Brief TMT & Internet: StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels and more

In this briefing:

1. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels
2. Tencent (700 HK): In Fact Benefited from License Suspension
3. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade
4. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

1. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels

This week in StubWorld …

• Can One Bhd (CAN MK)‘s gets shareholder approval to launch a Mandatory General Offer for 33%-held Kian Joo Can Factory (KJC MK). (note, both legs are illiquid)
• Curtis Lehnert sees Mahindra & Mahindra (MM IN)‘s discount to NAV at its widest since 2015.

Preceding my comments on Can One/Kian Joo, Mahindra and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

2. Tencent (700 HK): In Fact Benefited from License Suspension

• Tencent’s market share as measured by the number of active users increased during the the period license suspension.
• We believe that Tencent’s market share as measured by active users will bring increased market share as measured by revenues.
• We also believe that during the hard times small companies always die.

3. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

We recently downgraded the Chinese telcos on rising concerns that the telcos will be required to do “national service” to support China’s technological leadership in 5G.  The closure of many overseas markets to Chinese equipment suppliers (esp Huawei, but also Zte Corp H (763 HK)) means the risk of a more aggressive 5G roll-out has increased.  Markets have started to take notice but the initial reaction has been positive on excitement over the 5G opportunity. Given the lack of a strong business case for 5G currently, we don think additional capex is a positive. We model what an extreme roll-out could look like and the impact on the telcos. Along with a weakening macro outlook, we have further downgraded target prices for all three operators and cut China Mobile (941 HK) and China Telecom (728 HK) to Reduce and China Unicom (762 HK) to Neutral.

4. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

Xl Axiata’s  (EXCL IJ) 4Q18 results triggered a very strong rally last week that continues this week. The market has been very concerned about competitive pressures in Indonesia and extremely low data prices. We believe that Indonesia is now past the worst and there is evidence that data pricing is starting to rise modestly. That is delivering a powerful tail wind for Indonesian telcos in 2019, with XL Axiata likely to report several very strong quarters.

XL Axiata now reporting strong sequential revenue growth (% QoQ)