In today’s briefing:
- Sembcorp Marine and the Keppel O&M Business Combination – Brighter Light at the End of the Tunnel
- The Keppel Restructuring – Forward Sum Of The Parts Makes KEP Look Cheap. And It Is… But…
- Keppel: A Massive Winner from Keppel O&M and Sembcorp Marine’s Combination
- Investigating Each Scenario of MSCI Korea Rebalancing Outcome
- HCM – Obvious Blowout Is Obvious… Just Not to the Sell Side
- Sembcorp Marine & Keppel O&M Combination: Details & Index Implications
- Xinjiang Goldwind (2208 HK): Key Takeaways from 1Q22 Call
- BPEA / RWS Holdings: Possible Offer
- Sinotrans (598 HK): Another Very Promising Quarter
- Bluebird (BIRD): Back to Profit, Big Data and BCA
Sembcorp Marine and the Keppel O&M Business Combination – Brighter Light at the End of the Tunnel
- Keppel Corp and Sembcorp Marine have announced the O&M business combination and it is a little more interesting than expected. It is a Very Big Desirable Order Book.
- Separately, there is the potential for more index inclusion flow based on the conclusion of the combination in Q4.
- The light at the end of the tunnel used to be far away, and one was never sure if it wasn’t an oncoming train. It’s closer and clearer now.
The Keppel Restructuring – Forward Sum Of The Parts Makes KEP Look Cheap. And It Is… But…
- The Keppel O&M / SMM Combination and Keppel Rig Asset Restructure were announced today and the arithmetic is both tough and interesting. There’s a little magic here.
- KEP shareholders receive SMM shares worth ~1/3 of today’s share price, and the rest is currently valued at well under Net Tangible Assets post-Restructuring/Transaction.
- That suggests Keppel has upside, but one must think carefully about the exposures.
Keppel: A Massive Winner from Keppel O&M and Sembcorp Marine’s Combination
- The terms for the proposed combination of Keppel O&M and Sembcorp Marine (SMM SP) were announced. The agreed equity value exchange ratio between Keppel O&M and Sembcorp Marine is 56%:44%.
- The proposed combination will require Keppel Corp (KEP SP) and Sembcorp Marine shareholder approvals at separate EGMs and is expected to close in 4Q2022.
- The transaction is a big win for Keppel shareholders as the proposed combination creates S$9.4 billion of value, which is around 80% of Keppel’s market cap at the last close.
Investigating Each Scenario of MSCI Korea Rebalancing Outcome
- We have one sure addition, Hyundai Heavy Industries. So, we have one guaranteed deletion, and we may have another delete depending on the outcome for the Segment Number of Companies.
- It is safe to say that Seegene‘s exclusion is almost confirmed. The one with the next smallest market cap is Green Cross.
- But if SK Telecom is excluded due to a low foreign room, Green Cross will survive, and even Seegene may remain in the Standard Index.
HCM – Obvious Blowout Is Obvious… Just Not to the Sell Side
- HCM reported FY revenue of ¥1,025bn, just above our ¥1,010bn estimate and blowing away clueless consensus’ ¥963bn.
- OP was ¥93.5bn despite the trouble in Ukraine/Russia, just below our ¥95bn estimate and significantly above consensus at ¥86.8bn and guidance of ¥84bn.
- Guidance for a YoY OP decline is silly in our view and we suspect there will be a double digit increase.
Sembcorp Marine & Keppel O&M Combination: Details & Index Implications
- Keppel Corp and Sembcorp Marine have announced a proposed combination of Keppel O&M and Sembcorp Marine to create a global player in offshore renewables, new energy and cleaner O&M solutions.
- Keppel Corp (KEP SP) and its shareholders will own 56% of the combined entity, while Sembcorp Marine (SMM SP) shareholders will own the other 44%.
- Depending on the combined entity market cap, there could be selling from MSCI Standard and FTSE Straits Times Index (STI) (STI INDEX) trackers at the time of implementation.
Xinjiang Goldwind (2208 HK): Key Takeaways from 1Q22 Call
- Xinjiang Goldwind Science & Technology (2208 HK) sees recent recovery in WTG price to be positive; and the increase in average unit size should be good to unit costs.
- Gross margin contracted 3.1pp YoY in 1Q22 and it has put in place many cost reduction initiatives to contain cost inflation. It expects more impacts can be realised in 2H22.
- External order backlog up 6.3% YoY to 16.97GW, with an encouraging 37.7% growth for overseas contracts. We think its 9.9x FY22F PER is inexpensive relative to the clean energy plays.
BPEA / RWS Holdings: Possible Offer
- Barings Private Equity Asia is in the “preliminary stages of considering a possible offer” for AIM-listed translations leader RWS Holdings. PUSU deadline is 19 May.
- The offer seems opportunistic at the time of share price weakness. H1 results were in line and the company is confident about its prospects. Barings may boost results adding leverage.
- Andrew Brode will not sell cheap (shares traded at 653p four months ago). My (conservative) DCF valuation is 544p. Current market turmoil may represent a chance to go long RWS LN.
Sinotrans (598 HK): Another Very Promising Quarter
- Sinotrans (598 HK) posted a 17.7% YoY net profit growth for 1Q22, providing evidences that it can weather the slowing trade momentum. More encouragingly, net profit surged 54.9% QoQ.
- Gross margin expanded 1.3pp YoY, signaling better cost performance. DHL-Sinotrans continued to provide very promising contribution, reflecting in a 14.3% growth in investment income.
- Operation parameters are solid and gearing stays healthy (7.6%), providing room for higher dividend payout. Even at last year’s payout, it trade on 10.9% yield; and it’s on 3.3x PER.
Bluebird (BIRD): Back to Profit, Big Data and BCA
- Finally, Blue Bird (BIRD IJ) is back on profit in two consecutive quarters, highlighting the comeback mode in Indonesia.
- It went on to sign a partnership to develop and integrate big data analytics with PT LRT Jakarta and BCA app users can call Bluebird from the app.
- It is still trading at 0.6x PBR while pre COVID level was 1.3-1.5x PBR.
Before it’s here, it’s on Smartkarma
