Daily Event-Driven: StubWorld: CK Infra/Power Assets, Amorepacific, JCNC and more

In this briefing:

1. StubWorld: CK Infra/Power Assets, Amorepacific, JCNC
2. Early Investors Say “Xiaomi The Money” Post LockUp Expiry
3. Capitaland (CAPL SP): Transformational Acquisition at a Premium
4. Navitas (NVT AU): A Bid Priced to Go with a Reasonable Chance of a Competing Bid
5. Korea Single-Sub Holdco Daily Alert: Halla Is Ripe for Trade At -1.6σ, Amore Reduced to +0.8σ

1. StubWorld: CK Infra/Power Assets, Amorepacific, JCNC

This week in StubWorld …

• What’s up with Ck Infrastructure Holdings (1038 HK) reducing its stake in Power Assets Holdings (6 HK)?
• Trading around its lowest implied stub inside the past five years, improving sentiment toward cosmetic stocks should support an Amorepacific Group (002790 KS) setup.

Preceding my comments on CKI/PAH, Amorepacific and JCNC are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed as a % – of at least 20%.

2. Early Investors Say “Xiaomi The Money” Post LockUp Expiry

Xiaomi Corp (1810 HK) is likely to break HK$10 this morning again after a placement equal to about 1% of shares outstanding was proposed to buyers last night at a sharp discount to the close. This insight attempts to nail down the shape and size of the ongoing overhang.

After the HK Stock Exchange announced in late April 2018 that it would permit companies with Weighted Voting Rights (WVRs) to list on the HKEx, after sticking to the one-share one-vote principle for years (losing the Alibaba Group Holding (BABA US) listing to NASDAQ in the process), Xiaomi Corp (1810 HK) quickly raised its hand with the prospect of a US$10bn IPO and a US$100bn market cap – heady numbers even for a fast-growing company. This was quickly followed by the launch of the China Depositary Receipt program which saw a quick establishment and even quicker acceptance of a Xiaomi application, potentially setting up a situation where demand was pulled from HK to China. 

Then investors got cold feet, and what was a $100bn valuation dropped to $90bn then $70bn.  The CSRC also pushed back on the possible CDR issuance to such an extent that Xiaomi withdrew its application, and then pricing delivered a valuation of approximately US$50bn at a sharply reduced IPO price of HK$17/share. 

Day1 saw a 6% fall on the open and the shares closed down 1%. After the Day 1 close, fast-track inclusion into the Hang Seng indices was a pleasant and somewhat unexpected surprise for IPO buyers and responded by rising almost 12% on Day 2 on sharply higher volume. MSCI did not follow suit (it had not been expected) but several days later on inclusion day, the stock was 25% higher than the IPO price. 10 days later the over-allotment option had been fully-exercised.

Xiaomi last year grew its ecosystem and its hardware base, but saw lower market share in China (13%) than in 2017 (14%) according to several sources, including Counterpoint Research quoted in the media. The company, which has targeted 50% of revenue from overseas is now just shy of that mark at 44% after ramping up sales in India, Europe, and MENA. 

Global weakness in handsets on mobile tech led by Apple did not spare Xiaomi, but MOST notable was the sharp drop in the share price in December from HK$14.30-50 area to just below HK$13 at year end. The first day of the new year saw the shares fall 5.5%, and the next day the price fell another 3.6%. The shares fell a little more in the next few days but somewhat stabilised until the morning of the 8th. 

Then the volume picked up. The lockup had expired.  

In five days, the shares have traded 880mm shares, and that is before a large placement proposed after the close on 15th January. 

“Xiaomi The Money” was the title of David Blennerhassett‘s initial pre-IPO insight ( Xiaomi The Money!), followed when details came out by Xiaomi the Ecosystem!

3. 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.

4. 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.

5. 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.