In today’s briefing:
- Yamae Group Placement – Would Result in a Large Dilution, Although Its Momentum Has Been Strong
- Weiqiao Textile (2698 HK): Pre-Condition Satisfied as Prudence Edges Towards a Blocking Stake
- MIXUE Group Pre-IPO – The Positives – Leading by a Mile
- STTF Rebalance Preview: One Potential Change in March
- Weiqiao Textile (2698 HK): Pre-Cons Done. Payment (Perhaps) Late March
- Naspers (NPN) X Prosus (PRX) Pairs Trade Opportunity as Naspers Comes Under Pressure
- [Luckin Coffee(LKNCY US, BUY, TP US$43) TP Change]: Weak Earnings in 4Q23 but Better Outlook in 2024
- Perfect Medical: Updates, Stock at 10% Dividend Yield Post Correction
- MIXUE Group Pre-IPO – The Negatives – Declining GMV Share
- Investors Expect a Feasible Management Strategy Rather than an Accurate Cost of Capital
Yamae Group Placement – Would Result in a Large Dilution, Although Its Momentum Has Been Strong
- Yamae Group Holdings (7130 JP) is looking to raise US$115m from a primary follow-on. As per the firm, proceeds will be used to pay down its acquisition-linked debt.
- We would argue that the deal is somewhat well flagged given the firm’s track record of acquisitions, with the most recent being Confex Holdings.
- That being said, the deal would result in a large dilution for the firm, and would be a large one to digest at 48 days of Yamae’s three month ADV.
Weiqiao Textile (2698 HK): Pre-Condition Satisfied as Prudence Edges Towards a Blocking Stake
- Weiqiao Textile Co (2698 HK)’s offer pre-condition is satisfied. Prudence has increased its shareholding to 3.39% of the outstanding shares (9.79% of H Shares), marginally short of a blocking stake.
- The HK$3.50 offer has been declared final, which rules out a bump. Therefore, Prudence’s strategy could be to play the gross spread or to block the deal.
- The Shandong Luoxin Pharmaceutical (8058 HK) precedent supports the gross spread play view. However, unlike the precedent, Prudence is marginally short of a blocking stake in Weiqiao Textile.
MIXUE Group Pre-IPO – The Positives – Leading by a Mile
- Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO.
- MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
- In this note, we talk about the positive aspects of the deal.
STTF Rebalance Preview: One Potential Change in March
- Emperador (EMI SP) currently fails the liquidity test and could be removed from the SPDR Straits Times Index ETF (STTF SP) in March.
- Frasers Centrepoint Trust (FCT SP) is currently the highest ranked non-constituent and could be added to the ETF. FCT has a 6% higher market cap compared to Olam (OLG SP).
- We estimate trackers will need to buy 5 days of ADV in Frasers Centrepoint Trust (FCT SP) and sell over 37 days of ADV in Emperador (EMI SP).
Weiqiao Textile (2698 HK): Pre-Cons Done. Payment (Perhaps) Late March
- Back on the 4th December, Weiqiao Textile Co (2698 HK) announced a pre-conditional privatisation at HK$3.50 per H-share, a chunky 104.68% premium to last close and around a six-year high
- Pre-Conditions – regulatory approval from NDRC, MoC and SAFE – have now been fulfilled. The Composite Doc is expected to be dispatched on or before the 24 January.
- This Offer is a Merger by Absorption incorporating a Scheme-like vote. There is no tendering condition. Prudence Investment Management, which has now built a 9.79% stake, will be supportive.
Naspers (NPN) X Prosus (PRX) Pairs Trade Opportunity as Naspers Comes Under Pressure
- Naspers (NPN SJ) has underperformed Prosus NV (PRX SJ) by 3.9% since the start of the year.
- This has widened Naspers’ discount to Prosus’ market value to 13.3% from 9.9%, a level last seen during July 2023.
- Opportunity to put on a pairs trade, long NPN short PRX as we believe the relative underperformance is overdone and a structural shift in the discount is underway.
[Luckin Coffee(LKNCY US, BUY, TP US$43) TP Change]: Weak Earnings in 4Q23 but Better Outlook in 2024
- In 4Q23, we expect Luckin Coffee revenue to increase 93% YoY to RMB7.1bn, and expect GPM/OPM to decline (5.8)/(1.3) ppt YoY to 19.0%/8.2%, respectively.
- We cut 4Q23 operating income by 12%. In 2024, we raised our revenue estimate by 5% due to the speed up of new store opening schedule.
- Furthermore, as price competition eased, we expect Luckin to offer less low-priced drinks, thus driving up OPM in 2024.
Perfect Medical: Updates, Stock at 10% Dividend Yield Post Correction
- Negative China sentiment from where Perfect Medical Health (1830 HK) derives about 15-20% of its revenue is causing the company’s share price performance to remain lackluster.
- Stock trades on a 10% dividend yield with 15% of the market capitalization in cash, despite the outlook for HK, where it derives >75% of its revenue, is slightly better.
- With a 10-year average ROE of the business >40% and a 10.8x PE for FY24e, this stock is a dividend gem worth exploring.
MIXUE Group Pre-IPO – The Negatives – Declining GMV Share
- Mixue Group is looking to raise about US$1bn in its upcoming Hong Kong IPO.
- MIXUE Group (MIXUE) is a freshly-made drinks company providing affordable products to consumers, including freshly-made fruit drinks, tea, ice cream and coffee, typically priced at around one USD per item.
- In this note, we talk about the not-so-positive aspects of the deal.
Investors Expect a Feasible Management Strategy Rather than an Accurate Cost of Capital
- Although there’s range in the cost of capital, a sense of level is shared among investors, so even if a company estimates lower, it will be found to be incorrect.
- The essential problem isn’t scrutiny of the cost of capital, but rather that many companies produce low returns. Investors are skeptical that companies produce returns above their cost of capital.
- If stock prices do not rise, investors will continue to demand that companies improve their management, attributing this to the negative gap between the cost of capital and return.
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