Silverlake Axis (SILV SP) published 2Q19 results which again confirmed that the long-anticipated rise in revenues (+20% YoY) and profits (+99% YoY) has finally arrived. After three years of stagnation, this is the second quarter in a row that real earnings growth is visible.
YTD the share price of SILV has run by approximately 31% as we saw some larger volume spikes earlier this year which indicate that HNA is now finally off the register as a significant shareholder. Since HNA’s stake had dropped below 5% the new buyer has not had to step forward and disclose its identity.
Importantly, management believes the first half of FY19 was just the beginning of a new 3-year growth cycle and prospects are looking good for both FY2019 (ends June 2019) and FY2020 (ends June 2020). Dividends will continue but might be tempered depending on the number of acquisitions that are made.
Risk-Reward is not as attractive as early November but continues to look solid at these levels with a total return of 20% still achievable (assuming mid-point of historical P/E range) or a total return of 60% (assuming high-end of historical P/E range).
MYOB Group Ltd (MYO AU)‘s shares are trading A$3.42, marginally above KKR & Co Inc (KKR US)‘s revised lower offer of A$3.40 cash per share, due to the expectation of a bidder trumping KKR. The optimism has also been stoked by the sharp market rally since MYOB agreed to recommend KKR’s revised lower offer on 24 December 2018. The ASX 200 and ASX 300 Information Technology Index has rallied 10% and 20% respectively from 24 December 2018 to 15 February 2019.
While shareholders may feel like KKR is acquiring MYOB at a knockdown price, the market could quickly revert to a downward trend. We believe that shareholders hoping for a white knight to ride to the rescue will be disappointed.
KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
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In-depth interviews with two full-time drivers reveal that Lyft Inc (0812823D US) has disrupted the incumbent Yellow Cab in NY City due to better take-home income economics for drivers.
Bargaining and pricing power favor LYFT (vs. drivers) as LYFT could provide the volume (sufficient number of rides per day) for drivers.
LYFT’s path to profitability depends on 1) the further scale-up of network effect 2) diversification of transportation-related business and 3) progress in autonomous cars’ unit cost economics.
Given its track record as a disruptive force, investors could be willing to pay up (over 5.0x P/S multiple) for LYFT, making the IPO a hot deal.
Wisetech Global (WTC AU) plans to raise US$177m/AUD250m in order to shore-up its balancesheet for future acquistiions.
The company has done exceedingly well since listing and even its past fund raising delivered good returns. However, the deal scores a mixed score on our framework as valuations appear strecthed with the stock trading above analysts target price. Thus, the deal might warrant a large discount.
Subscription rate is 797 to 1. Offer price was fixed at ₩48,000, substantially higher than the upper end. Deal size is now ₩168.5bil. Company value is put at slightly higher than ₩1tril. Demands are spread out pretty well between long-term funds and hot money and local and foreign investors as well. All of the orders are universally placed at 75% of upper end or higher.
Local street is betting on Autoever/Glovis merger not long after this IPO. That is, HMG is still wanting the initial Glovis/Mobis merger plan. To better manage to win shareholder support, they must be thinking that bigger Glovis can be an answer. This means HMG should do whatever it takes to make Autoever bigger in the immediate future.
This is what local street is betting on and why they went really aggressive on this IPO. As witnessed in the bookbuilding results, this street mentalitywon’t be changed any time soon. We should expect even stronger prices after new shares are listed on Mar 28.
Late Monday evening, Larsen & Toubro (LT IN) launched India’s first ever hostile takeover in the tech sector. L&T is seeking to acquire a 20.3-66.3% stake in Mindtree Ltd (MTCL IN) through a three-step transaction. Mindtree’s founders/promoters together have a 13.3% stake and staunchly oppose the takeover. L&T’s open offer presents an opportunity for longstanding large shareholders to partially or fully exit their stakes at a reasonable price.
L&T’s open offer is less enticing for minority shareholders due to the small premium. Minority shareholders hope that a bidding battle will drive up bid premiums. However, we believe that minority shareholders should stick with their holdings as Mindtree’s fundamentals remain solid, but a chance of a material bump to L&T’s open offer is low.
In this report, we provide a trading strategy for Hyundai Autoever Corp (0978519D KS) IPO, which is expected to start trading on March 28th. The IPO price has been finalized at 48,000 won, which is 9% higher than the high-end of the original IPOprice of 44,000 won. The institutional investors’ demand for the Hyundai Autoever IPO was very strong at 797 to 1.
Given the very strong institutional demand for this IPO, it appears that our base case valuation (59,454 won), which is 24% higher than the IPO price, may be too conservative. A more likely scenario now is that the stock reaches about 60,000 won to 65,000 won in the first few hours of trading on the first day, overshooting its intrinsic value and sells off a bit for a few days/weeks, enters a consolidation phase and then resumes its higher share price again.
Of the 913 institutional investors that participated in the Hyundai Autoever IPO survey, 89% of them thought that the intrinsic value of the company should be more than the high end of the IPO price range (44,400 won), which provides a strong vote of confidence that this IPO should do well once it starts trading.
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KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
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Subscription rate is 797 to 1. Offer price was fixed at ₩48,000, substantially higher than the upper end. Deal size is now ₩168.5bil. Company value is put at slightly higher than ₩1tril. Demands are spread out pretty well between long-term funds and hot money and local and foreign investors as well. All of the orders are universally placed at 75% of upper end or higher.
Local street is betting on Autoever/Glovis merger not long after this IPO. That is, HMG is still wanting the initial Glovis/Mobis merger plan. To better manage to win shareholder support, they must be thinking that bigger Glovis can be an answer. This means HMG should do whatever it takes to make Autoever bigger in the immediate future.
This is what local street is betting on and why they went really aggressive on this IPO. As witnessed in the bookbuilding results, this street mentalitywon’t be changed any time soon. We should expect even stronger prices after new shares are listed on Mar 28.
Late Monday evening, Larsen & Toubro (LT IN) launched India’s first ever hostile takeover in the tech sector. L&T is seeking to acquire a 20.3-66.3% stake in Mindtree Ltd (MTCL IN) through a three-step transaction. Mindtree’s founders/promoters together have a 13.3% stake and staunchly oppose the takeover. L&T’s open offer presents an opportunity for longstanding large shareholders to partially or fully exit their stakes at a reasonable price.
L&T’s open offer is less enticing for minority shareholders due to the small premium. Minority shareholders hope that a bidding battle will drive up bid premiums. However, we believe that minority shareholders should stick with their holdings as Mindtree’s fundamentals remain solid, but a chance of a material bump to L&T’s open offer is low.
In this report, we provide a trading strategy for Hyundai Autoever Corp (0978519D KS) IPO, which is expected to start trading on March 28th. The IPO price has been finalized at 48,000 won, which is 9% higher than the high-end of the original IPOprice of 44,000 won. The institutional investors’ demand for the Hyundai Autoever IPO was very strong at 797 to 1.
Given the very strong institutional demand for this IPO, it appears that our base case valuation (59,454 won), which is 24% higher than the IPO price, may be too conservative. A more likely scenario now is that the stock reaches about 60,000 won to 65,000 won in the first few hours of trading on the first day, overshooting its intrinsic value and sells off a bit for a few days/weeks, enters a consolidation phase and then resumes its higher share price again.
Of the 913 institutional investors that participated in the Hyundai Autoever IPO survey, 89% of them thought that the intrinsic value of the company should be more than the high end of the IPO price range (44,400 won), which provides a strong vote of confidence that this IPO should do well once it starts trading.
On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA.
However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.
It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
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Late Monday evening, Larsen & Toubro (LT IN) launched India’s first ever hostile takeover in the tech sector. L&T is seeking to acquire a 20.3-66.3% stake in Mindtree Ltd (MTCL IN) through a three-step transaction. Mindtree’s founders/promoters together have a 13.3% stake and staunchly oppose the takeover. L&T’s open offer presents an opportunity for longstanding large shareholders to partially or fully exit their stakes at a reasonable price.
L&T’s open offer is less enticing for minority shareholders due to the small premium. Minority shareholders hope that a bidding battle will drive up bid premiums. However, we believe that minority shareholders should stick with their holdings as Mindtree’s fundamentals remain solid, but a chance of a material bump to L&T’s open offer is low.
In this report, we provide a trading strategy for Hyundai Autoever Corp (0978519D KS) IPO, which is expected to start trading on March 28th. The IPO price has been finalized at 48,000 won, which is 9% higher than the high-end of the original IPOprice of 44,000 won. The institutional investors’ demand for the Hyundai Autoever IPO was very strong at 797 to 1.
Given the very strong institutional demand for this IPO, it appears that our base case valuation (59,454 won), which is 24% higher than the IPO price, may be too conservative. A more likely scenario now is that the stock reaches about 60,000 won to 65,000 won in the first few hours of trading on the first day, overshooting its intrinsic value and sells off a bit for a few days/weeks, enters a consolidation phase and then resumes its higher share price again.
Of the 913 institutional investors that participated in the Hyundai Autoever IPO survey, 89% of them thought that the intrinsic value of the company should be more than the high end of the IPO price range (44,400 won), which provides a strong vote of confidence that this IPO should do well once it starts trading.
On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA.
However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.
It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
Sutl Enterprise (SUTL SP) did not grow revenues in 2018 as it continued to operate only its flagship Sentosa marina. Change is coming as it has 9 projects in the pipeline which could dramatically alter the financial future of the company by FY21.
The biggest news is the groundbreaking of Puteri Harbor in Malaysia last week. With a sales gallery opening by May 2019, it will be very interesting to follow the progress on this project and its contribution to SUTL’s top/bottom-line results in FY19/FY20.
SUTL is misunderstood by investors because management disclosure is lacking and liquidity is poor. The valuation of SUTL could be improved if investors had a better understanding of the earnings trajectory we could expect in FY19-FY21.
We realize the Tay family is not looking to sell its stake anytime soon so is not concerned about its current market cap. We caution that this might not be a smart way to run a publicly listed company as a more expensive ‘currency’ (stock price) might help the company be taken more seriously when attempting to make acquisitions overseas.
However, this does not alter the fact that 84% of the market cap is cash and the EV of this consistently profitable company is barely 6.7M USD. SUTL is undeniably one of the cheapest stocks on SGX.
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Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
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.
Issuance of the new shares and common stock to be delisted on the Tokyo Stock Exchange
C
Japan
Showa Shell
Scheme
1-Apr
Close of offer
E
NZ
Trade Me Group
Scheme
19-Feb
Application for initial orders filed
C
Singapore
Courts Asia
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
18-Feb
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Thailand
Delta
Off Mkt
18-Feb
Submit Tender Offer Form
C
Finland
Amer Sports
Off Mkt
28-Feb
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
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In this report, we provide a trading strategy for Hyundai Autoever Corp (0978519D KS) IPO, which is expected to start trading on March 28th. The IPO price has been finalized at 48,000 won, which is 9% higher than the high-end of the original IPOprice of 44,000 won. The institutional investors’ demand for the Hyundai Autoever IPO was very strong at 797 to 1.
Given the very strong institutional demand for this IPO, it appears that our base case valuation (59,454 won), which is 24% higher than the IPO price, may be too conservative. A more likely scenario now is that the stock reaches about 60,000 won to 65,000 won in the first few hours of trading on the first day, overshooting its intrinsic value and sells off a bit for a few days/weeks, enters a consolidation phase and then resumes its higher share price again.
Of the 913 institutional investors that participated in the Hyundai Autoever IPO survey, 89% of them thought that the intrinsic value of the company should be more than the high end of the IPO price range (44,400 won), which provides a strong vote of confidence that this IPO should do well once it starts trading.
On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA.
However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.
It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
Sutl Enterprise (SUTL SP) did not grow revenues in 2018 as it continued to operate only its flagship Sentosa marina. Change is coming as it has 9 projects in the pipeline which could dramatically alter the financial future of the company by FY21.
The biggest news is the groundbreaking of Puteri Harbor in Malaysia last week. With a sales gallery opening by May 2019, it will be very interesting to follow the progress on this project and its contribution to SUTL’s top/bottom-line results in FY19/FY20.
SUTL is misunderstood by investors because management disclosure is lacking and liquidity is poor. The valuation of SUTL could be improved if investors had a better understanding of the earnings trajectory we could expect in FY19-FY21.
We realize the Tay family is not looking to sell its stake anytime soon so is not concerned about its current market cap. We caution that this might not be a smart way to run a publicly listed company as a more expensive ‘currency’ (stock price) might help the company be taken more seriously when attempting to make acquisitions overseas.
However, this does not alter the fact that 84% of the market cap is cash and the EV of this consistently profitable company is barely 6.7M USD. SUTL is undeniably one of the cheapest stocks on SGX.
PagerDuty Inc (PD US)is a US based software company which is ready to complete its IPO in the next several weeks. Founded in 2009, PagerDuty helps companies to respond quickly when their websites go down. PagerDuty’s software helps companies to respond to items such as customer complaints and helps companies to spot problems. The company is known for capitalizing on its AI (Artificial Intelligence) models to quickly solve problems of why websites go down.
The company has an excellent, diversified base of more than 10,000 customers in 90 countries including IBM, The World Bank, Airbnb, Netflix, GE, and Gap. One of the strong points of PagerDuty is the fact that it has gathered massive amounts of data from its more than 10,000 customers. The company also boasts a very high customer retention rate (139% net retention rate). A combination of the company’s strong AI capability coupled with the increasing amounts of Big Data provide a strong competitive advantage for the company since its AI capability may improve and get smarter with additional Big Data and continuous problem solving of why websites go down.
PagerDuty was most recently valued at $1.3 billion in September 2018 in a private market valuation (led by T.Rowe Price Group investing $90 million in the company), representing 16x the company’s annual revenue of $79.6 million as of 12 months ending January 2018.
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On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA.
However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.
It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
Sutl Enterprise (SUTL SP) did not grow revenues in 2018 as it continued to operate only its flagship Sentosa marina. Change is coming as it has 9 projects in the pipeline which could dramatically alter the financial future of the company by FY21.
The biggest news is the groundbreaking of Puteri Harbor in Malaysia last week. With a sales gallery opening by May 2019, it will be very interesting to follow the progress on this project and its contribution to SUTL’s top/bottom-line results in FY19/FY20.
SUTL is misunderstood by investors because management disclosure is lacking and liquidity is poor. The valuation of SUTL could be improved if investors had a better understanding of the earnings trajectory we could expect in FY19-FY21.
We realize the Tay family is not looking to sell its stake anytime soon so is not concerned about its current market cap. We caution that this might not be a smart way to run a publicly listed company as a more expensive ‘currency’ (stock price) might help the company be taken more seriously when attempting to make acquisitions overseas.
However, this does not alter the fact that 84% of the market cap is cash and the EV of this consistently profitable company is barely 6.7M USD. SUTL is undeniably one of the cheapest stocks on SGX.
PagerDuty Inc (PD US)is a US based software company which is ready to complete its IPO in the next several weeks. Founded in 2009, PagerDuty helps companies to respond quickly when their websites go down. PagerDuty’s software helps companies to respond to items such as customer complaints and helps companies to spot problems. The company is known for capitalizing on its AI (Artificial Intelligence) models to quickly solve problems of why websites go down.
The company has an excellent, diversified base of more than 10,000 customers in 90 countries including IBM, The World Bank, Airbnb, Netflix, GE, and Gap. One of the strong points of PagerDuty is the fact that it has gathered massive amounts of data from its more than 10,000 customers. The company also boasts a very high customer retention rate (139% net retention rate). A combination of the company’s strong AI capability coupled with the increasing amounts of Big Data provide a strong competitive advantage for the company since its AI capability may improve and get smarter with additional Big Data and continuous problem solving of why websites go down.
PagerDuty was most recently valued at $1.3 billion in September 2018 in a private market valuation (led by T.Rowe Price Group investing $90 million in the company), representing 16x the company’s annual revenue of $79.6 million as of 12 months ending January 2018.
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
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MYOB Group Ltd (MYO AU)‘s shares are trading A$3.42, marginally above KKR & Co Inc (KKR US)‘s revised lower offer of A$3.40 cash per share, due to the expectation of a bidder trumping KKR. The optimism has also been stoked by the sharp market rally since MYOB agreed to recommend KKR’s revised lower offer on 24 December 2018. The ASX 200 and ASX 300 Information Technology Index has rallied 10% and 20% respectively from 24 December 2018 to 15 February 2019.
While shareholders may feel like KKR is acquiring MYOB at a knockdown price, the market could quickly revert to a downward trend. We believe that shareholders hoping for a white knight to ride to the rescue will be disappointed.
KCL-SPH again extended the closing date of the offer from 18 February to 4 March 2019. M1’s shares are trading at S$2.04 per share, marginally below the VGO price of S$2.06 per share. We believe that the KCL-SPH should get the valid acceptances to complete the delisting and wholly own M1.
Softbank has announced a buyback of ¥600bn – its largest buyback ever. At ~¥10,500/share it is 57mm shares or 5.2% of shares out. At ¥12,000/share it is 50mm shares or 4.6%. The “official” float is about 68.7% or 750mm shares. However, by Travis’ estimate, only 44.5% of shares out or 488mm shares are Real World Float. 57mm shares out of 488mm shares is 11.7%. That is a non-negligible portion of float, and will mean significant reduction in foreign active management exposure to Softbank, or significant reduction in individual investor exposure to Softbank, or both.
Travis Lundy wrote the buyback will have further impact on the stock price simply because of flow dynamics. It isn’t easy to buy 10% of float. And we should remember that the BOJ is still buying ¥100bn+ of Softbank shares per year as it continues to buy ¥6trln of ETFs per year. And given the stock will be in the top momentum ranks of large cap Japan, Travis expects momentum flows will join the party adding more inflow.
For trading types, he thought Softbank was a buy, relatively and on an absolute basis. The Japan market is CHEAP on a current year and forecast year ahead, which suggests either the market is “wrong” or economic headwinds are picking up to a greater extent than pundits suggest.
The pre-conditons have been fulfilled and Delta Electronics (2308 TT)will now move to a tender offer. But there exist a number of unknowns for the transaction, which could delay the Offer timetable.
Although the initial wording in the August conditional voluntary tender offer announcement suggests the offer will be for ALL shares, there is talk there may be a maximum acceptance condition, therefore possible clawback for shareholders tendering. A rumoured 60% maximum translates to a minimum 50% pro-rata, potentially 67% if the family tenders 40% and the rest of holders tender half.
It is not clear whether the FY18 dividend will be netted. DELTA has announced two sets of quarterly results since the initial Offer announcement and it would be unjust for DEISG to net off any dividend. It would likely suit the family to receive the dividend. The Offer is pitched at a 1.79% premium to the then-current price. If the dividend is netted, then the Offer price will, in fact, be at a discount to last close as of announcement. DELTA will announce its full-year dividend tomorrow (18th February) and the terms of the deal may also be announced the same day. The AGM to ratify the dividend will take place around the 2 April.
Currently trading at terms or a gross/annualised spread of 4.6/21%, if including a Bt3.30 FY18 dividend and mid-May payment. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.
Three months ago, Minebea Mitsumi (6479 JP) announced it would launch a Tender Offer for U Shin and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November. Travis first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB he had seen in a while. Minebea Mitsumi has now announced the launch of its Tender Offer, at the same price as originally planned (¥985/share).
This deal is still perplexing to Travis. It’s easy enough from an industrial standpoint. Why not buy relatively cheap assets then see if you can cross-sell or assume some attrition? But for investors, he wonders why they put up with this. The process of reaching a “fair” valuation is, by definition, conflicted. It cannot NOT be conflicted. And just because some independent directors who don’t have skin in the game, and may have no clue about corporate valuation methodology, or fair market price, agree to a price that the acquiree’s managers, not wanting to lose their jobs, agree to doesn’t make this “fair.”
The tender offer period is QUITE long. Most tender offers are 30 days in order to give time for people to tender or “offer sufficient time for a rival bidder.” This time Travis thinks it is longer so people can take their time and get bored and tender.
Travis would sell shares now and use the balance sheet elsewhere until an activist shows his hand. If no activist, this deal is not an interesting one.
After multiple news outlets reported that LG Uplus Corp (032640 KS) will finalise a transaction with the CJ Hello, a deal was done at ₩800bn (instead of ₩1tn speculated), and only 50%+1 share instead of the full 53.92% stake held by CJ ENM (035760 KS). The acquisition price of ₩20,659 is a 107% premium to last price and translates to a EV/EBITDA multiple of 6.6x.
This is a straight stock acquisition deal. CJ Hello will be a subsidiary of LG Uplus and will continue to exist as a separate listed company. CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%.
LG Group is publicly saying that they have no plan of an immediate merger, which means neither party requires shareholder approval. But the transaction is subject to local regulator approval – MSIT and Korea FTC. MSIT approval is not an issue. FTC rejected the SKT-CJH deal last time. This time, the FTC’s head Kim Sang-jo is hinting that this deal will go through.
LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS)is now likely to aggressively try to acquire cable-operator D’Live. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company.
Glow announced that the Energy Regulatory Commission (“ERC”) has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants. No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant, but it will be in reference to the Bt94.892 Offer price previously announced, net of expenses with selling SPP1 and the reduced synergy thereon.
Given SPP1 is an immaterial contributor (~5%) to Glow, in terms of revenue, it can be argued that GPSC may make only a minimal change to the Offer price. Still, even a 5% downward adjustment would equate to a price below where Glow is trading.
The downside is ~8%, if using the closing price on the 11 October. Glow/GPSC/Engie want this deal to complete. I think the final Offer price will come in very close to that initially proposed. But I would not buy through Bt90, preferring to pick up shares at Bt89 or below. The merger is expected to be completed by next month, triggering a mandatory tender offer, which may take an additional 2 months or so to complete.
Sigma Healthcare released a 2-page Market Update saying the four month Business Review had identified A$100mm of annual cost savings, confirmed the FY19 EBIT guidance of A$75mn, and confirmed the FY20 EBITDA guidance of $55-60mm. The business review sees 10% underlying EBITDA growth from FY20 to FY23 so that after cost savings are included, FY23 sees the same EBITDA as FY19 [i.e. almost A$90mm].
On a standalone basis, at the end of FY22 looking towards FY23, at 8x EV/EBITDA, it looks like there is something like 60-80% upside. EBITDA might be worth even more than A$90mm in FY23 as long as the DCs can run at high capacity. And at mid-high teens PER that would be a pretty great result. They won’t get that 60-80% upside from now doing a deal with API, but they won’t have to wait for 4 years to get it either.
Travis expects another A$0.15 of value would do it. He doesn’t think they need A$0.20. The shares bounced and traded around A$0.80-1.00 from mid summer 2017 to mid-summer 2018. But that is when EBIT was supposed to fall to A$90mm. And that was nearer-term. Now we have a forecast of EBITDA of A$90mm and that is 3+ years out.
Travis thinks this could get done at 0.42-0.45 shares of API and A$0.23 of cash, given that would probably impact API shares a little bit, that would end up being a 10-15% bump vs original terms, but all told that would be pretty good – and almost a double from undisturbed.
KDDI Corp (9433 JP) announced its intention to conduct a Tender Offer for Kabu.com through a made-for-purpose SPC. The deal is not terribly different in scope than the one discussed in KDDI Deal for Kabu.com (8703 JP) Coming? about two weeks ago.
The Tender Offer is to purchase a minimum of 45,758,400 shares at ¥559/share, which is a 5.67% premium to last close and a 46.3% premium to the undisturbed price of 23 January 2019. Obtaining the minimum would get the combination of KDDI and MUFJ Securities (which currently holds 52.96% of the shares outstanding, and will not tender) to 66.67% which would allow the combination to do a Two Step Squeezeout, which KDDI states in the document that it intends to do.
Anti-trust and regulatory approvals are required (Travis can’t imagine any issues), and KDDI expects that the Tender Offer will commence in late April. This looks pretty easy as a deal, with few impediments. A rival bid is unlikely – KDDI has a headstart with the shares of MUFG Bank which have committed to the deal.
This is going to be boring. One can make markets, carry it, or allocate capital to something more interesting. However Kabu.com’s ¥6/share dividend for end March 2019 WILL BE PAID according to a press release by Kabu.com today after the close. That means there will be a down-shift in price on the ex-date of the dividend at end-March.
Via subsidiary NSITEXE, Inc, Denso has acquired a stake in Californian start-up quadric.io. NSITEXE was established to develop high performance, next generation semiconductor devices for automated driving solutions. quadric’s edge processing units compliment this technology push.
Xingfa announced its major shareholder, Guangxin Aluminium (a wholly-owned Guangdong SASAC vehicle), has acquired 5,000 shares, lifting its stake to 30.001%, triggering a mandatory general offer. The offer price is $5.60, a premium of just 2.94% to last close.
Guangxin, together with certain management of Xingfa, attempted to take Xingfa private at $3.70/share back in 1H17. That scheme failed comprehensively, which was a good outcome for minorities as FY17 net income increased 28%. 1H18 profit was also a 25% improvement over the corresponding period.
The offer price is in line with where Xingfa traded last October and is 23% below the recent peak back in mid-June 2018. It is also 37% below where China Lesso Group Holdings (2128 HK) acquired its 26.3% stake in April last year.
There has to be some behind the scenes play for Xingfa’s shares, and this potentially centres on China Lesso. While a look at CCASS shows Liao Yuqing (an ED in Xingfa) intriguingly moving his entire 48.2mn (11.5% of shares out) outside of CCASS in early December 2018.
OSLO NS is the target of competing tender offers from Euronext NV (ENX FP)andNasdaq Inc (NDAQ US). Euronext owns 5.3% and has irrevocables for 45.2% of OSLO NS shares, for 50.5% total. It launched an Offer to acquire all shares at NOK 145, and just raised that to NOK 158 on February 11, 2019. Nasdaq has irrevocables for 35.2% of OSLO NS shares and has launched an Offer to acquire all OSLO NS shares at NOK 152 per share. Nasdaq’s Offer received the unanimous recommendation of Oslo Børs VPS’s Board when it was announced. The IFA opined that NOK 152 per share is above the top end of what shareholders could expect.
Nasdaq’s undertakings are irrevocable and binding, including in the event of a higher offer. The pre-acceptances further include an obligation on the part of the pre-accepting shareholders not to accept the Euronext Offer. Irrevocables for both bidders have an end date of 31 December 2019, after which they are no longer binding.
Nasdaq, which is conditional on a 90% acceptance level, seems to have the weaker hand since its acceptance threshold condition won’t be met unless Euronext folds its cards and walks away; while Euronext (with a 50.01% acceptance condition) can keep its 50.5% “stake” as long as it gets regulatory approval. Therefore, Nasdaq would need to waive its 90% acceptance condition in order to stay in the game.
The Norwegian Ministry of Finance MoF may resolve this by approving both bidders, provided they reach a super majority acceptance threshold of two-thirds or 90% of shares outstanding (but not less). In this scenario, either party will have enough to block the other from reaching the threshold while the irrevocables are binding.
If the MoF says both parties have approval if they get to whatever super majority the MoF decides or is statutorily permitted to impose, and puts a deadline on getting there of some date after the irrevocable lock-up expiration (say, January 31, 2020), then the formerly locked-up shares are free to go to whichever bidder they chose.
I estimate HLG’s discount to NAV at 41% compared to its one-year average of 38%. The implied stub is right at the 2STD extreme and excluding a brief dip in late April 2018, is at the lowest level since June 2013.
What assets HLG does directly own at the stub level are intertwined with HLP’s own investments. There is therefore, very little to distinguish between the two companies. In addition, HLG has gradually offloaded its HK properties – to HLP no less – further increasing its exposure to China and blurring the lines between HLP and HLG’s business exposure.
HLG has also been increasing its stake in HLP since June 2011, from 48.96% to 57.62% as at 31 Dec 2018. It’s a pretty astute trade to sell a property at book to HLP, then “buy” it back indirectly via increasing its stake in HLP, which trades at 0.6x P/B.
There is no significant catalyst for the NAV discount to narrow. And liquidity does play a role, although HLG’s volume has narrowed the gap to HLP’s in recent years. Nevertheless, a ~40% discount to NAV is extreme for a straightforward, passive, single stock holdco structure.
Athaporn Arayasantiparb, CFA discussed his one-on-one with Intouch. Of interest is his discussions on the stub assets specifically InVent, a venture capital arm and considered the market leader in growth stage funding. In 2018, InVent invested Bt30m into ytm thailand, an end-to-end digital marketing and feedback platform, which used the proceeds to buy offline digital access; Bt40m into Choco CRM, a CRM and POS (point of sales) platform for SME; and Bt40m into E Studio, a B2C lifestyle portal.
Other investments discussed by Athaporn, at the stub level, include Wongnai and HSN. Wongnai is an online foodie guide and one of their largest investments to date, boasted 8m active users, 120m page views, 200,000 patron restaurants, and 10m pictures posted so far. Revenue grew 60% in 2018 to Bt250mn, and is expected to grow at 50%. HSN is an online shopping venture between Intuch and Hyundai, which managed to breakeven on a net basis.
The overall value of these investments, and the estimated 11 other start-up companies under InVent, is very much a “finger in the air” calculation. They may exceed the value of Intouch’s 41.1% stake in Thaicom Pcl (THCOM TB), but that still would be just 1% of NAV.
I estimate Intouch’s discount to NAV at ~21% (vs. the one-year average of 27%), having significantly narrowed in response to rumours of a purported sale of Thaicom (discussed in StubWorld: Intouch Gains On Possible Sale of Thaicom). At the time, I thought Intouch had run its course, noting Intouch had denied any definitive approach/agreement.
New Street Research also met with AIS and remains cautious on this telco in the current slowing environment ahead of delayed elections.
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.
Issuance of the new shares and common stock to be delisted on the Tokyo Stock Exchange
C
Japan
Showa Shell
Scheme
1-Apr
Close of offer
E
NZ
Trade Me Group
Scheme
19-Feb
Application for initial orders filed
C
Singapore
Courts Asia
Scheme
15-Mar
Offer Close Date
C
Singapore
M1 Limited
Off Mkt
18-Feb
Closing date of offer
C
Singapore
PCI Limited
Scheme
February
Release of Scheme Booklet
E
Thailand
Delta
Off Mkt
18-Feb
Submit Tender Offer Form
C
Finland
Amer Sports
Off Mkt
28-Feb
Offer Period Expires
C
Norway
Oslo Børs VPS
Off Mkt
4-Mar
Nasdaq Offer Close Date
C
Switzerland
Panalpina
Off Mkt
27-Feb
Binding offer to be announced
E
US
Red Hat, Inc.
Scheme
March/April
Deal lodged for approval with EU Regulators
C
Source: Company announcements. E = our estimates; C =confirmed
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
Sutl Enterprise (SUTL SP) did not grow revenues in 2018 as it continued to operate only its flagship Sentosa marina. Change is coming as it has 9 projects in the pipeline which could dramatically alter the financial future of the company by FY21.
The biggest news is the groundbreaking of Puteri Harbor in Malaysia last week. With a sales gallery opening by May 2019, it will be very interesting to follow the progress on this project and its contribution to SUTL’s top/bottom-line results in FY19/FY20.
SUTL is misunderstood by investors because management disclosure is lacking and liquidity is poor. The valuation of SUTL could be improved if investors had a better understanding of the earnings trajectory we could expect in FY19-FY21.
We realize the Tay family is not looking to sell its stake anytime soon so is not concerned about its current market cap. We caution that this might not be a smart way to run a publicly listed company as a more expensive ‘currency’ (stock price) might help the company be taken more seriously when attempting to make acquisitions overseas.
However, this does not alter the fact that 84% of the market cap is cash and the EV of this consistently profitable company is barely 6.7M USD. SUTL is undeniably one of the cheapest stocks on SGX.
PagerDuty Inc (PD US)is a US based software company which is ready to complete its IPO in the next several weeks. Founded in 2009, PagerDuty helps companies to respond quickly when their websites go down. PagerDuty’s software helps companies to respond to items such as customer complaints and helps companies to spot problems. The company is known for capitalizing on its AI (Artificial Intelligence) models to quickly solve problems of why websites go down.
The company has an excellent, diversified base of more than 10,000 customers in 90 countries including IBM, The World Bank, Airbnb, Netflix, GE, and Gap. One of the strong points of PagerDuty is the fact that it has gathered massive amounts of data from its more than 10,000 customers. The company also boasts a very high customer retention rate (139% net retention rate). A combination of the company’s strong AI capability coupled with the increasing amounts of Big Data provide a strong competitive advantage for the company since its AI capability may improve and get smarter with additional Big Data and continuous problem solving of why websites go down.
PagerDuty was most recently valued at $1.3 billion in September 2018 in a private market valuation (led by T.Rowe Price Group investing $90 million in the company), representing 16x the company’s annual revenue of $79.6 million as of 12 months ending January 2018.
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
The legal battle between Reliance Communications (RCOM IN) and its lender group has further intensified after the Supreme Court directed the company to submit INR4.53bn within four weeks. The Court ruled that Chairman Anil Ambani had wilfully not paid INR5.5 bn to Swedish Telecom equipment maker Ericsson (Lm) Tel-Sp Adr (ERIC US). In our view, the situation has become almost untenable for RCOM and Mr. Ambani as the company will struggle to sell off its spectrum and other assets in time. In addition, The spectrum sale is yet to be resolved and this means that raising funds quickly remains a challenge. We have revised our recommendation for RCOM 6.5% 20s from NEUTRAL to UNDERWEIGHT due to the on-going negative headlines which we believe is an asymmetric downside risk to the bonds. This is despite some positive developments we highlighted in our last report (Reliance Communications Ltd. •Too Few Steps Forward• dated 18-Oct-18) and our recovery calculation in our previous report (Reliance Communications: Waiting to Exhale dated 07-Jul-18), which is proven wrong by the market.
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