In today’s briefing:
- Sembcorp Marine and the Keppel O&M Business Combination – Brighter Light at the End of the Tunnel
- The Keppel Restructuring – Forward Sum Of The Parts Makes KEP Look Cheap. And It Is… But…
- Renesas (6723 JP) – Salutary Q1, Strong Q2 Forecast, and a BIG Buyback
- Keppel: A Massive Winner from Keppel O&M and Sembcorp Marine’s Combination
- Investigating Each Scenario of MSCI Korea Rebalancing Outcome
- Hitachi Metals – Steel Price Recovery Probably Limits Downside Even in the Event of a Break
- Noteworthy Flow Trend: Korea NPS Overweighting Local Equity
- Sembcorp Marine & Keppel O&M Combination: Details & Index Implications
- Expressions Of Interest Resurrect Pushpay
- KT Considering a Partial Sale of Its Cloud Business & Concerns About Tariff Rate Cut for 5G Services
Sembcorp Marine and the Keppel O&M Business Combination – Brighter Light at the End of the Tunnel
- Keppel Corp and Sembcorp Marine have announced the O&M business combination and it is a little more interesting than expected. It is a Very Big Desirable Order Book.
- Separately, there is the potential for more index inclusion flow based on the conclusion of the combination in Q4.
- The light at the end of the tunnel used to be far away, and one was never sure if it wasn’t an oncoming train. It’s closer and clearer now.
The Keppel Restructuring – Forward Sum Of The Parts Makes KEP Look Cheap. And It Is… But…
- The Keppel O&M / SMM Combination and Keppel Rig Asset Restructure were announced today and the arithmetic is both tough and interesting. There’s a little magic here.
- KEP shareholders receive SMM shares worth ~1/3 of today’s share price, and the rest is currently valued at well under Net Tangible Assets post-Restructuring/Transaction.
- That suggests Keppel has upside, but one must think carefully about the exposures.
Renesas (6723 JP) – Salutary Q1, Strong Q2 Forecast, and a BIG Buyback
- About 9 days I ago I wrote Renesas (6723 JP) – On Top of Peer-Beating Growth, and Valuation… Watch for Buybacks. Today with Q1 earnings, they announced a ¥200bn buyback.
- What appears to be a quite strong Q1 in automotive in both revenues and margins, and decent incremental margins, sees a stronger Q2 forecast (but less good incremental margins).
- The Street is well behind guidance, and a buyback at the high end of potential guidance and coming earlier than expected is all to the good.
Keppel: A Massive Winner from Keppel O&M and Sembcorp Marine’s Combination
- The terms for the proposed combination of Keppel O&M and Sembcorp Marine (SMM SP) were announced. The agreed equity value exchange ratio between Keppel O&M and Sembcorp Marine is 56%:44%.
- The proposed combination will require Keppel Corp (KEP SP) and Sembcorp Marine shareholder approvals at separate EGMs and is expected to close in 4Q2022.
- The transaction is a big win for Keppel shareholders as the proposed combination creates S$9.4 billion of value, which is around 80% of Keppel’s market cap at the last close.
Investigating Each Scenario of MSCI Korea Rebalancing Outcome
- We have one sure addition, Hyundai Heavy Industries. So, we have one guaranteed deletion, and we may have another delete depending on the outcome for the Segment Number of Companies.
- It is safe to say that Seegene‘s exclusion is almost confirmed. The one with the next smallest market cap is Green Cross.
- But if SK Telecom is excluded due to a low foreign room, Green Cross will survive, and even Seegene may remain in the Standard Index.
Hitachi Metals – Steel Price Recovery Probably Limits Downside Even in the Event of a Break
- Hitachi Metals started drifting noticeably below terms from early Nov last year and fell as low as 14% below the ¥2,181 offer price in early March.
- Along with relatively strong guidance yesterday the company reaffirmed the commitment of the Bain consortium to the offer despite some delays.
- We have no special insight into the actual likelihood of a break here but we do believe downside may be limited even if one occurs.
Noteworthy Flow Trend: Korea NPS Overweighting Local Equity
- A noteworthy flow trend in the Korean stock market is the National Pension Service’s local equity purchase. For this, they tend to overweight those previously underweighted blue-chip stocks.
- All of the top 10 most net-bought stocks by local pensions on April 18-26 are KOSPI 200 constituents. And most of them all have a relatively small NPS-owned stake.
- Most of them have significantly outperformed the KOSPI 200 (-0.90%) during this period.
Sembcorp Marine & Keppel O&M Combination: Details & Index Implications
- Keppel Corp and Sembcorp Marine have announced a proposed combination of Keppel O&M and Sembcorp Marine to create a global player in offshore renewables, new energy and cleaner O&M solutions.
- Keppel Corp (KEP SP) and its shareholders will own 56% of the combined entity, while Sembcorp Marine (SMM SP) shareholders will own the other 44%.
- Depending on the combined entity market cap, there could be selling from MSCI Standard and FTSE Straits Times Index (STI) (STI INDEX) trackers at the time of implementation.
Expressions Of Interest Resurrect Pushpay
- Church donor management tech play Pushpay Holdings (PPH NZ) said it “recently received unsolicited, non-binding and conditional expressions of interest or approaches from third parties“.
- No price was mentioned. Shares promptly gained 24% on the news.
- Separately, Pushpay reaffirmed its EBITDA guidance for FY22. Those results will be announced on the 11 May.
KT Considering a Partial Sale of Its Cloud Business & Concerns About Tariff Rate Cut for 5G Services
- On 27 April, Bloomberg reported that KT Corp is considering a partial sale of its newly created cloud business unit.
- It is estimated that a sale of about 20% stake in KT Cloud could raise approximately $400 million, which would value KT Cloud business at $2 billion.
- A key reason why the major telcos’ share prices were down today was because of reports that the incoming Yoon Seok-Yeol administration is pressuring telcos to lower 5G tariff rates.
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