In this briefing:
- Much Ado About Credit
- Ayala Corp Placement – Selldown by Mitsubishi Likely to Reignite Overhang Worries
- Tsuruha Holdings/Toyota Motor Pair on a Stronger JPY
- Smartkarma’s Week that Was in JP/KR: BGF, Japan Telcos, NCSoft, Nissan, and Nexon
- TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
1. Much Ado About Credit
- Global financing conditions could tighten further
- Credit demand is deteriorating; credit risks are rising; Eurodollar costs are edging higher
- A de-escalation in trade tensions and a Fed pause could ease the pain
- Will Fed recently turning more dovish (possible shift to slower QT & Fed rate cut in 2019?) + concomitant USD drift provide sufficient respite to put a floor under risk assets?
2. Ayala Corp Placement – Selldown by Mitsubishi Likely to Reignite Overhang Worries
Mitsubishi Corp (8058 JP) is looking to sell 9m shares of Ayala Corporation (AC PM) for approximately US$155m. Post-placement, Mitsubishi Corp will still hold 7.2% of Ayala Corp if the upsize option is not exercised.
The deal scores poorly on our framework owing to its the large deal size relative to its three-month ADV. The company is also slightly more leveraged than its peers. However, it was offset by cheaper valuation and a strong track record.
But, our deal breaker here is the fact that the selldown one year after 2018’s selldown may signal that Mitsubishi Corp. may return to sell more on the market again in the near-term. While Mitsubishi, in the past, has reaffirmed that their partnership with AC will likely continue, it should not serve as a reassurance that it will continue to hold shares in AC.
3. Tsuruha Holdings/Toyota Motor Pair on a Stronger JPY
Running thorough ideas presented by Campbell Gunn in his stronger yen insight Japan: What to Buy & Sell if the ¥ Rises to 90 , we found a compelling pair trade set up in the form of long Tsuruha Holdings (3391 JP) and short Toyota Motor (7203 JP) as the relative chart is moving into an exhaustive low that sets up a good reaction rise to the tune of 20%.
In absolute terms we see Toyota Motor moving into a top while Tsuruha shows risk of a final low to work into this pair position but has a very compelling bullish chart set up as Toyota fade from resistance.
4. Smartkarma’s Week that Was in JP/KR: BGF, Japan Telcos, NCSoft, Nissan, and Nexon
After a holiday hiatus where markets were slow and somewhat quiet and the number of insights published and read dipped, we resume your regularly scheduled service.
Smartkarma saw just over 110 insights published last week, with an additional 35 published between Friday afternoon and Sunday evening. The pace is picking up.
Across the platform, almost four dozen thematic, macro, and economics pieces were published by 30 insight providers, and two dozen-plus insights were published on Japan and Korea (note that the prior week, Japan was effectively on holiday the whole week).
Insights published on Japan include…
And on Korea….
5. TRADE IDEA: Amorepacific (002790 KS) Stub: A Beautiful Opportunity
Take out an ad in a magazine or pay a one of the Wondergirls to post an Instagram photo of herself using our makeup? How do we get Americans and Europeans to want our bubble tea sleeping packs and panda-shaped palettes? All valid questions for K-beauty companies in the midst of a global expansion.
Korean beauty products powerhouse, Amorepacific is going through some growing pains at the moment. In the 3Q18 the group reported a YoY sales increase of 6% but OP tumbled 24% due to increased personnel and marketing costs. In a management policy statement last week, Chairman Suh outlined the problems the group is encountering as it copes with reaching customers in a world where online and offline customer interaction is changing.
The stub is now trading at its widest discount to NAV in at least 3 years and has reached 22% discount to its Sum of the Parts NAV by my calculations. This level represents a level 1.5 standard deviations below its long-term average and also offers compelling value.
In this insight I will detail:
- an actionable market-neutral trade idea
- an analysis of the various business units of Amorepacific
- reasons for the under-performance of Amorepacific parent and a sign of a rebound
- a recap of ALL my stub trade ideas on Smartkarma, including track record of performance
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