Industrials: Shin Keisei Electric Railway, Advantest Corp, Beijing Enterprises Urban Resources, Guodian Technology & Environment Group and more

In today’s briefing:

Keisei-Shin Keisei: Merger Seems like a Done Deal

Japan-Based Railway Company Keisei Electric Railway Co (9009 JP) (“Keisei”) and its 44.64%-owned equity method affiliate Shin Keisei Electric Railway (9014 JP) (“Shin Keisei”) have signed a Share Exchange Agreement.
Shin Keisei Shareholders will receive 0.82 Keisei Shares per Shin Keisei Share. Following the completion of this Deal, Shin Keisei will become a wholly-owned subsidiary of Keisei.
Below is a closer look at the details of this Transaction and the likelihood of Deal Completion.

The recent surge in IC test equipment orders is unsustainable. Only service orders maintain a positive trend.
After peaking this fiscal year, sales and profits are likely to show double-digit declines. When earnings might hit bottom is not clear, but cyclical gearing is high.
Earnings could rebound in 2 or 3 years, but visibility is poor. Don’t forget that Advantest has dropped into the red three times in the past 20 years.

Beijing Enterprises Water Group (371 HK)/(BEWG) will launch a conditional mandatory general offer (MGO) for Beijing Enterprises Urban Resources (3718 HK) at HK$0.78 as it crossed the 30%+ voting threshold.
The MGO is conditional on the offeror and concert parties holding more than 50% of the voting rights (currently own 38.64%). The MGO price is unattractive, in our view.
BEWG’s justification for the offer and lack of a “no increase in offer price” wording suggests the possibility of a bump. The shares closed 2.6% above the MGO price.

Guodian Technology & Environment (1296 HK)‘s Composite Document is now out. The Scheme Meeting will be held on the 20th May with expected payment on or before the 9 June.
The Independent Financial Advisor (Gram Capital) has concluded China Energy and Guodian Power’s Offer is fair and reasonable.
This is a done deal – play the spread. This is trading at a gross/annualised spread of 1.9%/18.6%.

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