Brief Consumer: Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger and more

In this briefing:

1. Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger
2. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations
3. FANCL: Playing the Long Game
4. HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)
5. M1 Offer Unconditional as Axiata Tenders

1. Hyundai Autoever IPO Pricing: Likely to Be a Dull Event Given No Growth Story & Glovis Merger

• Hyundai Autoever offers a total 3,510,000 shares. Split is 9.9% primary and 90.1% secondary. Shares are preliminarily priced at ₩40,000~44,000. This puts the company value at ₩840~924bil. Bookbuilding will be Mar 13~14.
• Valuation is a bit aggressive. It is being heard that local institutions are not particularly excited about this IPO mainly because of Autoever’s 90% captive business. That is, growth story isn’t looking fancy. At a 17x PER on Autoever’s FY19 expected earnings, it is sitting in the middle of the indicative price band. There shouldn’t be much room to play around.
• The major shareholder was expected to sell as much as 50% of their shares through secondary distribution. Actual offering size is much smaller. This sparks the speculation that Autoever will soon be merged with Glovis. Much smaller offering size may be for facilitating the merger. It can pave a less controversial path for another merger attempt with Mobis.
• But this speculation can render this IPO meaningless though. I expect this IPO will be a dull event. I wouldn’t avoid it completely though. Stable income stream and connected car are are still something worthy. I’d buy them at the right price. Low end should be the right price.

2. Best World (BEST SP): Not the Best Financials to Disprove The Business Times Allegations

Best World International (BEST SP) is a direct-selling company that distributes premium skincare and wellness products. On Monday, The Business Times claimed that it is difficult to verify Best World’s strong sales in China based on “an unimpressive online and offline footprint.” On the back of the Business Times article, Best World shares slid 17% before the company was granted a trading halt pending a clarification announcement.

3. FANCL: Playing the Long Game

• The declining and ageing population in Japan has been a major cause for concern to many Japanese companies.
• Fancl Corp (4921 JP), is a relatively small player in the Japanese cosmetics and nutritional supplements space who is expected to benefit from the declining and ageing population.
• Compared to the peer average, EV/Sales discount narrowed down significantly over the course of the last year. But we believe the discount remains the same on a growth adjusted basis.
• Still too small for institutional investors to notice. But we expect them to start noticing the company over the coming years.
• One of the cheapest stocks on a long term forward multiple, as we expect FANCL to sustain its high growth over a long period of time.

We are not sure if Fancl Corp (4921 JP) can ever be in the same league as Shiseido or Kao, but we certainly believe the company doesn’t deserve to be about 10% of the size of Shiseido. Thus, we have a very long-term bullish view on FANCL and expect to see the company’s market cap to double over the next 5-7 years

4. HK Connect Discovery Weekly: China Tower, Geely, COFCO Meat (2019-02-15)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight the continuous inflow to China Tower prior to lock-up expiry,  positive news development for automobile stocks, and the pork cycle beneficiary. 

5. M1 Offer Unconditional as Axiata Tenders

Friday 15 February after the close, the Offerors for M1 Ltd (M1 SP)announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%.

Axiata Group (AXIATA MK) made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. The reasoning for the disposal was that given the long-term view required because of changes in the Singaporean telecom market structure and the inability of Axiata to exert management control, the disposal fit within Axiata’s portfolio rebalancing strategy and would serve to mitigate short- to medium-term risks associated with the changes in the Singaporean market.

Going unconditional has triggered an extension of the Closing Date to 4 March 2019 at 5:30pm Singapore time (our estimate pre-Offer Despatch was closing of 7 March).

If you are going to tender, you might as well do it now. Consideration (the offer price) will be despatched to those Shareholders who have already tendered within 7 business days, and those who accept the Offer starting now will get their funds within 7 business days of the Offer acceptance being validated.