In this briefing:
- Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
- Recruit Holdings Placement – A Tiny, Long Overdue Sell Down
- ATP30: 100% Secured Client Base Prompt 2019 Growth
- Shinmaywa Own Share Tender Offer at Premium
- RIO & BHP: Valuation Gap Gone; Closing Long-Rio/Short-BHP
1. 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.
2. Recruit Holdings Placement – A Tiny, Long Overdue Sell Down
Toppan Printing (7911 JP) is looking to sell 10.5m shares in Recruit Holdings (6098 JP) for about US$263m. Post-placement, Toppan Printing will still have about 6% stake (103m shares) in Recruit Holdings.
The deal scores well on our framework owing to its strong price and earnings momentum and stellar track record. However, it was offset by its relatively expensive valuation compared to peers. The selldown by Toppan Printing is tiny relative to the three-month ADV which the market would likely be able to absorb. The sell down is also long overdue considering that Toppan Printing skipped the 2016 secondary offering in which many shareholders have participated.
3. ATP30: 100% Secured Client Base Prompt 2019 Growth
We maintain a BUY rating for ATP30, based on a target price of Bt2.46 (previous TP: 2.48) and derived from a 30xPE’18E, which is its average trading range in the past one year and 10% discount to Thailand’s transportation sector
The story:
- Active fleet expansion still go on in 2019-20E
- Lower interest expense burden support margin expansion
Risks: Higher than expected in volatility in fuel price and probability that clients will terminate service contracts
4. 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.
5. 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
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