In this briefing:
- StubWorld: A 2018 Review In Charts
- Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December
- Nongshim Holdings Stub Trade: Time for Holdco To Catch Up
- M1 Offer Coming – Market Odds Suggest a Bump But…
- Healthscope (HSO AU): A Material Bump to Brookfield’s Offer Is Doubtful
1. StubWorld: A 2018 Review In Charts
This week in StubWorld …
- The average NAV discount of a basket of 40 Holdcos steadily, and not altogether unsurprisingly, widened throughout the year.
- Passive, tech-related and illiquid Holdcos widened most; while cross-border and property Holdcos were the best of the worst.
- Illiquid, property, and passive Holdcos’ underperformance (or widening) was more pronounced in the first half. Tech Holdcos primarily widened in the second half.
- Worst performers (discount widening): In absolute % terms, United Co Rusal Plc (486 HK) and Asm International Nv (ASM NA) roughly shared the largest moves; while Dah Sing Financial (440 HK), First Pacific Co (142 HK), Genting Bhd (GENT MK) and Pasona Group (2168 JP) are trading at or near their 52-week wides and 52-week low prices.
- Best performers (discount narrowing): China Conch Venture Holdings Ltd (586 HK) is the only Holdco in positive territory; while Japan Post Holdings (6178 JP) is trading closest to its narrowest level in the last 12 months.
Below the various NAV discount chart summaries of various baskets are my weekly setup/unwind tables.
This, and other relationships discussed below, trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% ‘market capitalisation’ threshold, whereby the value of the holding/Opco held must be at least 20% of the parent’s market cap.
Comments on Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP) also follow the setup/unwind tables.
2. Discover HK Connect: Mainlanders Were Buying Pharma and Property Managers in December
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainlanders in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: those with a market capitalization of above USD 5 billion, those with a market capitalization between USD 1 billion and USD 5 billion, and those with a market capitalization between USD 500 million and USD 1 billion.
3. Nongshim Holdings Stub Trade: Time for Holdco To Catch Up
- Nongshim Co Ltd (004370 KS) is responsible for 70% of Nong Shim Holdings Co (072710 KS) NAV. Holdco is currently at a 54% discount to NAV. This is a 2 year low.
- Thanks to improved Korea-China relation, Opco (004320 KS) shares have nicely rebounded lately. Nongshim Holdco hasn’t caught up. This created the highest price ratio gap in 2 years. On a 20D MA, they are close to the mean. But on a 2 year mean, Holdco is currently and still severely undervalued.
- Liquidity has played a major role in the recent price gap widening. At a rebounding cycle like this, liquidity must have been a huge factor. But it shouldn’t be too long until Holdco catches up. Opco has kinda drifted sideways for a while now. This should be time for Holdco to begin a catchup.
4. M1 Offer Coming – Market Odds Suggest a Bump But…
Singapore telecom firm M1 announced on the 28th of December 2018 that Konnectivity Pte. Ltd. (a company jointly owned by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP)) had made a Voluntary Conditional General Offer following the satisfaction of the pre-condition (IMDA approval) mentioned in the pre-conditional offer made in September.
The offer is to buy a minimum of 16.69% of the total share capital of M1 at a price of S$2.06 in order to increase the collective holding of the acquirer and its related parties from the current level of 33.32% to 50+% of fully-diluted shares (current shares out + 26.826mm Options + ~2.1mm Award shares).
The Offerors will buy all shares tendered if they get to a minimum of 50+%.
The other terms and conditions of this deal will be set out in the offer document which is expected to be despatched in mid-January 2019 (14-21 days from 28 December).
The offer price of S$2.06 translated to a premium of 26.4% to the undisturbed price before the trading halt for the pre-conditional offer. At the time of writing, the stock is trading at S$2.10 which is higher than the proposed Offer Price, indicating the market is expecting a bump or an overbid.
We’ll see.
5. Healthscope (HSO AU): A Material Bump to Brookfield’s Offer Is Doubtful
Healthscope Ltd (HSO AU), Australia’s second-largest private hospital operator, is caught again in a bidding war between Brookfield Asset Management (BAM US) and BGH-AustralianSuper. On 21 December 2018, Healthscope extended exclusive due diligence with Brookfield. Brookfield noted that it has “no reason to believe it would not be willing and able to proceed” with its proposal.
The popular narrative is that should a binding proposal materialise; shareholders can expect a bidding war among the existing bidders, and potential new bidders as Healthscope is “in play”. While there is there is a possibility for some ‘‘sweetening’’ to the bid price, we think that that the formal “winning” bid is unlikely to be materially above the current Brookfield bid.
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