In today’s briefing:
- CIMIC (CIM AU) Takeover Offer: Should Get Done; Index Implications
- Hochtief’s Unconditional Offer For CIMIC
- VW Gains On Potential Porsche IPO. PAH3 Gains Even More
- CIMIC (CIM AU) Replacement in ASX200
- CIMIC in an Off-Market Takeover Bid by Hochtief
- Harmonic Drive Systems (6324 JP): Consider the Competition
- Korea Small Cap Gem #16: Motonic Corp
- Sunway Construction Group (SCOG.KL) – 4 Q21: Record Quarterly Profit
- Earnings growth likely to remain lower than peers
CIMIC (CIM AU) Takeover Offer: Should Get Done; Index Implications
- Hochtief AG (HOT GR) holds 78.58% of CIMIC Group Ltd (CIM AU) and has made an offer to acquire the remaining shares at A$22/share.
- Hochtief will squeeze out the remaining shareholders once it holds more than 90% of the shares in CIMIC Group Ltd (CIM AU).
- We think the offer is fair and expect the stock to open close to A$22/share tomorrow. There could be ad hoc inclusion to the ASX200 index in May or June.
Hochtief’s Unconditional Offer For CIMIC
- Actividades de Construcción y Servicios (ACS SM) , via 52.3%-held Hochtief (HOT GR), is offering $22/share for all CIMIC (CIM AU) shares it does not own. The Offer is unconditional.
- The Offer Price is a 33% premium to last close. The price will not be increased.
- Hochtief intends to exercise its right to on-market purchases. CIMIC’s board has yet to comment on the Offer.
VW Gains On Potential Porsche IPO. PAH3 Gains Even More
- Volkswagen (VOW GR) said it was in advanced talks with its controlling shareholder, the Porsche-Piëch family, over IPOing the iconic Porsche car brand.
- VW gained as much as 10.2%, lagging Porsche Automobil Holding Se (PAH3 GR)‘s intra-day-high of 15.2%.
- Proceeds from a potential IPO would ostensibly support VW’s electric vehicle roll-out. But expect the founding families to be also looking to fill their boots.
CIMIC (CIM AU) Replacement in ASX200
- Hochtief AG (HOT GR) has finally launched an unconditional offer for the rest of CIMIC Group Ltd (CIM AU) (where it already owns 78.58%).
- As David Blennerhassett writes in Hochtief’s Unconditional Offer For CIMIC, this should be a done deal. Completion would free up a place in the S&P/ASX200.
- This looks to be one of the earlier Q2 intra-quarter changes, but there are technicalities.
CIMIC in an Off-Market Takeover Bid by Hochtief
- Hochtief AG (HOT GR) announced an unconditional off-market takeover offer for CIMIC Group Ltd (CIM AU) at A$22.00 cash per share, a 33.4% premium to the last close price.
- The offer’s implied forward EV/EBITDA multiple is at a discount to peer multiples. However, the offer is attractive compared to historical and transaction multiples.
- The offer presents a reasonable exit for minorities tired of the weak share price due to years of troubled contracts.
Harmonic Drive Systems (6324 JP): Consider the Competition
- Demand for speed reduction gears is rebounding from the COVID downturn, but sales and profits are likely to be restrained by an increasingly difficult operating environment.
- HDS faces growing competition from Nidec in Japan and Leaderdrive in China, both of which want to lead the market. For HDS, a return to peak margins is unlikely.
- The shares have dropped 31% since last September, but at 81x EPS guidance are still quite expensive. Consider alternative factory automation investments.
Korea Small Cap Gem #16: Motonic Corp
- Motonic Corp (009680 KS) is the 16th company in our Korea Small Cap Gems series.
- Motonic’s net cash (including treasury shares) total 432 billion won, which would represent 148% of the company’s current market cap.
- Established in 1974, Motonic Corp makes automobile parts in Korea. Its main products consist of liquefied petroleum injection (LPI) systems, clutches, and continuously variable valve lifts (CVVLs).
Sunway Construction Group (SCOG.KL) – 4 Q21: Record Quarterly Profit
- Maintain HOLD with a revised MYR1.58 TP
- Even stronger if not for impairment/provision
- MYR4.8b outstanding orderbook; targets MYR2b wins
- Revising forecasts; ESG risk score has improved
Earnings growth likely to remain lower than peers
- V-Guard reported earnings CAGR of 8.6% over FY17-21 vs Havells (15.4%), Crompton (21.5%) and Polycab (39.2%).
- We model V-Guard’s earnings growth to be lower than peers ahead too due to negligible growth in stabilizer business with improving quality and quantity of power supply pan India, While V-Guard has forayed into high-growth consumer durables business, it generates lowest margin among all three segments, Non-South region also offers higher growth but lower margins and V-Guard’s right-to-win in kitchen appliances also appears low.
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