Brief TMT & Internet: Delta’s Less-Than-Straightforward Tender Offer and more

In this briefing:

1. Delta’s Less-Than-Straightforward Tender Offer
2. Dreamtech IPO: Valuation Analysis
3. Global Solar Energy Stocks Are Bottoming
4. Korea M&A Spotlight: LGUplus to Acquire CJ Hellovision: What’s Next for Tbroad and D’Live?

1. Delta’s Less-Than-Straightforward Tender Offer

On 1st August 2018, Delta Electronics Thai (DELTA TB) (“DELTA”) announced that Delta Electronics International (Singapore) (a wholly-owned subsidiary of Delta Electronics (2308 TT) “DEISG”) had made a conditional voluntary tender offer to acquire the remaining 70.97% stake in DELTA it does not own at Bt71/share, a 1.79% premium to last close (28% above its recent low), in a deal worth potentially up to US$2.1bn.

On Wednesday, DELTA announced that DEISG has successfully accomplished the conditions precedent requirements, that of the antitrust approvals being granted by authorities in US, Europe and China.

The transaction will now move to a tender offer, which is expected to be open for acceptances at the beginning of next month with the consideration potentially paid the second week of April.

But there are a number of unknowns to the tender offer:

• Will there be a maximum number of shares to be acquired, therefore shares tendered could be subject to possible pro-ration?
• Is it DEISG’s intention to delist DELTA?
• Will the full year dividend be netted, or not, from the Bt71/share offer?
• Will the indicative timetable be delayed, especially to factor in the FY18 dividend?

Currently trading at a gross/annualised spread (assuming 12 April payment and no dividend) of 0.4/1.4%, or 5%/22% if including a Bt3.30 FY18 dividend and mid-May payment, factoring in a one-month delay in the tender offer. That looks overly tight in the face of timing delays and actual consideration to be paid if indeed it comes out to be a partial offer.

2. Dreamtech IPO: Valuation Analysis

• The bookbuilding of the Dreamtech Co Ltd (192650 KS) IPO will start in about 6 business days. This report provides a valuation analysis of this company. Dreamtech makes modules and sensors for smartphones, auto vehicles, home appliances, and health care products. In late January 2019, the company reduced the IPO price range to 11,000 won to 13,000 won (from 13,400 won to 16,700 won previously). 
• The comps have better sales growth, net margin, and net profit growth than the company. However, Dreamtech has slightly better ROE and balance sheet strength than the comps. Therefore, we believe it is appropriate to put a 10-20% discount on the comps’ average P/E valuation of 17.6x in 2017 and 2018. 
• Our base case valuation of the company is 13,961 won, which is only 7% higher than the high end of the IPO price range (13,000 won). Thus, given the lack of enough upside, we would avoid this deal. However, if the deal is priced at the low end of the IPO price range (11,000 won), it could potentially be attractive. Our base case valuation is based on 15x P/E, which is a 15% discount to the average P/E multiples of its peers in 2017 and 2018. We also used net profit of 29.1 billion won, which is the average estimated net profit of the company in 2017 and 2018. 

3. Global Solar Energy Stocks Are Bottoming

In today’s report we highlight the following actionable solar energy names: First Solar (FSLR), SolarEdge Technologies (SEDG), GCL-Poly Energy (3800-HK), Meyer Burger Technology AG (MBTN-CH), Enphase Energy (ENPH), JinkoSolar Sponsored ADR (JKS), TerraForm Power (TERP), Beijing Enterprises Clean Energy Group (1250-HK), GCL New Energy (451-HK), and Viatron Technologies (141000-KR).

4. Korea M&A Spotlight: LGUplus to Acquire CJ Hellovision: What’s Next for Tbroad and D’Live?

• It was finally announced today that LG Uplus Corp (032640 KS) will acquire a 50 percent + one share in Cj Hellovision (037560 KS) for 800 billion won.
• LG Uplus’ acquisition of CJ Hellovision is likely to further accelerate the consolidation of the Korean cable TV/media sector. KT Corp (030200 KS) is now likely to aggressively try to acquire D’Live cable company. SK Telecom (017670 KS) has shown some interests in acquiring Tbroad cable company. 
• Potential M&A Valuation Price for Tbroad- If we assume our base case EV/EBITDA valuation multiple to be 5.5x for Tbroad and assume annualized EBITDA of 181.8 billion won in 2018, this would suggest an implied EV of 1.0 trillion won. After adjusting for net cash, the implied market cap would be 1.2 trillion won for Tbroad. Thus, if Taekwang Industrial decides to sell just over 50% stake in Tbroad, this could potentially be worth about 600 billion won. Taekwang Industrial currently has a market cap of 1.7 trillion won so its stake (53.9% stake in Tbroad) could be nearly 35% the value of its entire market cap.
• The long battle to acquire CJ Hellovision has been completed (with the final stamp of approval from FTC). This move should help to consolidate the cable TV industry with SK Telecom and KT potentially battling out for either Tbroad or D’Live. In the midst of these uncertainties, there could be some further positive momentum for Taekwang Industrial (003240 KS), the majority owner of Tbroad.