Brief Consumer: Ghabbour Auto: Hyundai Motor’s Gateway to Egypt & A Major Turnaround Story and more

In this briefing:

1. Ghabbour Auto: Hyundai Motor’s Gateway to Egypt & A Major Turnaround Story
2. CJ Corp Holdco/Synthetic Sub Trade: Current Status & Trade Approach
3. Pinduoduo (拼多多) Placement – Not a Good Sign

1. Ghabbour Auto: Hyundai Motor’s Gateway to Egypt & A Major Turnaround Story

• This is a follow-up report to Dylan Waller‘s note Egypt Travel Report: Stock Market Discount Widens Despite Numerous Recovery Signals. This report is the first of several company-specific series of reports on the Egyptian companies. Although I have taken a first crack at analyzing Ghabbour Auto (AUTO EY) (also called GB Auto), most of the other Egyptian company specific reports will be done by Dylan Waller. 
• In this report, I provide an analysis about Ghabbour Auto, which is the largest auto manufacturing company Egypt, and it is also a distributor of Hyundai Motor vehicles. This report is aimed at investors with very long-term investment perspectives (3 to 5+ years), rather than those with shorter investment horizons. 
• Established in 1960, the Ghabbour Group is an Egyptian manufacturer of automobiles, buses, and motorcycles, with headquarters in Cairo. Ghabbour Auto has partnerships with numerous global auto makers including Hyundai Motor, Mazda, Geely, and Volvo. The company has the exclusive license to assemble and distribute Hyundai and Geely passenger cars. GB Auto is the largest company in the Egyptian passenger car market in terms of market share, sales, and production capacity.  

2. CJ Corp Holdco/Synthetic Sub Trade: Current Status & Trade Approach

• CJ Corp is a three-sub holdco. CJ Cheiljedang and CJ ENM, account for three fourth of the holdings. CJ Olive Networks accounts for 10%. Olive Young’s growth has slowed down substantially. There is nearly nothing in Holdco’s stub. Holdco price should now be virtually pegged to the two listed subs.
• It’d be safe to do a stub trade with a synthetic sub. I synthesize the four listed subs on a ratio of 50:40:7:3 (CJ Cheiljedang, CJ ENM, CJ CGV and CJ FW). It’d be also fine to do a simpler one with 55:45 on CJ Cheiljedang and CJ ENM only.
• Holdco/Synthetic Sub are now at -0.25σ on a 20D MA. Normally, I wouldn’t make any move at this point. But things still look a bit tempting in favor of Holdco. We are now seeing a much higher price volatility on Korea’s media content stocks including CJ ENM.
• Generally, a higher sub price volatility leads to a higher holdco valuation relative to sub. In addition, this Olive Networks IPO story is being re-ignited by local investors lately. I expect Holdco to hit a +2σ level which we saw late December. I’d go long Holdco and short the synthetic sub even at this point.

3. Pinduoduo (拼多多) Placement – Not a Good Sign

Pinduoduo (PDD US) is looking to raise about US$1.5bn in its follow-up offering. The placement is a mix of primary and secondary selldown.

The deal scores poorly on our framework due to its large deal size and expensive valuation relative to peers. We find that the timing of the placement to be peculiar and the large overhang post-offering is a worry. Banyan’s selldown in this placement suggested that principal shareholders may progressively look to exit their stakes contrary to our previous assumption and their shares will add pressure to the share price in the near-term.