In this briefing:
- MAJOR: Impressive 4Q18 Earnings
- BGF Duo Stub Trade: Short Sub / Long Holdco with a Very Short-Term Horizon
- New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
- Delta Thailand’s Tender Offer: Updated Timetable
- Naspers: Softbank Buyback a Guide for Naspers?
1. 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.
2. 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.
3. 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.
New Century has two business units – hotel operation and hotel management. Overall, we believe that the IPO is unattractive due to the mixed prospects of the two businesses.
4. Delta Thailand’s Tender Offer: Updated Timetable
With Form 247-3 (Intention to Make a Tender Offer) and the FY18 dividend (Bt2.30/share) for Delta Electronics Thai (DELTA TB) having been announced, this insight briefly provides an updated indicative timetable for investors.
The next key date is the submission of Form 247-4, the Tender Offer for Securities, which will provide full details of the Offer.
Date | Data in the Date | Comment |
1-Aug-18 | Announcement | |
13-Jan-19 | Pre-approvals fulfilled | |
18-Feb-19 | Form 247-3 submitted | |
18-Feb-19 | FY18 dividend announced | |
22-Feb-19 | Form 247-4 to be submitted | As per announcement |
25-Feb-19 | Tender Offer open | Assume 1 business day after 247-4 is submitted |
28-Feb-19 | Last day to buy to be on the 4 Mar register | T+2 settlement |
1-Mar-19 | Ex-date for dividend | As announced |
4-Mar-19 | Date to be on the registry to receive full-year dividend | As announced |
22-Mar-19 | Last day for revocation of shares | 20th day of Tender Offer1 |
29-Mar-19 | Close of Offer | Assuming 25 business days tender period |
2-Apr-19 | AGM | As announced |
3-Apr-19 | Consideration paid under the Offer | Assume 3 business days after close of Offer |
11-Apr-19 | Payment of FY18 dividend | As announced2 |
1 assuming the shareholder has not forfeited the right to revoke
2 the dividend is subject to a 10% WHT for non-residents.
This above indicative timetable assumes a conditional offer based on a minimum acceptance level of at least 50%. Payment under the offer may indeed be earlier, as explained below, which also ties in with a shareholders’ right to revoke shares tendered.
In addition, investors should not tender once the offer opens – assuming the tender period commences on the 25 February – but wait until their shares are on the registry as at 4 March to receive the FY18 dividend.
Currently trading at a 2.2%/22% gross/annualised spread. Bear in mind the dividend is subject to 10% tax.
5. Naspers: Softbank Buyback a Guide for Naspers?
Recently, Softbank’s (9984 JP) shares jumped +18% after announcing a $5.5bn share buyback. Using Smartkarma’s holdco monitor, the discount to NAV had widened to around 55% prior to the announcement but is now sitting around 40-45%. There were a few key reasons for the buyback: (1) the Softbank Corp (9434 JP) (KK) IPO netted $20bn, giving the company the flexibility to do the buyback, and (2) Softbank is taking a more disciplined approach to further platform investments.
Both these arguments are also available to Naspers (NPN SJ) management and a move to buy back 5% of market cap is feasible and we believe would narrow the discount. The question is whether management are listening. They have been dismissive of buybacks in the past but this could change.
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