Daily Event-Driven: StubWorld: Intouch Gains On Possible Sale of Thaicom and more

In this briefing:

1. StubWorld: Intouch Gains On Possible Sale of Thaicom
2. Orion Holdco Trade: Current Status & Trade Approach
3. Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
4. Nexen Holdco Trade: Quick Reversion on Yesterday’s 2σ Price Divergence
5. Shinmaywa Own Share Tender Offer at Premium

1. StubWorld: Intouch Gains On Possible Sale of Thaicom

This week in StubWorld …

• Both Intouch Holdings (INTUCH TB) and Thaicom Pcl (THCOM TB) gain ~10% in response to rumours of a government takeout of Thaicom.

Preceding my comments on Intouch and Yoosung T&S (024800 KS) 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. Orion Holdco Trade: Current Status & Trade Approach

• Orion sub is now falling 6% this morning. Holdco is currently down only 1.6%. They are currently above +2.2σ on a 20D MA. This is a 120D high. Price ratio wise, they are at 0.16549. This is a little above 120D mean. Holdco discount is now 50% to NAV.
• Sub’s 6% fall this morning should be due to the market speculation that 4Q numbers may be worse than expected. But there are still more signals of improving fundamentals going forward. Weaker 4Q numbers do not indicate that Sub is entering a dull cycle business wise.
• Current +2.2σ on a 20D MA is something rare to see. It should be rare even if we look much beyond 120 days. Given the market’s favorable sentiments on Sub’s mid-term outlook, current +2.2σ should be  held here and reverted pretty soon. I’d go long Sub and short Holdco until +0~0.5σ.

3. Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar

My colleagues strive to cover M&A transactions in Asia-Pac – and further afield – with a market cap >US$100mn and/or when liquidity or the backdrop story warrant comment. This insight is no exception.

In the past two weeks, two companies who form part of the Huarong-CMB network (HCN), as discussed by David Webb, and one company enmeshed in the Enigma network, have received official offers or are have made announcements pursuant to the Hong Kong Code on Takeovers and Mergers.

• [HCN]  New Sports Group (299 HK) was halted from trading on the 18 January and announced a cash or scrip offer, with the cash alternative of $0.435/share priced at a premium of 3.57% to last close.
• [Enigma]  LEAP Holdings Group Ltd (1499 HK) is currently suspended pending an announcement.
• [HCN]  China Singyes Solar Tech (750 HK) announced it may be subject to a mandatory takeover pending the outcome of an MOU.

Below are brief comments on all three situations. In the case of New Sports, it is a very real deal, with financing in place for the cash option.

It is arguable whether the tanking in CSST shares yesterday after the resumption of trading, increases or lessens the chances of an official Offer unfolding.

4. Nexen Holdco Trade: Quick Reversion on Yesterday’s 2σ Price Divergence

• Nexen Sub made a run yesterday. It climbed 6% yesterday. Holdco stayed flat with a 0.34% gain. This created a huge price divergence. The duo made nearly 2σ gap in one single day. They are now slightly below -1σ on a 20D MA. Holdco discount is 46% to NAV.
• This much divergence in a single day is very rare for the Nexen duo. Sub’s stronger 4Q numbers should have been already priced in. Yesterday was more of a sentimental boost, thanks to HMG. Short-term wise, further price pushing up on Sub is unlikely.
• The duo is well below 120D mean and 2Y mean on a 20D MA price ratio. Price divergence should be held back at the current level. I’d go for a quick reversion in favor of Holdco. Just, Holdco liquidity can be a major issue to many of us here.

5. Shinmaywa Own Share Tender Offer at Premium

On 21 January 2019, my favorite manufacturer of garbage trucks, vertical carousel parking infrastructure, sea planes, and jetways – Shinmaywa Industries (7224 JP) – announced a share buyback. This was not unusual. The company bought back shares last year and indicated earlier this year it would seek a relatively high return of capital to shareholders.  In the last five months of 2018, the company bought back 3.6% of shares outstanding, and cancelled those shares at the end of December 2018). 

Indeed, the company on January 9th this year announced a revised dividend forecast for the year ending March 2019. The dividend was lifted by 1 yen. 

The company also announced a new policy of shareholder returns for the year starting April 1. 

While taking into consideration strategic business investment for the future and the internal reserves required for maintaining and expanding the Company’s management foundation, we are aware that appropriate return of profit to shareholders is an important management issue. In that regard, in our Medium-term Management Plan for the three years to the end of the fiscal year ending March 31, 2021, “Change for Growing, 2020,” (the “Medium-term Management Plan”), which was announced in May 2018, we set up a basic payout ratio on a consolidated basis of 40-50% and carrying out flexible acquisition of treasury shares with a focus on improvement of capital efficiency as basic shareholder return policies.

The company acknowledged the above and announced it would seek to add a commemorative (70th anniversary of incorporation and 100th anniversary of being in business) special dividend of ¥45/share, on top of the normal interim dividend (which is likely to be ¥18-19/share) paid to shareholders as of the end of September 2019.

That was nice, but that was little preparation for the news of 21 January.

• On that day, the company announced yet another increase in dividend forecast for the current fiscal year, raising the H2 dividend – which had just been raised from ¥18/share to ¥19/share less than two weeks ago – to ¥27/share.
• The company also announced a Tender Offer to buy back 26.666mm its own shares at a roughly 10.5% premium to last trade.  

That’s a big tender offer. It is ¥40bn and 29.0% of shares outstanding. 

Regular readers of Smartkarma will know that I will have comments on situations like these.