Brief China: StubWorld: Naspers’ Restructuring Update and more

In this briefing:

1. StubWorld: Naspers’ Restructuring Update
2. Huya Placement: Best Performing Live Streaming Stock but Beware Douyu Is Catching Up
3. China – Soaring Real Estate Loans Makes One Wonder
4. Ruhnn (如涵) Trading Update – Worst First-Day Performance Out of Recent US ADR Listings
5. Naspers: Addressing the Discount (Again). New Moves to Realize Value Are Having an Impact

1. StubWorld: Naspers’ Restructuring Update

This week in StubWorld …

• Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).

Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. Huya Placement: Best Performing Live Streaming Stock but Beware Douyu Is Catching Up

Huya, a leading live streaming player in China, announced share placement of USD 550 million after market close on April 3rd. In this insight, we will look at recent developments of Huya and score the deal in our ECM Framework.

3. China – Soaring Real Estate Loans Makes One Wonder

China Construction Bank H (939 HK) (CCB) added real estate loans at more than double the amount of total corporate loans during 2018. This is something we see with many of China’s banks in the period. What is also apparent is a sharp drop in real estate NPL ratios during the year – not simply due to a larger denominator. There is nothing anecdotally or otherwise that we have seen, that should suggest a dramatically more healthy China real estate sector, e.g. property development, commercial real estate during 2018 compared with 2017. The risk is that banks are extending substantially more credit here to support weak, frail debtors.  With a weakening economy, this is not likely to last without negative consequences.

4. Ruhnn (如涵) Trading Update – Worst First-Day Performance Out of Recent US ADR Listings

Ruhnn Holding Ltd (RUHN US) raised US$125m at US$12.50 per share, the mid-point of the price range. We have previously analyzed the IPO in:

• Ruhnn (如涵) IPO Review – Expensive Influence
• Ruhnn (如涵) Pre-IPO Review- Significant Concentration Risk

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

5. Naspers: Addressing the Discount (Again). New Moves to Realize Value Are Having an Impact

Naspers (NPN SJ) recently announced another attempt to reduce the holdco discount which has remained stubbornly high despite previous attempts by management to reduce it. Since the announcement there has been movement, so perhaps this time it really is different!

So what is being done? Naspers will spin off its international internet assets, which account for >99% of its value, into a newco. They will then list 25% of newco on the Euronext in Amsterdam by issuing these shares to Naspers’ shareholders. The intention is to create a vehicle which can attract increased foreign and tech investors without the complication of a South African listing. The company believes this has been a key factor behind the wide holdco discount. The move also reduces Naspers weighting in South African indices which is another contributing factor.

Alastair Jones sees the announcement as a positive, although there are still issues with the main listing being in South Africa. He still believes a buyback would be the most effective way to reduce the discount, but Naspers is also keen to keep investing.