Brief TMT & Internet: Korea M&A Spotlight: LGUplus to Acquire CJ Hellovision: What’s Next for Tbroad and D’Live? and more

In this briefing:

1. Korea M&A Spotlight: LGUplus to Acquire CJ Hellovision: What’s Next for Tbroad and D’Live?
2. GMO.internet FY2018 Results – The Shareholder’s [Re]Turn
3. Recruit Holdings Reports Strong 3Q Results; Remains Expensive
4. ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)
5. Facebook Inc. – Is Consensus Overly Cautious?

1. 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.

2. GMO.internet FY2018 Results – The Shareholder’s [Re]Turn

GMO internet (9449 JP) released 2018 full-year results in 12th February. 2018 was a turbulent year for the company as it ‘surfed’ the cryptocurrency wave. The subsequent downfall was swift and brutal. However, the company deserves some plaudits for cutting its (substantial) losses and attempting to move on (albeit somewhat half-heartedly). Unfortunately, GMO-i has ‘form’ in writing off large losses as shown above.  The positive consequence of this saga is a renewed commitment to return value to shareholders with a stated aim of returning 50% of profits. Two-third of that goal is to be met by quarterly dividends, with the balance allocated to share repurchases in the following year.  

Having royally ‘screwed up’ with ‘cryptocurrencies’, and trying the patience of remaining shareholders yet again, this policy is to be commended, particularly if more attention is paid to generating the wherewithal to meet the 50% without raiding the listed subsidiaries’ ‘piggy bank’.  Apart from the excitement that this move has generated and the year-long support this buying programme will provide to the share price, our two valuation models, find little in the way of further upside potential.

We remain sceptical of investing in GMO-i over the long-term and prefer GMO Payment Gateway (3769 JP) – the best business in the GMO-i ‘stable’ – but consider GMO-PG’s stock overvalued at 57x EV/OP.

3. Recruit Holdings Reports Strong 3Q Results; Remains Expensive

Recruit Holdings (6098 JP) reported its 3Q FY03/19 financial results on Wednesday (13th February). Recruit’s revenue and EBITDA were up 6.0% YoY and 11.1% YoY respectively in 3Q FY03/19. This was mostly due to 1) consolidation of the results of Glassdoor Inc. (the company which operates the employment information website glassdoor.com), 2) steady growth in Japanese staffing operations and 3) growth in beauty and real estate app users during the quarter, partially offset by slowdown in global recruitment activity.

4. ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance, an emerging TMT player in China and one of the challengers to the BAT’s dominance in China, is said to be preparing for 2019 listing. It will be the largest Chinese TMT listing this year as the company was valued at USD 75 billion in the pre-IPO fundraising, closed in October 2018. 

In this insight, we will discuss ByteDance’s business, in particular, how the text-based media distribution platform Jinri Toutiao (今日头条) built the foundation of the company, and paved ways for the short-video distribution platform Watermelon Video (西瓜视频), Volcano Video (火山视频), and Tiktok (抖音).

In our next insight, we will discuss how Tiktok became successful and the company’s overseas expansion.

5. Facebook Inc. – Is Consensus Overly Cautious?

Facebook Inc A (FB US) is a bellwether stock for the equity markets. Although the market capitalisation is approaching $475 billion, the Company is still considered a growth stock. In our view, 2019 could be a pivotal year for the Company after a lack lustre 2018, when FB, although volatile, underperformed the NASDAQ. We believe that investors are underestimating revenue growth for 2019 and that FB is likely to surprise to the upside in Q1-19.