Brief TMT & Internet: Tesla: Would the Last One Off the Sinking Ship Please Turn Off the Lights? and more

In this briefing:

1. Tesla: Would the Last One Off the Sinking Ship Please Turn Off the Lights?
2. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn
3. Ruhnn IPO Valuation: Face Value
4. Samsung Electronics DRAM Economics: Adj. Valuation Shows Upside Potential at Current Price
5. Hitachi Bumps Yungtay Bid to NT$65. Take It.

1. Tesla: Would the Last One Off the Sinking Ship Please Turn Off the Lights?

Roughly nine months ago, as Elon Musk was bizarrely attacking one of the heroes of the Thai rescue mission, we noted in Tesla: As Musk’s Reputation Disintegrates, The Only Positive for the Stock Is Disappearing that

We think it is pertinent to identify the moment when the crowd turns… and we think it just happened.

concluding that

Our main point is that there is now significantly more risk of being long and wrong on Tesla, not just in terms of portfolio performance, but in terms of career risk. With Tesla’s rising profile and increasingly bizarre behaviour the ability to justify being long and wrong is diminishing rapidly.

Since then, the roller-coaster ride has, if anything, been even more volatile and the vehemence of both bulls and bears has not decreased.

With recent developments such as the collapse in unit volumes following the reduction of subsidies for Tesla, the departure of CFO Deepak Ahuja and the underwhelming Model Y reveal, we highlight what we believe are the most important indicators of failure amongst the deluge of bad news, below.

2. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun’s analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G & E Corp (PCG US) and contends PG&E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)

Best of luck for the new week – Arun, Venkat and Rickin

3. Ruhnn IPO Valuation: Face Value

Ruhnn Holding Ltd (RUHN US) is an e-commerce platform which drives sales through KOLs (key opinion leaders), backed by Alibaba Group Holding (BABA US) which an 8.6% shareholder. It announced its IPO price range of $11.50-13.50 per ADS. At the mid-point of the IPO price range, Ruhnn will raise net proceeds of $113 million, resulting in a fully diluted market cap of $1 billion.

4. Samsung Electronics DRAM Economics: Adj. Valuation Shows Upside Potential at Current Price

• The market misinterpreted Amazon’s server DRAM demand cut in 4Q18. It wasn’t a sign of falling demand. There isn’t still any convincing sign of server DRAM falling demand. By the time SamE gets the optimization issue right, server DRAM demand of Amazon and Google will come. This will stabilize DRAM price as well. Micron’s production reduction will help it.
• There seem to be several signs that it will be over much sooner than initially feared. I expect it to be over by the end of 2Q. This will lead to a ₩4tril addition quarterly to the current street consensus. At this, current PER falls to 9x.
• SamE got up 6.5% since the Micron announcement. It still seems to have more upside potential even at the current price. Common-1P perspective, I’d wrap up my previous position Samsung Electronics Share Class Trade: Common at +2σ, Expect Reversion After AGM This Week. This paid a 3.3% return. I’d initiate a new one reversely. Common is now at -1.65σ.

5. Hitachi Bumps Yungtay Bid to NT$65. Take It.

This was the basis of the trade. Hitachi Ltd (6501 JP) has been susceptible to pressure for a bump since even before the Tender Offer was announced because of the proxy fight at last year’s board meeting for management rights. Hitachi supported the incumbent who consequently retired as chairman, but kept the continuity. The board was split 6:3. 

Since late January or early February when it became clear that board support for the deal was still split 6:3 and one of the points in a couple of the independent directors’ comments as reasons why the deal was not supported was that Hitachi’s bid at NT$60/share did not match an informal offer from Otis at $63/share, it has been clear that one way to extinguish that criticism was to bid NT$63 or higher. 

And now Hitachi has. After the close on Friday, a release from Yungtay Engineering (1507 TT) hit the mops system saying that Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share. This is closer to the high end of the original valuations provided by the law firm and public accountancy firms of NT$40.27-68.31 and NT$55.15-67.83. Taiwan Hitachi Elevator released a press release carried by the ChinaTimes here.

Past coverage of this situation can be found at:
28 Oct 2018 – Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)
17 Jan 2019 – Hitachi Tender for Yungtay Engineering Launches
26 Feb 2019 – Yungtay Noises Haven’t Produced a Result Yet
18 Mar 2019 – Yungtay Tummy Rumblings Continue But Not Clear To What Avail