In today’s briefing:
- MT (Meituan 3690 HK): 2Q23, Record High Op Profit, 38% Buy
- Quiddity Leaderboard SE600 Sep 23: 6 ADDs/DELs As Things Stand; More Possible
- UMW Holdings (UMWH MK): Sime Darby’s Pre-Conditional MGO
- Boustead Plantations (BPLANT MK): Pre-Conditional MGO at RM1.55
- Cello World Pre-IPO Tearsheet
- Sime Darby/UMW: It’s All About Scale
- VIPShop (VIPS US): Attractive Value Play Underappreciated by Investors Looking for Growth
- Companies Should Show a Path to Accelerated Profit Growth Rather than Shareholder Returns
- Polaris Holdings (3010) – Positioned to Leverage Demand Recovery
- Liberty/Telenet: Re-Opening of Tender Offer
MT (Meituan 3690 HK): 2Q23, Record High Op Profit, 38% Buy
- Total revenue grew by 33% YoY, which is the highest growth rate in the past seven quarters.
- The company achieved a higher operating profit in 2Q23 after turned the profit positive in 1Q23.
- The stock price has risen by 20% since our last buy rating, but we believe there will be still 38% upside for yearend 2024.
Quiddity Leaderboard SE600 Sep 23: 6 ADDs/DELs As Things Stand; More Possible
- In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the SE600 and EURSTX Indices for the September 2023 Rebalance.
- I currently expect 6 ADDs and 6 DELETEs for the SE600 index in the September 2023 rebalance but these rankings could change prior to the base date.
- After the September 2023 rebalance, SimCorp A/S (SIM DC) could get deleted from the SE600 index and trigger an intra-review index change.
UMW Holdings (UMWH MK): Sime Darby’s Pre-Conditional MGO
- Sime Darby (SIME MK) entered a conditional sale and purchase agreement (SPA) to acquire PNB’s 61.18% stake in UMW Holdings (UMWH MK) for RM5.00 per share.
- Once the SPA becomes unconditional, Sime Darby must launch an MGO for the remaining UMW shares at RM5.00 per share, an 8.2% premium to the last close.
- The SPA is conditional on Sime Darby’s shareholder approval. The SPA and MGO are targeted to be completed in 4Q23 and 1Q24, respectively.
Boustead Plantations (BPLANT MK): Pre-Conditional MGO at RM1.55
- Kuala Lumpur Kepong (KLK MK) will acquire 33.00% of Boustead Plantations (BPLANT MK)‘s outstanding shares from Boustead Holdings/BHB at RM1.55 per share. The purchase is conditional on BHB shareholder approval.
- Once the purchase becomes unconditional, the joint offerors (KLK, BHB, LTAT) will be required to launch an MGO at RM1.55 per share, a 13.1% premium to the last close.
- The MGO will have no minimum acceptance condition. The offer is attractive and represents an all-time high. The MGO is expected to be complete in 4Q23.
Cello World Pre-IPO Tearsheet
- Cello World Limited (CW IN) is looking to raise around US$210m in its upcoming India IPO. The bookrunners on the deal are Kotak, JM Financial, ICICI, IIFL, and Motilal Oswal.
- Cello World (CW) is an Indian consumer products company. The firm is a leading company in the consumerware market in India.
- According to the Technopak Report, the firm’s consumer houseware, writing instruments and stationery, and moulded furniture and allied products categories are amongst the largest brands in the Indian consumerware market.
Sime Darby/UMW: It’s All About Scale
- In one of the largest M&A transactions in Malaysia, Sime Darby (SIME MK) intends to acquire a 61.2% stake in UMW Holdings (UMWH MK) from Permodalan Nasional Bhd for RM3.57bn.
- Sime Darby is paying RM5/share, a token 9.9% premium to last close, but more like 25% when factoring in apparent news leakage.
- Once the stake sale is completed, Sime Darby will launch an unconditional MGO for all remaining shares not held. This transaction is expected to be wrapped up in early 2024.
VIPShop (VIPS US): Attractive Value Play Underappreciated by Investors Looking for Growth
- Over the last decade, VIPShop proved it is the undisputed leader in China’s online discount retail business with the longest streak of profitability and impressive ROE among China internet names.
- Investors are misplaced to look to the stock for growth. Rather, it is cash cow in mature business with deep moat and run by disciplined management who cares about shareholders.
- Trading at 4.5x our FY23 earnings excluding net cash, it valuation is attractive even compared to depressed sector comps. Expect 20% CAGR of return by 2025 driven by intrinsic value.
Companies Should Show a Path to Accelerated Profit Growth Rather than Shareholder Returns
- Metrical’s past analysis also shows that a company’s capital allocation to investors is effective in raising valuations, so a proper allocation between investment and shareholder return is a baseline.
- The correlation analysis between TOPIX and nominal GDP suggests that the shift from deflation to inflation has triggered overseas investors to focus on the further expansion of company profits.
- While average P/B and ROE have remained flat, the rise in P/E has boosted the stock recently. This suggests that further share price appreciation will require an increase in profits.
Polaris Holdings (3010) – Positioned to Leverage Demand Recovery
- Positioned for a major resurgence in demand – Q1 FY3/2024 results were a culmination of efforts made by management to improve the profit structure of Polaris’ business model, a successful recapitalization strategy, and a recovery in the hotel industry.
- Demand was normalizing to pre-pandemic levels for Polaris’ domestic and overseas operations, with the business generating a quarterly operating margin of 6.6%, the highest since Q1 FY3/2017.
- Newly disclosed KPIs highlight robust activity in the domestic market, with Q1 FY3/2024 domestic RevPAR rising 84.9% YoY.
Liberty/Telenet: Re-Opening of Tender Offer
- Liberty has waived the 95% threshold condition. Liberty has now mandatorily opened again the tender given it owns more than 90% (93.43%), on same terms until 13 September (settlement 27 September).
- At 5.9x EV/Fwd EBITDA (vs. 5.4x EV/20e EBITDA for Orange Belgium minorities), the offer is relatively cheap, but also reflects the uncertainties surrounding Citymesh’s entrance and risk of market share losses.
- Spread is positive. After the second acceptance period closes, I believe the delisting is extremely likely. With limited liquidity and floor dividend no longer guaranteed, recommendation is accept the offer.
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