In today’s briefing:
- TCM (570 HK): Where’s The Floor?
- Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- Arb Spread Has Opened Today in Classys & Ilooda Merger Swap: Checking Trade Feasibility
- Kolmar Holdings: Aggressive Plans to Cancel Outstanding Shares + Improving Returns to Shareholders
- CMCDI (133 HK): Buybacks And Management Fees Into Focus
- Dr. Reddy’s Laboratories (DRRD IN): Nicotinell Acquisition to Fortify Consumer Healthcare Business
- Brookfield/Neoen: Share Purchase Agreement, Spread and Convertibles
TCM (570 HK): Where’s The Floor?
- Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
- Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
- Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.
Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
- The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
- The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.
Arb Spread Has Opened Today in Classys & Ilooda Merger Swap: Checking Trade Feasibility
- The spread is appealing, and Classys’ shorting instrument’s liquidity issue shouldn’t be critical with a manageable position size. The concern is shareholder approval and the stock purchase cost under ₩30B.
- Despite cancellation risks, there are reasons to stay interested. Bain Capital aims to merge with Ilooda to boost Classys’ valuation, suggesting the merger may proceed even if ₩30B is exceeded.
- The deadline for dissenting votes and appraisal rights at Ilooda’s meeting is July 8th, ex-rights date July 9th. Shareholders’ meeting: August 13th; rights exercise: August 13th to September 2nd.
Kolmar Holdings: Aggressive Plans to Cancel Outstanding Shares + Improving Returns to Shareholders
- On 26 June, Kolmar Holdings announced it plans to cancel 2.5 million treasury shares (6.7% of outstanding shares) as part of its participation in the corporate value-up program.
- Previously, Kolmar Holdings announced that it would return more than 50% of its net profit to shareholders in accordance with the shareholder return policy announced in July 2023.
- According to our NAV analysis, it suggests an implied NAV of 555 billion won or NAV per share of 15,088 won, which represents a 39% upside from current price.
CMCDI (133 HK): Buybacks And Management Fees Into Focus
- The recent news on China Merchants China Direct Investments (133 HK) was director Elizabeth Kan narrowly getting re-elected. Of interest, ISS recommended shareholders vote AGAINST. Glass Lewis was FOR re-election.
- The key takeaway here is that the majority of the minorities want change. The next development may occur in the lead up to the management agreement renewal in November.
- In addition, Argyle Street Management, CMSCI’s key shareholder activist, is also requesting the company buy back 20% of shares outstanding at 90% of NAV.
Dr. Reddy’s Laboratories (DRRD IN): Nicotinell Acquisition to Fortify Consumer Healthcare Business
- Dr. Reddy’s Laboratories (DRRD IN) has signed a definitive agreement with Haleon (HLN LN) to acquire latter’s global portfolio of consumer healthcare brands in the nicotine replacement therapy outside US.
- The company will acquire the portfolio for a total consideration of £500M ($633M). In 2023, the portfolio generated ~£217M ($274M) revenue. Purchase consideration values the business at EV/sales of 2.3x.
- The acquisition will not stretch the balance sheet as Dr. Reddy’s has a cash balance of $990M as on March 31, 2024. The transaction is expected to complete in 4Q24.
Brookfield/Neoen: Share Purchase Agreement, Spread and Convertibles
- On June 24, a share purchase agreement was signed between Brookfield and several shareholders, to acquire 53.12% of Neoen’s outstanding shares at €39.85/share. Brookfield has also received irrevocables for 4.36%.
- The offer price is generous and this looks a done deal. Spread 5.19%/7.29% (gross/annualised) seems interesting in spite of the longer approval process in energy deals.
- The convertible NEOEN 2.875 14-SEP-2027 has a balanced profile. It is trading at (mid) 100.75 (vs. €37.82), vs. a fair price estimate of 113.773.
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