In this briefing:
- SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap
- Re-Launching Coverage of ZTO Express with Sell Rating and US$13.31 Target Price
- BGF Stub Trade: Sub Price Diverged Further than Usual, I’d Make Trade on Reversion
- ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
- Isetan-Mitsukoshi Unveils Digital Strategy
1. SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap
Sutl Enterprise (SUTL SP) did not grow revenues in 2018 as it continued to operate only its flagship Sentosa marina. Change is coming as it has 9 projects in the pipeline which could dramatically alter the financial future of the company by FY21.
The biggest news is the groundbreaking of Puteri Harbor in Malaysia last week. With a sales gallery opening by May 2019, it will be very interesting to follow the progress on this project and its contribution to SUTL’s top/bottom-line results in FY19/FY20.
SUTL is misunderstood by investors because management disclosure is lacking and liquidity is poor. The valuation of SUTL could be improved if investors had a better understanding of the earnings trajectory we could expect in FY19-FY21.
We realize the Tay family is not looking to sell its stake anytime soon so is not concerned about its current market cap. We caution that this might not be a smart way to run a publicly listed company as a more expensive ‘currency’ (stock price) might help the company be taken more seriously when attempting to make acquisitions overseas.
However, this does not alter the fact that 84% of the market cap is cash and the EV of this consistently profitable company is barely 6.7M USD. SUTL is undeniably one of the cheapest stocks on SGX.
2. Re-Launching Coverage of ZTO Express with Sell Rating and US$13.31 Target Price
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
3. BGF Stub Trade: Sub Price Diverged Further than Usual, I’d Make Trade on Reversion
- BGF Holdco/Sub have been oscillating within ±1σ since early Feb. Last Friday, Sub again made a move. This time it diverted a little further. They are now close to -2σ. Holdco is now at a 46% discount to NAV.
- Overall sector outlook is still unpromising. Local street sentiments are still divided. BGF Retail is showing interest in Korea’s third internet bank. This may become a price divergence factor. But this issue is still too early to have real impact.
- Shorting is still going pretty heavy on Sub. Sub price divergence shouldn’t last any further from this point. I’d make my trade here.
4. ECM Weekly (16 March 2019) – Embassy Office REIT, Tiger Brokers, Dongzheng Auto, Koolearn, CanSino
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Starting with bad news in Korea, Homeplus REIT (HREIT KS)‘s IPO was pulled on the 14th of March which when it was supposed to price. The reason cited was weak demand which stemmed from growth concerns and difficulty in valuing this business.
On the other hand, Hong Kong’s IPO market is getting busier. This week alone, we had Dongzheng Automotive Finance (2718 HK) and Koolearn (1797 HK) that have already opened for bookbuilding and will price next week. We also heard that Sun Car Insurance is already started pre-marketing and it will likely open its books next week. The company had only just re-filed their draft prospectus last week.
Another upcoming Hong Kong IPOs would be Tianjin CanSino Biotechnology Inc (1337013D HK) which we heard had already started pre-marketing. Ke Yan, CFA, FRM updated his assumptions and valuation of the company in his insight, CanSino Biologics (康希诺) IPO: Valuation Update (Part 3).
In India, the focus is on Embassy Office Parks REIT (EOP IN) as this is the country’s first ever REIT IPO. It is also the first time there is a strategic tranche in an Indian IPO which has been taken up by Capital Group. Sumeet Singh has pointed out in his insight that with cost of debt of the REIT being at 9 – 9.25%, it is hard to fathom buying equity at a FY2020E dividend yield of 8.25%. This yield had already been inflated by the lack of interest payments. For detailed explanation, read his insight, Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond.
In other countries, we heard that Leong Hup International (LEHUP MK) is aiming to pre-market next month whereas, in Australia, there had been chatter that Prospa Advance Pty (PGL AU) may be back for an IPO again after it had beaten its own estimates from the IPO prospectus.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
- FriendTimes Inc. (Hong Kong, >US$100m)
- Frontage (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
News on Upcoming IPOs
- UBS and Rivals to Pay $100 Million to Settle Hong Kong IPO Cases
- Chinese Luxury Car Finance Firm Seeks $428 Million in Hong Kong IPO
- Online Educator Koolearn to Raise up to $233 Million in Hong Kong IPO
- Resurgence in Indian IPO market likely only after general elections
- Homeplus K-REIT Withdraws $1.5 Billion Korean IPO on Weak Demand
- Prospa may revive listing plan after beating prospectus forecasts
- Luckin Coffee chairman said to tap banks for $200m loan in exchange for IPO role
This week Analysis on Upcoming IPO
- Homeplus REIT IPO: A Key Landmark Deal in the History of the Korean REIT Market
- Up Fintech (Tiger Brokers) IPO Quick Take – It’s Not like Futu, Won’t Perform like It Either
- Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond
- CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
- Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
- Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
5. Isetan-Mitsukoshi Unveils Digital Strategy
Three years ago, Isetan-Mitsukoshi attempted to reverse a strategy of shifting to small format retailing.
At the same time, the department store operator made a final ditch effort to avoid closing department stores and sacked its CEO who had had the temerity to suggest closure was the only way to revive the business.
Last year new management finally realised the old CEO had been right and that culling stores was the only way to improve profit growth.
Now the company is diversifying again but, instead of just small stores, it is planning a big investment into e-commerce with a projected ¥145 billion in sales from personal styling alone.
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