In this briefing:
- Capitaland (CAPL SP): Transformational Acquisition at a Premium
- Navitas (NVT AU): A Bid Priced to Go with a Reasonable Chance of a Competing Bid
- Korea Single-Sub Holdco Daily Alert: Halla Is Ripe for Trade At -1.6σ, Amore Reduced to +0.8σ
- Full List of Korea’s Single-Sub Holdcos with Current Sigma % – Quick Thought on Amorepacific
- TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
1. Capitaland (CAPL SP): Transformational Acquisition at a Premium
Capitaland Ltd (CAPL SP), a Singaporean real-estate group, has entered into a sale and purchase agreement to buy Ascendas-Singbridge (ASB) from its controlling shareholder, Temasek. The proposed acquisition values ASB at an enterprise value of S$10.9 billion and equity value of S$6.0 billion. Capitaland will fund the acquisition through 50% cash and 50% in shares.
While we believe that acquisition is transformative, it comes at the cost of a premium valuation. Overall, we advise investors to take a wait-and-see approach before building new positions in Capitaland.
2. Navitas (NVT AU): A Bid Priced to Go with a Reasonable Chance of a Competing Bid
Navitas Ltd (NVT AU), an Australian-listed education company, is subject to a revised bid. On 15 January 2019, the BGH Consortium bid against itself by offering a revised proposal of A$5.825 cash per share, 6% higher than its previous rejected offer.
Navitas’ directors intend to unanimously recommend the revised proposal and have granted the BGH Consortium an exclusivity period. We believe that a binding proposal should materialise and there is also a reasonable chance of a superior proposal from a competing bidder.
3. Korea Single-Sub Holdco Daily Alert: Halla Is Ripe for Trade At -1.6σ, Amore Reduced to +0.8σ
- Halla has the widest gap now on a 20D MA. It is at -159% of σ. It was down 130pp yesterday alone. It is currently close to yearly mean. Poongsan is also below -1 σ, down 80pp yesterday. BGF and Nexen are above +1 σ.
- Amore quickly reduced the gap yesterday. It is at 78% of σ, down 150pp. Amore Holdco stayed relatively strong yesterday. Holdco is at 78% of σ. But I wouldn’t expect a further decline. Price ratio is still close to yearly low. Holdco discount can be misleading as its two unlisted holdings are severely undervalued.
- I’d trade Halla with a very short-term horizon for quick mean reversion. I wouldn’t look at long-term horizon on Halla. Single sub dependency is relatively low. Price ratio is a little above yearly mean. 46% holdco discount doesn’t seem to be particularly cheap either.
- BGF, I’d continue to hold onto my long position on Holdco. I explained it in the previous BGF insight. Nexen and Poongsan, I’d wait for a bit wider divergence.
4. Full List of Korea’s Single-Sub Holdcos with Current Sigma % – Quick Thought on Amorepacific
- This is the complete list of Korea’s single-sub holdcos with current sigma %. Three local holdcos are currently standing out: Amorepacific Group (002790 KS): +231.84% of σ, Hanjin Kal Corp (180640 KS): -113.10% of σ and Youngone Holdings (009970 KS): +86.63% of σ.
- Amorepacific appears very tempting for stub trade. The Amore duo now has the widest price divergence on a 20D MA among Korea’s single-sub holdcos. But I would wait on this name. Locally, signals of improving fundamentals are being heard on the local cosmetics stocks. Holdco has traditionally been more susceptible to fundamentals changes. It is very possible that Amore duo leads to upwardly mean reversion in favor of Holdco in the short-term.
5. TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
Take out an ad in a magazine or pay a one of the Wondergirls to post an Instagram photo of herself using our makeup? How do we get Americans and Europeans to want our bubble tea sleeping packs and panda-shaped palettes? All valid questions for K-beauty companies in the midst of a global expansion.
Korean beauty products powerhouse, Amorepacific is going through some growing pains at the moment. In the 3Q18 the group reported a YoY sales increase of 6% but OP tumbled 24% due to increased personnel and marketing costs. In a management policy statement last week, Chairman Suh outlined the problems the group is encountering as it copes with reaching customers in a world where online and offline customer interaction is changing.
The stub is now trading at its widest discount to NAV in at least 3 years and has reached 22% discount to its Sum of the Parts NAV by my calculations. This level represents a level 1.5 standard deviations below its long-term average and also offers compelling value.
In this insight I will detail:
- an actionable market-neutral trade idea
- an analysis of the various business units of Amorepacific
- reasons for the under-performance of Amorepacific parent and a sign of a rebound
- a recap of ALL my stub trade ideas on Smartkarma, including track record of performance
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