In this briefing:
- ICT (ICT PM): Beneficiary of Higher Trading Activity
- Chunbo Co. IPO Preview
- SoftBank Corp (9434 JP) & Arteria Networks (4423 JP): A Tale of Two IPOs
- GUNKUL (GUNKUL TB): Solar to Drive Top-Line Growth
- Daelim Industrial Share Class: One of Prefs to Arb Trade on Div Payout Record Date
1. ICT (ICT PM): Beneficiary of Higher Trading Activity
- Low downside risk, low correlation with Western stock markets, and good price momentum relative to its sector
- Growing demand from emerging markets as seen by increase in trading activities e.g. Asia sales increased 10% YoY in 3Q18
- Planned terminal expansions in Manila, Mexico, Iraq, and Honduras are underway and should provide about 7% capacity growth by end 2019
- Trades below ASEAN Transportation at 19CE* 17.1x PE and offers much better EPS growth
- Risk: Foreign exchange risk, disruption from US-China trade war
* Consensus Estimates
2. Chunbo Co. IPO Preview
- Chunbo Co Ltd (278280 KS) is a provider of fine chemical materials in Korea, and it is expected to complete its IPO in January 2019. Its chemical materials are used in numerous industries including the display, semiconductors, rechargeable batteries, and pharmaceutical.
- The bankers used nine comparable companies, including Sk Materials (036490 KS), Foosung Co Ltd (093370 KS), and Iljin Materials (020150 KS), to value Chunbo Co Ltd (278280 KS). The bankers used the annualized net profit of these companies from 1Q-3Q18 in their valuation analysis. The average P/E multiple of the comps were 25.3x. The bankers then applied Chunbo’s annualized net profit of 19.8 billion won from 1Q18 to 3Q18 and applied the P/E multiple of 25.3x to derive an implied market cap of 501.3 billion won. After applying an IPO discount of 20.2% to 30.2%, the bankers derived an IPO range of 35,000 to 40,000 won.
- The company has a consistent record of generating solid growth in sales and profits in the past few years. The company’s sales increased 18.4% CAGR from 2014 to 2017. Its operating margin averaged 21% from 2014 to 3Q18.
3. SoftBank Corp (9434 JP) & Arteria Networks (4423 JP): A Tale of Two IPOs
During the second half of December 2018, Japan saw two telecom companies list on the Tokyo Stock Exchange: Softbank Corp (9434 JP) and ARTERIA Networks (4423 JP). After years of industry consolidation, which saw several stocks delist, this felt like a Christmas miracle (at least for those watching the sector’s stocks).
It would be hard to find two companies in the same industry that are so different – both in their business models as well as in how their IPOs were positioned to investors. One stock is 100 times larger than the other, but this is not a story of David and Goliath. It is two unique stories in parallel.
While each company took a very different approach to selling its stock, both have suffered from the subsequent broader market weakness, irrespective of company specifics. We can’t say it has been the worst of times, but it certainly has been a tough time with SoftBank Corp down 13% and Arteria down 20% from their IPO prices.
In this Insight we explore how each company approached its IPO and how each has fared since.
4. GUNKUL (GUNKUL TB): Solar to Drive Top-Line Growth
- Good payout ratio, good growth in core profit, and strong long-term sales growth relative to its sector
- Acquisition of 49% stake in a 30MW solar farm in Malaysia with a commercial operation date (COD) set for 1Q20 to support revenue growth
- High volume of solar rooftop installation projects planned for Charoen Pokphand Foods Pub (CPF TB) and other private firms to boost GUNKUL’s construction revenue
- Attractive at 19CE* PEG ratio of 0.5 relative to ASEAN Industry at 1.6
- Risk: Lower than expected electricity demand, unfavorable weather conditions
* Consensus Estimates
5. Daelim Industrial Share Class: One of Prefs to Arb Trade on Div Payout Record Date
- Daelim Industrial (000210 KS) is one of the main targets of local activist movement. This makes a setting for higher dividends. Common div yield to 1.58% and Pref to 4.18%. Difference is 2.59%p. This is the widest gap in many years.
- Pref is currently at a 60.89% discount to Common. Among those > ₩100bil MC prefs, it is the second highest discounted pref, only behind CJ Cheiljedang 1P (097955 KS). Local street expects at least ₩1,600 div per share. This should be a conservative estimate. On a 20D MA, Pref is above +1 σ.
- Dec 26 is record date of dividend payout. I expect a price catchup movement tomorrow in favor of Pref. I’d go long Pref and short Common as early in the morning as possible.
