Daily Equities Bottom-Up: UFO Moviez-Q2FY19 Results Update and more

In this briefing:

1. UFO Moviez-Q2FY19 Results Update
2. Som Distelleries-Q2FY19 Results Update
3. CapitaLand Ltd – Premium Price for Ascendas-Singbridge
4. Samsung C&T: A Restructuring of Fashion Business Is Likely After the Stepping Down of Lee Seo-Hyun
5. Prored Partners (7034) – A Fast Growing Recent Listing in Japan.

1. UFO Moviez-Q2FY19 Results Update

Ufo Moviez India (UFOM IN) Q2FY19 results were in line with our expectations. While revenues declined by 4% YoY in Q2 FY19, PAT also declined by 4% YoY in the same period primarily due to the impact of D-Cinema sunset. We have mentioned in our earlier reports (click here and here) that the company is phasing out its distributor revenues from the Hollywood studio that may only last till FY20. We analyze the result.

2. Som Distelleries-Q2FY19 Results Update

Som Distilleries And Breweries (SDB IN) Q2FY19 results were in line with our expectations. While revenues witnessed a flat growth, PAT declined by 37% YoY in Q2 FY19 primarily due to seasonality impact on the beer volumes and higher depreciation on the new Karnataka plant. We analyze the results.

3. CapitaLand Ltd – Premium Price for Ascendas-Singbridge

CapitaLand Ltd announced yesterday that it will be acquiring Ascendas-Singbridge (“ASB”) from Temasek Holdings.

The agreed enterprise value for ASB was S$10,907 mil and the equity value of ASB payable to Temasek Holdings was S$6,036 mil.

This is a transaction that makes good strategic sense. CapitaLand and ASB’s businesses, sector and geographical exposures complement each other well.  Any tangible benefits from the synergies are likely to be seen over the mid to long term.  The increase in AUM and addition of new capital recycling platforms will make CapitaLand more appealing as a real estate fund manager to institutional investors and sovereign wealth funds.

However, the acquisition consideration for ASB is not cheap. CapitaLand is acquiring ASB at a price-to-book ratio of 1.15x. But this is a necessary step that CapitaLand has to take in order to execute its CapitaLand 3.0 strategy. 

From an investor’s perspective, concerns on the valuation of the deal, CapitaLand’s worsening credit metrics, and execution of the integration plan are likely to affect CapitaLand’s short-term share price performance. Management needs to demonstrate the ability to extract quantifiable synergistic value from the acquisition in order to justify the premium paid but this can only happen over the longer term.

4. Samsung C&T: A Restructuring of Fashion Business Is Likely After the Stepping Down of Lee Seo-Hyun

Lee Seo-Hyun (age 46), the billionaire second daughter of the Samsung Group Lee Gun-Hee, recently stepped down from her position as the CEO of Samsung C&T (028260 KS)‘s fashion business. After resigning from Samsung C&T, Lee Seo-Hyun will become a chairperson of the Samsung Foundation, focusing on corporate social responsibility activities.

Among the various fashion brands, the most problematic has been the 8 Seconds SPA brand, which has been continuing to lose money. Despite big ambitions to make 8 Seconds as one of the leading global SPA brands, this plan has fluttered, especially in the overseas markets such as China. This strongly suggests that there could be a big restructuring of the company’s fashion business in the coming months. 

Our NAV analysis of Samsung C&T suggests a range of 122k won to 139k won, which would represent an upside of 11% to 27%. In our NAV analysis, the investment stakes in affiliates were 19.2 trillion won, core business operating value was estimated at 9.9 trillion won (using 8x consensus OP in 2019), net cash of 2.2 trillion won, and Samsung Everland land value (post 50% taxes) of 1.8 trillion won. The range of value reflects the different discount for the quasi-holdco structure (20-30% discount).

5. Prored Partners (7034) – A Fast Growing Recent Listing in Japan.

Prored Partners is a business consulting company founded in 2009 by the CEO, Mr Satani (who retains 60% of the equity). Prior to setting up Prored, he worked as a business consultant at a consultancy firm subsequently acquired by PwC Consulting. The shares were registered on the Mother’s exchange at the end of July 2018. Unfortunately, it is a micro-cap (market cap Y24bn) but should be of interest to those looking for a very fast growing small cap name. It trades on 17x our forecasts for this year to 10/19.  The company has been growing at a fast pace over the last few years. We expect this strong rate of growth to continue, see below.