In this briefing:
- Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?
- Itochu Confirms Intent to Deepen Hold over Descente
- TRACKING TRAFFIC/Chinese Express & Logistics: Inter-City Pricing -9.1%
- Hyosung Holdings: Current Status & Trade Approach
- Ecopro BM IPO Preview: The World’s #2 Player in the NCA High Nickel-Based Cathode Materials
1. 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.
2. Itochu Confirms Intent to Deepen Hold over Descente
Itochu (8001 JP) continues a battle of words and equity as it attempts to gain more control over sports firm Descente (8114 JP).
Meanwhile, Descente has brought in Wacoal (3591 JP) as a white knight and made a splash in the business media about its recent success.
Itochu insists that Descente needs Itochu’s management skills, particularly to build a stronger business in China and other overseas markets, and says the only way to make Descente listen is to buy more stock – more than its current nearly 30%.
3. TRACKING TRAFFIC/Chinese Express & Logistics: Inter-City Pricing -9.1%
Tracking Traffic/Chinese Express & Logistics is the hub for our research on China’s express parcels and logistics sectors. Tracking Traffic/Chinese Express & Logistics features analysis of monthly Chinese express and logistics data, notes from our conversations with industry players, and links to company and thematic notes.
This month’s issue covers the following topics:
- December express parcel pricing fell by over 9% Y/Y. Average pricing per express parcel fell by 9.1% Y/Y, the worst decline since Q216 (excluding January/February figures distorted by the Lunar New Year holiday).
- Express parcel revenue growth remained well below 20% last month. Weak pricing dragged sector revenue growth down to 17% in December, the 4th consecutive month of sub-20% growth.
- Intra-city pricing (ie, local delivery) was strong in 2018. Relative to weak inter-city pricing (down 3.1% Y/Y in 2018), pricing for intra-city express shipments was firm, rising by 0.1% last year. In fact, average pricing for intra-city express shipments has risen in four of the last five years.
- Underlying domestic transport demand remained firm in December. Although demand for inter-city express shipments appears to be moderating (from high levels), underlying transportation activity in December remained firm. The three modes of freight transport we track (rail, highway, air) in aggregate rose 6.6% Y/Y in December, even as the growth of air freight slowed.
We retain a negative view of China’s express industry’s fundamentals: demand growth is slowing and pricing for inter-city shipments appears to be falling faster than costs can be cut, leading to margin compression.
4. Hyosung Holdings: Current Status & Trade Approach
- Local institutions are busy scooping up Hyosung Corporation (004800 KS) shares lately. The owner risk is now gone. There are increasing signs of improving fundamentals on all of the four major subs. Some are already expecting ₩5,000 per share. This is a 9.2% annual div yield at the last closing price.
- Discount is also attractive. It is now at 46% to NAV. With this much div yield, discount should be much below the local peer average of 40%.
- I’d continue to long Holdco. Hedge would be tricky. Heavy is up 15% YTD. I admit that there is no clear cointegrated relationship between them. But Heavy’s recent rally is more of a speculative money pushing up on the hydrogen vehicle theme. I’d pick Heavy for a hedge.
5. Ecopro BM IPO Preview: The World’s #2 Player in the NCA High Nickel-Based Cathode Materials
- Ecopro BM Co Ltd (247540 KS) specializes in making cathode active materials for rechargeable batteries that are used in EVs and electrical energy storage systems (ESS). Ecopro BM Co Ltd (247540 KS) is expected to complete its IPO in late February 2019. The institutional book building starts on February 14th, 2019. The IPO deal base size ranges from $96 million to $115 million. According to the bankers’ valuation, the expected market cap after the IPO would range from 796 billion won to 957 billion won.
- The bankers selected two stocks including L&F Co Ltd (066970 KS) and Cosmoam&T (005070 KS) as comparable companies to Ecopro BM. An IPO discount of 27.2% to 36.4%, the bankers derived an IPO price range of 37,500 – 42,900 won. The company’s sales and profits have been surging in the past three years. In 1Q-3Q18, it generated sales of 406 billion won (up 107.6% YoY) and operating profit of 36.1 billion won (up 108.5% YoY).
- Ecopro BM Co Ltd (247540 KS) was spun off from its parent company Ecopro Co Ltd (086520 KS) in May 2016. Currently Ecopro Co Ltd (086520 KS) owns a 68.6% of Ecopro BM Co Ltd (247540 KS).
- Ecopro BM has the second largest market share in the world after Sumitomo in the NCA high nickel-based cathode materials. Ecopro BM’s major customers include Samsung SDI and Murata Manufacturing Plant (TMM) (Japan).
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