In this briefing:
- ECM Weekly (16 February 2019) – ByteDance, Embassy Office REIT, AB InBev Asia, CStone, Dexin
- Rakuten to Covertly Cut Merchant Commission Rates?
- LG Uplus – CJ Hello Acquisition: Current Yield Is 10%, CJH Overhang Concerns Will Push It Up
- Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
- Minebea-Mitsumi Underpriced Tender for U SHIN (6985 JP) Launched
1. ECM Weekly (16 February 2019) – ByteDance, Embassy Office REIT, AB InBev Asia, CStone, Dexin
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
It has been a fairly quiet week in the ECM space.
We are hearing that Douyu (game streaming like HUYA Inc (HUYA US), Tiger Brokers (backed by Jim Rogers), Genshuixue (education) have either filed confidentially or seeking to list in the US.
In Hong Kong, Bank of Guizhou is said to be planning for a US$1bn IPO and we heard that Zhejiang New Century Hotel Management is pre-marketing for its US$200m IPO. The PHIP has already been filed on the Hong Kong Exchange.
For upcoming IPOs, Dexin China Holdings (2019 HK) opened its books on Thursday, seeking to raise up to US$220m. We covered the IPO in Dexin China (德信中国) IPO Review – Key Issues Remain but 9M Results Showed Strong Growth.
In India, Embassy Office Parks REIT (EOP IN) pushed back its IPO to March – April. Sumeet Singh has already written a pre-IPO note, Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish.
Last but not least, in Korea, Douglas Kim has already written an note on the Homeplus REIT (HREIT KS)‘s US$1.5bn IPO in Homeplus REIT IPO – The Largest Ever REIT IPO in Korea.
Other pre-IPO notes on upcoming mega IPOs that Aequitas Research have covered include ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1), ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2), and Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China.
Accuracy Rate:
Our overall accuracy rate is 72.1% for IPOs and 63.8% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- Reliance General Insurance (re-filed, India)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- PineBridge-backed Uniparts gets SEBI nod to float IPO
- Cal-Comp Philippines eyes IPO by third quarter
- JERA new president says IPO is an option
- Singapore’s Zalora explores listing to fuel expansion
- S. Korea’s Homeplus files for up to $1.5 bln REIT IPO
- Korean bio unicorn in the making, Voronoi, to join the Kosdaq this year
Smartkarma Community’s this week Analysis on Upcoming IPO
- Homeplus REIT IPO – The Largest Ever REIT IPO in Korea
- Ecopro BM IPO: Valuation Analysis
- Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish
- CStone Pharma (基石药业) IPO: Thoughts on Valuation (Part 2)
- Hansoh Pharma IPO Preview: A Decent Story Tarnished by a Huge Pre-IPO Dividend
- Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
- ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)
- ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)
- Dreamtech IPO: Valuation Analysis
- Dexin China (德信中国) IPO Review – Key Issues Remain but 9M Results Showed Strong Growth
List of pre-IPO Coverage on Smartkarma
2. Rakuten to Covertly Cut Merchant Commission Rates?
Rakuten (4755 JP) has been under pressure recently from Amazon (AMZN US) and other competitors in its core online mall business and now seems to be giving more attention once again to the original Rakuten Ichiba, including a plan to cut shipping fees, although this also looks like a face-saving way to cut merchant commissions.
Rakuten is also investing in new logistics infrastructure to try and match the customer services levels of Amazon and ZOZO (3092 JP).
As part of this effort, Rakuten just announced a 9.9% stake in a logistics firm called Kantsu. The deal is part of Rakuten’s strategy to accelerate the move towards consolidated shipments of orders on Rakuten Ichiba – one of the key weaknesses of the Rakuten model compared to Amazon and Zozo.
Rakuten also just announced its year-end results this week: Domestic GMVs rose 11.2% to ¥3.4 trillion for the year ending December 2018. While GMVs rose and revenue increased by 9.2% to ¥426 billion, operating income on domestic e-commerce fell 17.7% to ¥61.3 billion partly due to higher logistics costs. For 4Q2018, operating income fell 27.3%.
3. LG Uplus – CJ Hello Acquisition: Current Yield Is 10%, CJH Overhang Concerns Will Push It Up
- LG Uplus Corp (032640 KS) actually pays ₩800bil (not ₩1tril) for the controlling stake of CJ Hello (037560 KS) from CJ ENM (035760 KS). LG Uplus gets not all of the shares owned by CJ ENM. It gets a total 38,723,433 shares. This is 50% + 1 share. Cost per share is ₩20,659. This is a 107% premium.
- I suggested a long/short trade on LGU+/CJH starting this Monday on the grounds that their MC ratio should revert back to above 10. This trade is paying off very handsomely now. Current yield stands at 10.5%. But I wouldn’t close this position yet.
- CJ ENM still owns nearly 4% CJH stake. SKT owns 8.61%. Neither of them has any reason to retain these shares. LG Uplus doesn’t seem to be interested in getting any of these additional shares. This means one thing. It is very likely that CJH will suffer huge stock overhang concerns.
- Not only that, merger between them is inevitable. The LGU+/CJH MC ratio should be reverted back to 10. The MC ratio is now at 8.4. We still have more room on this. I expect it to reach at least near 9 level in very near future. I’d hold onto this position until then.
4. Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China
Anheuser Busch Inbev Sa/Nv (ABI BB), the world’s largest brewer, is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn, as per media reports, which will make it one of the largest listings for 2019. Earlier this month, the company picked JPM and MS to lead the deal.
When listed, the company will be the third biggest brewer in China and the largest in South Korea and Australia.
While we have to wait for the application proof to be filed later this year to get more details on the operations, in this insight I’ll take a early look at the Asian operations using the data already available in the parent’s annual and quarterly reports. I’ll primarily address where the business is now and how it has shaped up over the past few years.
5. Minebea-Mitsumi Underpriced Tender for U SHIN (6985 JP) Launched
Three months ago, Minebea Mitsumi (6479 JP) announced that it would launch a Tender Offer for U Shin Ltd (6985 JP) and it would take just under three months until the approvals were received and it could officially start the Tender Offer process. It took a couple of weeks longer, as proposed by U Shin’s update on 30 January, which indicated anti-trust approvals had been received.
The background to the Tender Offer was discussed in Minebea Mitsumi Launches Offer for U-SHIN in early November.
My first conclusion in November was that this was the “riskiest” straight-out non-hostile TOB I had seen in a while.
This is a wide-open deal. The buyer owns 1 round lot. The largest holder is an activist. The deal is being proposed at not such a super-high multiple (8x forecast FY earnings for the year ending 31 December 2018) and 4.9x EV/EBITDA. It is 3.7-4.0x when taking into account the 67 different equity positions they held at the end of last year, some of which they have recently liquidated.
from (8 Nov 2018) Minebea Mitsumi Launches Offer for U-SHIN
In the interim, the activist dropped their position in half (necessitating a filing of a Large Shareholder Report for going below 5% – and they may have completely liquidated by now), and an investment bank has gone above 5% since then.
The financial advisory “valuations” at the time were more than questionable. A discussion of the valuation levels can be found in the previous insight (I don’t need to repeat them here, just go there).
Today, the company raised its OP and Ordinary Income forecasts for the year ended 31 December 2018, but lowered its Net Income forecast by 98.8% due to writeoffs at many overseas facilities. Then the promptly reported earnings (also only in Japanese) a few seconds later (only available in Japanese).
Op is now forecast to drop 2% in 2019 vs 2018, but the 2019 forecast is 11+% higher than the 2018 forecast was just yesterday. The forecast for Net Income is ¥99.35/share, putting the deal at <10x forecast PER. And even less if one considers that the cross-shareholdings could be reduced.
The New News
Today Minebea Mitsumi announced the launch of its Tender Offer, to commence tomorrow, at the same price as originally planned (¥985/share), and to run for 38 days.
This deal is still perplexing to me. It’s easy enough from an industrial standpoint. I mean, why not buy relatively cheap assets then see if you can cross-sell or assume some attrition. But for investors… I wonder why they put up with this.
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