In this briefing:
- Shinmaywa Own Share Tender Offer at Premium
- RIO & BHP: Valuation Gap Gone; Closing Long-Rio/Short-BHP
- M1 Ltd (M1 SG): A Clever Ploy to Put the Ball Firmly in Axiata’s Court
- Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
- Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?
1. 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.
2. RIO & BHP: Valuation Gap Gone; Closing Long-Rio/Short-BHP
Investment Conclusion:
We recommend closing our long-Rio Tinto Ltd (RIO AU)/short-Bhp Billiton (BHP AU) following recent trading updates from both companies which helped to narrow the previous valuation gap we identified in our Aug-18 note: US$20bn in Lost Market Cap Looks Hard to Justify: Recommend Long Rio; Short BHP
3. M1 Ltd (M1 SG): A Clever Ploy to Put the Ball Firmly in Axiata’s Court
M1 Ltd (M1 SP), the third largest telecom operator in Singapore, is subject to a voluntary conditional offer (VGO) at S$2.06 cash per share from Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) (KCL-SPH). KCL-SPH said on Tuesday that they wouldn’t increase their S$2.06 offer price “under any circumstances whatsoever.”
KCL-SPH’s stance not to increase their S$2.06 offer price is a clever ploy to the put the ball in Axiata Group (AXIATA MK)’s court. Axiata has three options, in our view. We believe that the probability of a material bid to KCL-SPH’s offer is low with Axiata most likely to retain its stake as a minority shareholder.
4. Polycab India Limited Pre-IPO – Market Leader with Steady Growth but with a Few Unanswered Question
Polycab India (POLY IN) plans to raise around US$280m in its IPO through a mix of selling primary and secondary shares. It is the largest manufacturer of wires and cables in India with a 12% market share, as per CRISIL research. The company has also recently entered the consumer electrical segments.
Sales growth has been decent while margin expansion has helped the company to report much higher PATMI growth. Although, cash flow from operations has lagged earnings growth as working capital requirements have been volatile. In addition, receivables quality seems to be deteriorating. To add to that the rationale for the dealers and employees rationalization hasn’t been clearly explained.
In this insight, I’ve covered the above points, compared the company to its listed peers and commented on valuations. Should the deal be offered at multiples close to its wires and cables peers, it might still be interesting.
5. Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?
Last week on 17 January, printing and HR services company and funeral parlor operator Kosaido Co Ltd (7868 JP) announced that Bain Capital Private Equity would conduct an MBO on its shares via Tender Offer, with a minimum threshold for success of acquiring 66.67% of the shares outstanding. The Tender Offer commenced on 18 January and goes through 1 Mach 2019. The Tender Offer Price is ¥610/share, which is a 43.8% premium to the close of the day before the announcement and a 59.7% premium to the one-month VWAP up through the day before the announcement.
The company’s board of directors announced it supported the deal.
Terms & Schedule
Terms & Schedule of Hitachi Tender Offer for Yungtay Engineering | |
| Tender Offer Price | JPY 610 |
| Tender Offer Start Date | 18 January 2019 |
| Tender Offer Close Date | 1 March 2019 |
| Tender Agent | SMBC Securities |
| Maximum Shares To Buy | 24,913,439 shares |
| MINIMUM Shares To Buy | 16,609,000 shares |
| Currently Owned Shares | 100 shares |
| Irrevocable Undertakings | Sawada Holdings’ 3,088,500 shares or 12.40% (includes the holdings at both Sawada Holdings and HS Securities). |
This deal is probably reasonably straightforward.
- It is a big premium to last trade, and a multi-year high.
- There is one large holder publicly willing to sell and I expect the cross-holders would be willing to sell too.
- Management is involved and supportive.
Except it is being done (and recommended) at a 44% discount to Tangible Book Value Per Share after the directors managed to work Bain up from a 49% discount to TBVPS.
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