.

On Thursday 21 March the shares were halted for the day, StreetTalk had an article about the deal being imminent, and late in the afternoon, the BGH SID was announced. 

Now we start the official process. The Scheme document is expected to be dispatched in May 2019 with a deal completed by end-June or early July. I expect this deal gets up.

4. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition

Navitas Ltd (NVT AU), an Australian-listed education company, entered into a binding agreement to be acquired by the BGH Consortium. As a reminder on 15 January 2019, the BGH Consortium bid against itself by offering a revised proposal of A$5.825 cash per share, 6% higher than its previous rejected offer.

5. Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp

On March 12th, 2019, we wrote a report on initiating a pair trade of going long Hyosung TNC Co Ltd (298020 KS) and going short Hyosung Corporation (004800 KS). (Korean Stubs Spotlight: A Pair Trade Between Hyosung Corp and Hyosung TNC).  This trade has worked out well and now we think this is a good time to close this trade.

The return on this pair trade was 8.2%. (This assumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of March 12th to March 21st, 2019. This trade was made over a period of 9 days so the annualized returns would be 332%. 

We believe that Hyosung TNC is up so much in the past 9 days mainly because it appears that a few investors saw this stock as an undervalued stock that was being ignored by the market. In our report, Korean Stubs Spotlight: A Pair Trade Between Hyosung Corp and Hyosung TNC,  we mentioned that Hyosung TNC appears to be a turnaround story driven by the following four key factors: 

• Decline in raw material prices 
• Aggressive spandex investment in India 
• Stabilization of spandex prices in 2H19 
• Consolidation of the global spandex industry

In this briefing:

1. Glovis/Mobis Pair Trade: Glovis Being Overpriced Relative to Mobis on Unsubstantiated Speculation

1. Glovis/Mobis Pair Trade: Glovis Being Overpriced Relative to Mobis on Unsubstantiated Speculation

• There are still two schools of thought on the HMG restructuring. Glovis/Mobis merged entity as a holdco is the one. Only Glovis as a holdco with Mobis→HM→Kia below is the other. Since late 3Q last year, the local street started speculating on the latter.
• This has pushed up Glovis price relative to Mobis. They are now near 200% of σ in favor of Glovis on a 20D MA. Glovis made a 2+σ jump upwardly just in 4 trading days. On a 120D horizon, they are almost at the 120D high.
• At this point, neither is a hassle free way. In the latter, Glovis has to come up with nearly ₩2tril to buy Kia’s Mobis stake, highly likely through new debts. This financial burden wouldn’t be light on Glovis. Glovis may also be facing a risk of forceful holdco conversion. This will create a serious headache with Kia as a grand grand son subsidiary.
• The current speculation pushing up Glovis relative to Mobis has yet to be sufficiently substantiated/justified. This suggests Glovis is being overbought on a speculation that will very likely be short-lived. I expect there will soon be a mean reversion for Mobis. I’d go long Mobis and short Glovis at this point.

In this briefing:

1. Is There Still a Bright Future for FutureBright?
2. Navitas Gets An Agreed Deal with BGH
3. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition
4. Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp
5. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

1. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

2. Navitas Gets An Agreed Deal with BGH

After 6 months of haggling and due diligence, debt negotiation, and structuring, global education company Navitas Ltd (NVT AU) has now signed a Board-recommended 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 agreed 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.

This history is that the consortium came in at A$5.50 (plus another cash+RollCo scrip offer), a month or so later the company effectively rejected it by not allowing the consortium to do due diligence after management lifted earnings guidance. This upset a number of shareholders. In November the share price ranged from A$4.95-5.25 or so and Chairman Tracey Horton got only 51% support at the AGM that month. The shares fell briefly below A$4.70 in early January this year before BGH came back in mid-January with a “revised indicative offer” of A$5.825 whereupon the shares bounced from about A$4.90 to about A$5.50 then climbed to A$5.60+ on 10mm shares volume in 3 days. 

The shares hovered around A$5.58-5.62 for 6-7 weeks until the beginning of March, briefly traded into the A$5.70s, and then traded back down the last few days this week to the A$5.59-5.63 area.

On Thursday 21 March the shares were halted for the day, StreetTalk had an article about the deal being imminent, and late in the afternoon, the BGH SID was announced. 

Now we start the official process. The Scheme document is expected to be dispatched in May 2019 with a deal completed by end-June or early July. I expect this deal gets up.

3. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition

Navitas Ltd (NVT AU), an Australian-listed education company, entered into a binding agreement to be acquired by the BGH Consortium. As a reminder on 15 January 2019, the BGH Consortium bid against itself by offering a revised proposal of A$5.825 cash per share, 6% higher than its previous rejected offer.

4. Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp

On March 12th, 2019, we wrote a report on initiating a pair trade of going long Hyosung TNC Co Ltd (298020 KS) and going short Hyosung Corporation (004800 KS). (Korean Stubs Spotlight: A Pair Trade Between Hyosung Corp and Hyosung TNC).  This trade has worked out well and now we think this is a good time to close this trade.

The return on this pair trade was 8.2%. (This assumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of March 12th to March 21st, 2019. This trade was made over a period of 9 days so the annualized returns would be 332%. 

We believe that Hyosung TNC is up so much in the past 9 days mainly because it appears that a few investors saw this stock as an undervalued stock that was being ignored by the market. In our report, Korean Stubs Spotlight: A Pair Trade Between Hyosung Corp and Hyosung TNC,  we mentioned that Hyosung TNC appears to be a turnaround story driven by the following four key factors: 

• Decline in raw material prices 
• Aggressive spandex investment in India 
• Stabilization of spandex prices in 2H19 
• Consolidation of the global spandex industry

5. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR). 

In this briefing:

1. Navitas Gets An Agreed Deal with BGH
2. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition
3. Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp
4. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR
5. S: Outshines Thai Property Peers on High Recurring Profit

1. Navitas Gets An Agreed Deal with BGH

After 6 months of haggling and due diligence, debt negotiation, and structuring, global education company Navitas Ltd (NVT AU) has now signed a Board-recommended 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 agreed 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.

This history is that the consortium came in at A$5.50 (plus another cash+RollCo scrip offer), a month or so later the company effectively rejected it by not allowing the consortium to do due diligence after management lifted earnings guidance. This upset a number of shareholders. In November the share price ranged from A$4.95-5.25 or so and Chairman Tracey Horton got only 51% support at the AGM that month. The shares fell briefly below A$4.70 in early January this year before BGH came back in mid-January with a “revised indicative offer” of A$5.825 whereupon the shares bounced from about A$4.90 to about A$5.50 then climbed to A$5.60+ on 10mm shares volume in 3 days. 

The shares hovered around A$5.58-5.62 for 6-7 weeks until the beginning of March, briefly traded into the A$5.70s, and then traded back down the last few days this week to the A$5.59-5.63 area.

On Thursday 21 March the shares were halted for the day, StreetTalk had an article about the deal being imminent, and late in the afternoon, the BGH SID was announced. 

Now we start the official process. The Scheme document is expected to be dispatched in May 2019 with a deal completed by end-June or early July. I expect this deal gets up.

2. Navitas (NVT AU): BGH Heads Towards Its First Major Acquisition

Navitas Ltd (NVT AU), an Australian-listed education company, entered into a binding agreement to be acquired by the BGH Consortium. As a reminder on 15 January 2019, the BGH Consortium bid against itself by offering a revised proposal of A$5.825 cash per share, 6% higher than its previous rejected offer.

3. Korean Stubs Spotlight: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp

On March 12th, 2019, we wrote a report on initiating a pair trade of going long Hyosung TNC Co Ltd (298020 KS) and going short Hyosung Corporation (004800 KS). (Korean Stubs Spotlight: A Pair Trade Between Hyosung Corp and Hyosung TNC).  This trade has worked out well and now we think this is a good time to close this trade.

The return on this pair trade was 8.2%. (This assumes no commission costs, pricing spreads, taxes, or borrowing cost) using closing share price as of March 12th to March 21st, 2019. This trade was made over a period of 9 days so the annualized returns would be 332%. 

We believe that Hyosung TNC is up so much in the past 9 days mainly because it appears that a few investors saw this stock as an undervalued stock that was being ignored by the market. In our report, Korean Stubs Spotlight: A Pair Trade Between Hyosung Corp and Hyosung TNC,  we mentioned that Hyosung TNC appears to be a turnaround story driven by the following four key factors: 

• Decline in raw material prices 
• Aggressive spandex investment in India 
• Stabilization of spandex prices in 2H19 
• Consolidation of the global spandex industry

4. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR). 

5. S: Outshines Thai Property Peers on High Recurring Profit

We initiate coverage of S with a BUY rating, based on a target price of Bt4.2 derived from a sum-of-the-parts (SOTP) methodology and implying 16.5xPE’19E, a 23% discount to the average of its peers in the Thai real estate sector.

The story:

• Asset value to drive long-term sustainable growth
• 19 projects under development worth a combined Bt36bn to drive sales over the next three years
• REITs will be a key catalyst to boost recurring income
• Higher revenue contribution from hotel business

Risks:

• Tightened credit approval
• Raw material costs & F/X fluctuation

Background: In 2014, Santi Bhirombhakdi** and his property arm, Singha Property Management, acquired a major stake in RASA, a listed property company on the SET, and changed its name to “Singha Estate Public Company Limited”,  or “S”. This new major shareholder quickly unveiled plans to transform S into a holding company. During 2015-17, the company made several acquisitions including (1) a 51.56% stake in NVD, a low-rise property developer that operates under the “Nirvana” brand with a current market value of Bt2.7bn; (2) Suntowers, an office complex worth Bt4.5bn; and (3) a mixed-use commercial complex owned by the major holder’s family business worth over Bt6bn. It also set up a joint venture with a partner to invest in and operate 26 hotels in the UK worth Bt8.6bn.

Revenue breakdown:

The residential property segment contributed 41% of S’s 2018 total revenue. This segment includes the development and sale of high-rise and-low rise projects such as single detached houses, townhomes, home offices, and condominiums.

The commercial property segment contributed 36% of total revenue. This business includes space for rent, common-service charges for utilities, security systems, and other service fees. The company owns two commercial property projects — The Lighthouse (a community mall) and Suntowers (an office complex).

S owns 37 hotels with a combined 4,271 rooms comprising (1) two hotels with 297 rooms in Thailand, namely Santiburi Beach Resort & Spa and Phi Phi Island Village Beach Resort; (2) 22 hotels in England and 7 in Scotland (total of 3,115 rooms) under a 50:50 JV with FICO Group; and (3) 6 Outrigger-branded hotels with 859 rooms. This segment accounts for 18% of sales.

The company also provides construction materials such as precast concrete and aluminum, as well as hotel management services. These two segments contribute 3% and 2% respectively.