Brief Consumer: LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies and more

In this briefing:

1. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies
2. MAJOR: Impressive 4Q18 Earnings
3. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon
4. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses

1. LG Uplus: Risks Now Largely Priced In. Raise to Neutral on CJ Hello Deal Synergies

LG Uplus (032640 KS) shares have fallen around 20% from the highs of January when the market was excited by 5G. That always seemed overly optimistic given the lack of viable business cases and unknown investment requirements and we were comfortable with our Sell rating from mid October and KRW15,000 target price.  Following weak results, an easing of 5G  enthusiasm and the recently announced CJ Hello (037560 KS) deal the share price has fallen to around the KRW15,000. Alastair Jones now thinks a lot of bad news is in the price and the available synergies from CJ Hello offset a weaker earnings outlook. 

2. MAJOR: Impressive 4Q18 Earnings

MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).

• 4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
• Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
• SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.

We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.

3. BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon

• The BGF Holdco/Sub duo is making a very dynamic movement. Yesterday, they made a 2σ jump. Sub went up 5.38%. Holdco stayed flat with a 0.24% gain. The day before yesterday, they made an exact opposite movement. Holdco was up 2%. Sub suffered a 3% loss. This also resulted in a 2σ jump, just the opposite way.
• Still, local street sentiments are heavily divided on Sub’s fundamentals. There is no news or anything that may possibly reverse the tide at this point. Shorting on Sub is still going very strong. It seems that a lot of short-term traders both at home and abroad are trading on the duo lately.
• On a 120D horizon, Holdco is still undervalued relative to Sub by about 10%. The duo should be again reverted back to a mean in favor of Holdco today. I’d suggest going long Holdco and short Sub now if you had closed the previous position which we initiated last week on Feb 13.

4. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses

Zhejiang New Century Hotel Management Group (ZHEKAIH HK)  is a leading hotel group in China engaged in the operation and management of mid-scale and upscale hotel chains. New Century has started pre-marketing for a Hong Kong IPO to raise up to $200 million, according to press reports.