Daily Industrials: Japan Post Holdings Basing Cycle with Clear Sell and Buy Levels and more

In this briefing:

1. Japan Post Holdings Basing Cycle with Clear Sell and Buy Levels
2. StubWorld: Intouch Gains On Possible Sale of Thaicom
3. Sell General Electric (GE US): Lots of Liabilities, Limited Cashflow – Target $1
4. Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
5. Recruit Holdings Placement – A Tiny, Long Overdue Sell Down

1. Japan Post Holdings Basing Cycle with Clear Sell and Buy Levels

Japan Post Holdings (6178 JP) rise is moving into an exhaustive resistance zone and due for a hard give back cycle.

Tactical buy supports are compelling for a bigger upside drive given the successful macro backswing support test and ascent that very often opens the way for the macro cycle to make headway, once a corrective cycle terminates. It is this corrective cycle that shows promise for an entry point.

Japan Post Holdings (JPH) does have a short history of volatile swings and will be the challenge within an ongoing basing cycle. We have well defined levels to trade this range tactically while aligning some strong risk pivot supports to reign in risk.

Macro pivot support will define the long term trend for JPH.

2. 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%.

3. Sell General Electric (GE US): Lots of Liabilities, Limited Cashflow – Target $1

GE’s business reality is far removed from management’s up-beat message. Creative accounting enabled management to line their pockets, while the underlying business deteriorated. A bloated board sanctioned poor disclosure, leasing, restructuring provisions and asset trading that obscured the decline. In FY 2018, we expect underlying Industrial profits of US$3.4bn and unlevered sustainable cashflow of US$5.1bn, down 50%. Change is coming, but it is too little, too late…

4. 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.

5. 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.