In today’s briefing:
- JD.com Tencent Div Distribution – The US$10bn Overhang – Passives Might Have to Sell
- Alibaba: Rumoured Layoffs Could Be a Sign of The Company Running Out of Funding Sources
- Yashili (1230 HK): More Formula Fortune?
- WH Group (288 HK) – Now Cheapest in Yonks Outright and Vs Peers
- Uniti’s A$4.50 Indicative Bid from Morrison & Co
- Korea Preferred Shares: Suitable Long/Short Pairs at This Point
- Korea Drops Quarantine Requirements Vs. Yoon Suk-Yeol’s Hard Line Stance on North Korea
- Donki Back with a Plan at Home and Overseas
- Apollo/Pearson: Prospective Offer
- Jubilant FoodWorks (Update): CEO quits adds risks on all fronts. Maintain REDUCE
JD.com Tencent Div Distribution – The US$10bn Overhang – Passives Might Have to Sell
- On 23rd Dec, Tencent declared a dividend in the form of distribution in specie of 457.326m shares of JD.com, i.e. 1 share of JD.com for every 21 shares of Tencent.
- While Tencent went ex-div on 20th Jan 2022, the actual settlement of the distribution is expected to happen on or about 25th Mar 2022.
- In this note, we talk about the likely impact of Prosus’ shareholding on passive flows at the time of settlement.
Alibaba: Rumoured Layoffs Could Be a Sign of The Company Running Out of Funding Sources
- Over the last two days on Weibo there was a lot of noise regarding massive layoffs at Chinese tech giants such as Alibaba Group (BABA US) and Tencent (700 HK).
- Local news outlet “Yilanshangye”, called that Alibaba’s community group buying platform MMC is planning to release around 20% of its employees, with several business lines already finalising their layoff lists.
- With investor appetite for growth companies changing rapidly over the last few months, it seems Alibaba Group (9988 HK) could be struggling to finance several of its loss-making ventures.
Yashili (1230 HK): More Formula Fortune?
- Infant formula play Yashili International Holdings (1230 HK) is currently suspended “pursuant to The Hong Kong Code on Takeovers and Mergers“.
- Shares closed up 98% yesterday, on clear news leakage, before shares were suspended. China Mengniu Dairy Co (2319 HK) holds 51.04% with Danone SA (BN FP) another 25%.
- This trading halt follows the recent successful Offer for Ausnutria Dairy Corp (1717 HK), one of Yashili’s key peers.
WH Group (288 HK) – Now Cheapest in Yonks Outright and Vs Peers
- WH Group (288 HK) is two businesses – a US pork processor and a Chinese one – and both businesses are suffering lower margins than they’d like.
- But they are doing better than and are cheaper than peers. And still the stock falls. Today, the stock price hit a 6-year low on dramatic underperformance of peers.
- The question is what the proper discount would be for people who question its governance credentials. It’s a really big discount now.
Uniti’s A$4.50 Indicative Bid from Morrison & Co
- Morrison & Co will offer A$4.50 cash per share, a 42.9% premium to the unaffected price of A$3.15 (on 13 March).
- We think that the Morrison offer is attractive in the context of historical multiples and share prices. At last close, the gross spread is 12.2%.
- Uniti Group Ltd (UWL AU) flagged in January that it had received takeover approaches from more than one party. Consequently, the Morrison offer could force out other bidders.
Korea Preferred Shares: Suitable Long/Short Pairs at This Point
- I first screened those with a sigma below -1.0 on a 20D MA relative to Ords. I then filtered those having underperformed the common shares on a YTD price performance.
- As a result, I have the following four preferred shares: Samsung Electronics 1P, Hyundai Motor 1P, Daishin Securities 1P, and Doosan Corp 1P.
- As for the pref/ord dividend yield difference, Hyundai Motor 1P’s dividend yield difference has widened considerably compared to the past three years.
Korea Drops Quarantine Requirements Vs. Yoon Suk-Yeol’s Hard Line Stance on North Korea
- In this insight, we discuss two major issues impacting the Korean hotels, travel, duty free shops, cosmetics, leisure, & casino related companies.
- First is that the South Korean government announced that it will drop quarantine requirement for international arrivals from 21 March.
- Second is the potential ramifications of Yoon Suk-Yeol (newly elected South Korean President) who has a relatively hard line stance on North Korea.
Donki Back with a Plan at Home and Overseas
- Pan Pacific International Holdings (7532 JP) is Japan’s largest discount retailer but also a major GMS operator.
- It is on track to achieve consolidated sales around ¥1.87 trillion by the end of the year, 85% of this in Japan despite the lack of inbound tourists.
- PPI also has a great retail proposition in Asia which is proving popular. The long-term outlook at home and overseas looks solid.
Apollo/Pearson: Prospective Offer
- Apollo approached educational conglomerate Pearson Plc (PSON LN) regarding a 854.2p prospective offer for 100%, rejected by the Board. Value creation should come from further divesting businesses. PUSU deadline is 8 April.
- Cevian, top shareholder, has a 10.24% stake, and bargaining power (it could prevent a delisting). Using DCF, base-case TP is 742p, best case is 834p. Comps-based valuation is 815p.
- The market’s gone beyond initial doubts, shares closed at 827.6p on 15 March (3.3% gross spread), betting Apollo will succeed (probably raising the offer). The CDS market already believed it.
Jubilant FoodWorks (Update): CEO quits adds risks on all fronts. Maintain REDUCE
- We have seen CEO changes for various other consumer companies in the past, and most changes have been value accretive.
- However, we remain cautious until the new CEO showcases his execution capability.
- His exit (along with past exits of many members of senior management) is certainly adding several risks.
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