In today’s briefing:
- SM Entertainment: Kakao’s Tender Offer Proration Analysis
- SM Ent Tendering P&L & Allocation Risk for a 30% Spread Opening
- TBS (9401) Selling Cross-Holdings But Don’t Hold Your Breath
- Thoughts On The Recent Pullbacks in Meidong and EVA
- Trial Holdings IPO: The Bull Case
- Mahindra & Mahindra (MM IN) | Cracks Widening
- TEMU: A Burden on PDD’s Profitability & Possibly a Legal Nightmare
- Aristocrat Leisure: Amid Global Uncertainties, the Company Combines Safety and Growth in Gaming Tech
- Trial Holdings Pre-IPO – The Negatives – Wafer-Thin Margins
- Trip.com (9961 HK): The Best Is yet to Come
SM Entertainment: Kakao’s Tender Offer Proration Analysis
- In this insight, we provide a proration analysis of the S.M.Entertainment Co (041510 KS) tender offer by Kakao Corp (035720 KS).
- Our base case assumes 71.4% of outstanding shares will participate in the tender offer, including HYBE, NPS, KB Asset Mgmt, Com2Us, and 70% of the remaining local and overseas investors.
- There is a very high probability of a successful tender offer of SM Entertainment shares by Kakao. Post end of tender offer, its share price could fall about 5-10%, however.
SM Ent Tendering P&L & Allocation Risk for a 30% Spread Opening
- The target volume is 47.6% of the nominally estimated tendering pool size. It may go up due to retail investors’ typically low participation in tendering.
- Other factors MAY OFFSET this. Most notable is the tendering possibility of HYBE (18.45%) and Lee Soo-man (4.96%). Combining these, the allocation rate will likely be between 50% and 60%.
- Using this 50-60% band as a reference point, we should assess the risk of mismatching between the degree of post-tendering price correction and our loss buffer range for non-tendered shares.
TBS (9401) Selling Cross-Holdings But Don’t Hold Your Breath
- Three years ago I wrote a piece about the history of activism at Tokyo Broadcasting System (9401 JP), suggesting it was not expensive but activist gains might be hard won.
- Yesterday, TBS announced it would sell strategic cross-holdings to raise cash for investment, as per its Medium-Term Management Plan 2023, and its full-year forecast Net Profit would rise 75%.
- That tells you what you need to know, and it guides you to the value within.
Thoughts On The Recent Pullbacks in Meidong and EVA
- After rallying a fair bit at the beginning of 2023, we have seen sharp pullbacks in Eva Precision Industrial Holdings (838 HK) and China MeiDong Auto (1268 HK) share prices.
- We believe the price cuts highlighted by Victoria Li in her insight China Auto: ICE Price War Triggered by Dongfeng, JV Players Under Pressure are a significant cause.
- While we like both stocks and they are cheap, we feel both companies will face short to medium-term pain in their businesses and share prices as the saga unfolds.
Trial Holdings IPO: The Bull Case
- Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$380 million at the IPO reference price of JPY2,000. Pricing on 26 March.
- Trial aims to act as a one-stop shopping store where a consumer can buy whatever they want at a great price. Trial’s basic pricing strategy is Every Day Low Price.
- The key elements of the bull case rest on top quartile revenue growth, encouraging same-store sales growth, solid margin profile and cash generation.
Mahindra & Mahindra (MM IN) | Cracks Widening
- Mahindra & Mahindra (MM IN) is facing challenges in the highly competitive SUV segment in India.
- Model-Wise data indicates declining sales volumes for some of its models such as Scorpio, XUV300, and XUV700.
- The strategy of focusing on the higher end of the SUV market may lead to confusion and loss of market share.
TEMU: A Burden on PDD’s Profitability & Possibly a Legal Nightmare
- Questionable marketing practices and cheap counterfeits could make TEMU a legal nightmare for Pinduoduo (PDD US).
- Meanwhile, SHEIN doesn’t seem ready to give in easily to the competition. Thus, TEMU could be a significant burden on Pinduoduo’s profitability in the medium-long term.
- Considering the discounts, advertisements and promotional spending done by TEMU in the fourth quarter, we think it is unlikely that Pinduoduo will meet the 4Q22 consensus OP of RMB 11.7bn.
Aristocrat Leisure: Amid Global Uncertainties, the Company Combines Safety and Growth in Gaming Tech
- Australia’s gaming equipment/systems giant is among the best poised to reward shareholders over the next 18 months as sector recovery speeds.
- ALL’s stock performance over the past 5 years amid 3 of covid headwinds has rewarded investors with ~a 62% total shareholder return–including dividends.
- ALL is riding the front of the cashless gaming systems tech which can grow exponentially over the next 3 years in all key global jurisdictions, Asia, US and EU.
Trial Holdings Pre-IPO – The Negatives – Wafer-Thin Margins
- Trial Holdings (5882 JP) is looking to raise around US$375m in its Japan IPO.
- TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
- In this note, we will talk about the not-so-positive aspects of the deal.
Trip.com (9961 HK): The Best Is yet to Come
- Recent pullback of Trip.com (9961 HK) has made this China’s tourism recovery play even more attractive. Since end-Feb, consensus earnings forecasts have been upgraded by 19-20%.
- It is best positioned to capture the revival in China’s domestic and outbound travels. Forward booking data has pointed to very solid momentum over the next few months.
- We anticipate good margin expansion going forward, and its resilient financial position provides opportunities for value-enhancing M&As. These all justify a premium valuation over peers.
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