Brief Consumer: Hyundai Motor Share Class: Time to Short Common & Long Pref and more

In this briefing:

1. Hyundai Motor Share Class: Time to Short Common & Long Pref
2. China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption
3. New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

1. Hyundai Motor Share Class: Time to Short Common & Long Pref

• Common is widening pref discount today as it is generating the highest gain mainly on the Elliott pushing. As of now (1PM in Korea time), Common and 1P/2PB gain difference is nearly 1.5%p. This is putting price ratio at nearly 120D high. On a 20D MA, both Common/1P and Common/2PB are above 200% of σ. We see this level for the first time since mid Dec last year.
• It is unlikely that Elliott’s ₩4.5tril dividend demand will get shareholder approval in the upcoming Mar 22 AGM. But it is enough to create a market mood that Hyundai Motor will hand out more generous shareholder friendly measures. Generally, common gets favored market sentiment as we move into AGM cycle. This time should be different. Each time Elliott factor came in, HM Pref tended to outperform Common.
• This should be time again for HM Pref to shine more. Both 1P and 2PB are sufficiently undervalued relative to Common. Div yield difference to Common is also at the highest for both pref types. I’d go short Common and long 1P or 2PB now. 1P seems a little more safe bet. But 2PB is more liquid. Either way wouldn’t go terribly wrong.

2. China Tobacco Intl (HK) IPO: Proxy For the Chinese Cigarette Consumption

China Tobacco International (Hong Kong), a subsidiary of the China Tobacco International, is seeking a listing in Hong Kong. Per media reports, the company plans to raise USD 100 million. In this insight, we will discuss the following topics: 

• What does China Tobacco International do?
• What is its relationship with China Tobacco?
• How did its different segments perform?
• The industrial backdrop

3. New Century Hotel (浙江開元酒店) IPO Review – Higher ADR and RevPAR than Peers but Margins Fall Short

Zhejiang New Century Hotel Management Group (1158 HK) (NCH) is looking to raise up to US$179m in its upcoming IPO.

NCH is riddled with related party transactions, from the sales of consumer goods, carpets and wine to having 24% of its hotel management revenue come from related parties. There had been a handful of small acquisitions and disposals but it all seemed to be just reshuffling of assets between NCH and the controlling shareholder with no clear strategy. 

Key metrics show that even though NCH is operating at higher ADR and RevPAR compared to peers, it ultimately falls short in terms of EBITDA and net margins. It also has the lowest occupancy rate.

In this insight, we will focus on corporate governance issues, peer metric comparison, and relative valuation with listed hotel operators.