Utilities Sector

In this briefing:

1. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
2. China Three Gorges’ Rebuttable Presumption
3. China Power New Energy To Be Delisted After SOE Injection Abandoned
4. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score
5. Xinyi Energy IPO Preview: Second Time Lucky?

1. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.

2. China Three Gorges’ Rebuttable Presumption

In my initial insight on China Power New Energy Development Co (735 HK, “CPNED”)‘s privatisation by China Power New Energy Limited (the Offeror) by way of a Scheme, I concluded China Three Gorges, CPNED’s largest shareholder with 27.10%, will likely be required to abstain at the Court Meeting as it is presumed to be a connected party to the Offeror as per the Takeovers Code.

But the announcement states that CTG has given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.

It seems illogical to mention in the irrevocable CTG will vote for the Scheme when in actuality it cannot vote. So, which one is it?

The short answer is: CTG cannot currently vote. 

But understanding this requires diving into the minutiae of Hong Kong’s Takeovers Code. So I do.

3. China Power New Energy To Be Delisted After SOE Injection Abandoned

SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.

A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.

China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.

However, China Three Gorges is presumably required to abstain from voting at the court meeting, as it is deemed to be acting in concert with the SPIC under class (1) of the definition of the acting in concert in the Takeovers Code. The announcement does not make this clear.

Assuming China Three Gorges does abstain, a 10% blocking stake at the court meeting is equivalent to 4.48% of shares out or 53mn shares.

This looks like a pretty clean deal. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.

The stock is currently trading at an attractive gross/annualised spread of 8.3%/28.9% conservatively assuming a late July completion, and inclusive of the final dividend. 

4. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score

• Our proprietary corporate governance scoring system now covers over 1,800 stocks including 70 Electricity, Alternative Energy, Distribution, Water and Utilities companies in Emerging Markets.
• This report includes the Energy and Utilities names currently under coverage.
  The lowest score in this group is Korea Gas (44/100).
• We have found that scores below 50/100 indicate poor corporate governance and higher risk of fraud.
• Korean companies often have lower scores as a result of a lack of board independence and convoluted corporate structure.
• Of the groupings presented here Alternative Energy has the highest average score at 64/100.
  We welcome requests from clients of names they want to see added to the universe.

5. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

In this briefing:

1. China Three Gorges’ Rebuttable Presumption
2. China Power New Energy To Be Delisted After SOE Injection Abandoned
3. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score
4. Xinyi Energy IPO Preview: Second Time Lucky?
5. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

1. China Three Gorges’ Rebuttable Presumption

In my initial insight on China Power New Energy Development Co (735 HK, “CPNED”)‘s privatisation by China Power New Energy Limited (the Offeror) by way of a Scheme, I concluded China Three Gorges, CPNED’s largest shareholder with 27.10%, will likely be required to abstain at the Court Meeting as it is presumed to be a connected party to the Offeror as per the Takeovers Code.

But the announcement states that CTG has given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.

It seems illogical to mention in the irrevocable CTG will vote for the Scheme when in actuality it cannot vote. So, which one is it?

The short answer is: CTG cannot currently vote. 

But understanding this requires diving into the minutiae of Hong Kong’s Takeovers Code. So I do.

2. China Power New Energy To Be Delisted After SOE Injection Abandoned

SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.

A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.

China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.

However, China Three Gorges is presumably required to abstain from voting at the court meeting, as it is deemed to be acting in concert with the SPIC under class (1) of the definition of the acting in concert in the Takeovers Code. The announcement does not make this clear.

Assuming China Three Gorges does abstain, a 10% blocking stake at the court meeting is equivalent to 4.48% of shares out or 53mn shares.

This looks like a pretty clean deal. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.

The stock is currently trading at an attractive gross/annualised spread of 8.3%/28.9% conservatively assuming a late July completion, and inclusive of the final dividend. 

3. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score

• Our proprietary corporate governance scoring system now covers over 1,800 stocks including 70 Electricity, Alternative Energy, Distribution, Water and Utilities companies in Emerging Markets.
• This report includes the Energy and Utilities names currently under coverage.
  The lowest score in this group is Korea Gas (44/100).
• We have found that scores below 50/100 indicate poor corporate governance and higher risk of fraud.
• Korean companies often have lower scores as a result of a lack of board independence and convoluted corporate structure.
• Of the groupings presented here Alternative Energy has the highest average score at 64/100.
  We welcome requests from clients of names they want to see added to the universe.

4. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

5. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

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 highlight the WH Group, which led the inflows last week. 

In this briefing:

1. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help

1. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help

A shareholder of China Gas Holdings (384 HK) is looking to sell about 142m shares worth approximatel US$443m. This is a clean-up trade.

The deal scores well on our framework owing to its pristine track record of outperformance and decent earnings momentum. It is also a clean-up trade, hence, no overhang on its share price.

However, the performance of prev deals show that placements larger than HK$3bn tend to perform flat over one-month period whereas placements with smaller deal size did well. 

In this briefing:

1. M&A: A Round-Up of Deals in February 2019

1. M&A: A Round-Up of Deals in February 2019

For the month of February, thirteen new deals were discussed on Smartkarma with an overall deal size of US$12.3bn.

This overall number includes the “offer” for Hanergy Thin Film Power (566 HK) which has no value, as yet, attached to the scrip component.

A firm number for Glow Energy Pcl (GLOW TB) has yet to be announced, which could result in a US$4bn+ deal.

The average premium to last close for the new deals was 27.5%.

Brief Summary of News in February of Arb Situations On Our Radar

In this briefing:

1. China Power New Energy To Be Delisted After SOE Injection Abandoned
2. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score
3. Xinyi Energy IPO Preview: Second Time Lucky?
4. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
5. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

1. China Power New Energy To Be Delisted After SOE Injection Abandoned

SOE State Power Investment Corporation (SPIC) is seeking to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.

A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.

China Three Gorges, CPNED’s largest shareholder with 27.10%, have given an irrevocable undertaking to vote for the Scheme and to elect the share alternative.

However, China Three Gorges is presumably required to abstain from voting at the court meeting, as it is deemed to be acting in concert with the SPIC under class (1) of the definition of the acting in concert in the Takeovers Code. The announcement does not make this clear.

Assuming China Three Gorges does abstain, a 10% blocking stake at the court meeting is equivalent to 4.48% of shares out or 53mn shares.

This looks like a pretty clean deal. It is priced above the highest close since its listing by way of introduction on the 18 July 2017, while the excitement over the potential injection of all nuclear power assets and businesses from State Nuclear Power Technology Company has been removed after the restructuring was cancelled in July last year.

The stock is currently trading at an attractive gross/annualised spread of 8.3%/28.9% conservatively assuming a late July completion, and inclusive of the final dividend. 

2. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score

• Our proprietary corporate governance scoring system now covers over 1,800 stocks including 70 Electricity, Alternative Energy, Distribution, Water and Utilities companies in Emerging Markets.
• This report includes the Energy and Utilities names currently under coverage.
  The lowest score in this group is Korea Gas (44/100).
• We have found that scores below 50/100 indicate poor corporate governance and higher risk of fraud.
• Korean companies often have lower scores as a result of a lack of board independence and convoluted corporate structure.
• Of the groupings presented here Alternative Energy has the highest average score at 64/100.
  We welcome requests from clients of names they want to see added to the universe.

3. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

4. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

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 highlight the WH Group, which led the inflows last week. 

5. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun’s analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G & E Corp (PCG US) and contends PG&E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)

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

In this briefing:

1. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score
2. Xinyi Energy IPO Preview: Second Time Lucky?
3. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
4. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn
5. SPCG: Laying Foundations for Next Stage of Growth

1. Corporate Governance in Global Emerging Markets: 70 Energy Companies – Korean Co Gets Lowest Score

• Our proprietary corporate governance scoring system now covers over 1,800 stocks including 70 Electricity, Alternative Energy, Distribution, Water and Utilities companies in Emerging Markets.
• This report includes the Energy and Utilities names currently under coverage.
  The lowest score in this group is Korea Gas (44/100).
• We have found that scores below 50/100 indicate poor corporate governance and higher risk of fraud.
• Korean companies often have lower scores as a result of a lack of board independence and convoluted corporate structure.
• Of the groupings presented here Alternative Energy has the highest average score at 64/100.
  We welcome requests from clients of names they want to see added to the universe.

2. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

3. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

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 highlight the WH Group, which led the inflows last week. 

4. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun’s analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G & E Corp (PCG US) and contends PG&E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)

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

5. SPCG: Laying Foundations for Next Stage of Growth

We initiate coverage of SPCG with a BUY rating and a 2019E target price of Bt22.80, derived from a discounted cash flow valuation (WACC 7.0% and terminal growth of 1.0%). This is equivalent to 8.4x PE’19E.

The story:

• Promising industry outlook
• Striding toward overseas opportunities
• Expiring adder should have been priced in already
• Expected stable earnings in 2019-21E

Risks:   Single source supplier

                Forex fluctuation

                Uncertainty about sunlight

In this briefing:

1. GLOW’s Done Deal As SPA (Almost) Completes
2. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
3. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help
4. M&A: A Round-Up of Deals in February 2019

1. GLOW’s Done Deal As SPA (Almost) Completes

2. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

3. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help

A shareholder of China Gas Holdings (384 HK) is looking to sell about 142m shares worth approximatel US$443m. This is a clean-up trade.

The deal scores well on our framework owing to its pristine track record of outperformance and decent earnings momentum. It is also a clean-up trade, hence, no overhang on its share price.

However, the performance of prev deals show that placements larger than HK$3bn tend to perform flat over one-month period whereas placements with smaller deal size did well. 

4. M&A: A Round-Up of Deals in February 2019

For the month of February, thirteen new deals were discussed on Smartkarma with an overall deal size of US$12.3bn.

This overall number includes the “offer” for Hanergy Thin Film Power (566 HK) which has no value, as yet, attached to the scrip component.

A firm number for Glow Energy Pcl (GLOW TB) has yet to be announced, which could result in a US$4bn+ deal.

The average premium to last close for the new deals was 27.5%.

Brief Summary of News in February of Arb Situations On Our Radar

In this briefing:

1. Xinyi Energy IPO Preview: Second Time Lucky?
2. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
3. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn
4. SPCG: Laying Foundations for Next Stage of Growth
5. PG&E: Turnaround; A Mission Impossible Task

1. Xinyi Energy IPO Preview: Second Time Lucky?

Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.

The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.

Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.

2. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

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 highlight the WH Group, which led the inflows last week. 

3. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun’s analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G & E Corp (PCG US) and contends PG&E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)

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

4. SPCG: Laying Foundations for Next Stage of Growth

We initiate coverage of SPCG with a BUY rating and a 2019E target price of Bt22.80, derived from a discounted cash flow valuation (WACC 7.0% and terminal growth of 1.0%). This is equivalent to 8.4x PE’19E.

The story:

• Promising industry outlook
• Striding toward overseas opportunities
• Expiring adder should have been priced in already
• Expected stable earnings in 2019-21E

Risks:   Single source supplier

                Forex fluctuation

                Uncertainty about sunlight

5. PG&E: Turnaround; A Mission Impossible Task

We write this note to provide P G & E Corp (PCG US) current state of affairs. First and foremost, we believe that the equity value is zero as the company restructures under chapter 11 bankruptcy code. Most companies that enter chapter 11 bankruptcy either face operational or financial headwinds. PG&E problems are compounded by complications of litigation and regulatory risk along with operational and financial risks.

In this briefing:

1. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
2. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help
3. M&A: A Round-Up of Deals in February 2019

1. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

2. China Gas Placement – Larger Deals Traded Flat but Good Track Record Should Help

A shareholder of China Gas Holdings (384 HK) is looking to sell about 142m shares worth approximatel US$443m. This is a clean-up trade.

The deal scores well on our framework owing to its pristine track record of outperformance and decent earnings momentum. It is also a clean-up trade, hence, no overhang on its share price.

However, the performance of prev deals show that placements larger than HK$3bn tend to perform flat over one-month period whereas placements with smaller deal size did well. 

3. M&A: A Round-Up of Deals in February 2019

For the month of February, thirteen new deals were discussed on Smartkarma with an overall deal size of US$12.3bn.

This overall number includes the “offer” for Hanergy Thin Film Power (566 HK) which has no value, as yet, attached to the scrip component.

A firm number for Glow Energy Pcl (GLOW TB) has yet to be announced, which could result in a US$4bn+ deal.

The average premium to last close for the new deals was 27.5%.

Brief Summary of News in February of Arb Situations On Our Radar

In this briefing:

1. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
2. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn
3. SPCG: Laying Foundations for Next Stage of Growth
4. PG&E: Turnaround; A Mission Impossible Task
5. GLOW’s Done Deal As SPA (Almost) Completes

1. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

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 highlight the WH Group, which led the inflows last week. 

2. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun’s analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G & E Corp (PCG US) and contends PG&E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)

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

3. SPCG: Laying Foundations for Next Stage of Growth

We initiate coverage of SPCG with a BUY rating and a 2019E target price of Bt22.80, derived from a discounted cash flow valuation (WACC 7.0% and terminal growth of 1.0%). This is equivalent to 8.4x PE’19E.

The story:

• Promising industry outlook
• Striding toward overseas opportunities
• Expiring adder should have been priced in already
• Expected stable earnings in 2019-21E

Risks:   Single source supplier

                Forex fluctuation

                Uncertainty about sunlight

4. PG&E: Turnaround; A Mission Impossible Task

We write this note to provide P G & E Corp (PCG US) current state of affairs. First and foremost, we believe that the equity value is zero as the company restructures under chapter 11 bankruptcy code. Most companies that enter chapter 11 bankruptcy either face operational or financial headwinds. PG&E problems are compounded by complications of litigation and regulatory risk along with operational and financial risks.

5. GLOW’s Done Deal As SPA (Almost) Completes