In this briefing:
- Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up
- Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)
- Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story
- GrainCorp (GNC AU): Better Late than Never Move to Get an LTAP Binding Proposal
1. Orion Holdco/Sub Trade: Holdco’s Price Catching up Was Overworked, Time for Sub to Catch Up
- Orion Holdco/Sub duo is now above +2σ on a 20D MA. They made nearly 2σ jump in just two trading days. Price ratio is currently at a 120D high. Holdco discount to NAV dropped 4%p from 50% to 46% since last time we checked on Jan 24.
- China easing wind began to blow into Korea since late last year. This China expectation had pushed up both Holdco and Sub. Sub had reacted more sensitively to it. Sub has undergone a price correction lately. Holdco has done a lot of catching up during this period. Now, Holdco surpassed Sub in terms of price return. Holdco climbed 32% from its 52W low. Sub went up 30% from its 52W low.
- Holdco is preparing its own business operation, water purifier, in China. This may act as a divergence factor. But at this point, Holdco’s own business in China has no meaningful substance that can shake its NAV radically. They must be reverted back to mean. Their price return got reversed in favor of Holdco. Holdco’s price catching up should be done now. It is time to go long Sub and short Holdco.
2. Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)
In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.
We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.
We note that offshore investors were buying all GICS sectors, and had a strong preference for Industrials, Consumer Staples, Consumer Discretionary, and Financials names. We estimate that total inflow into the A-share market via northbound trade amounted to USD 8.4 bn in February.
3. Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story
Last Friday, Sea Ltd (SE US) unveiled plans to raise around $1 billion (based on the closing price on 28 February) through an underwritten public offering of 50 million ADS. The fundraising was inevitable due to the high cash burn and net cash position.
We are positive on Sea as digital entertainment (Garena), the cash cow, remains in rude health and its newer e-commerce business (Shopee) is a market leader, rapidly growing and reducing its losses. Overall, we would participate in the public offering at or below the last close price of $23.
4. GrainCorp (GNC AU): Better Late than Never Move to Get an LTAP Binding Proposal
Graincorp Ltd A (GNC AU)‘s ability to generate shareholder value remains in doubt as LTAP enters its fourth month of due diligence. Yesterday, GrainCorp announced the first result (but overdue) of its portfolio review – the deal to sell its Australian bulk liquid terminals business to ANZ Terminals for A$350 million.
The option with the highest potential to unlock shareholder value remains the LTAP bid. The sale of the Australian bulk liquid terminals business would represent 13% of the current EV which in the absence of an LTAP bid, is unlikely to sustain GrainCorp’s current rating. However, we believe that the proposed sale is a necessary step to push LTAP towards a binding proposal.
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