Daily TMT & Internet: Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle? and more

In this briefing:

1. Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?
2. Jardine C&C (JCNC SP): Close the Stub Trade
3. StubWorld: A 2018 Review In Charts
4. Maoyan Entertainment IPO: The Trouble with Blockbusters
5. LG Uplus: Two Key Catalysts in 2019 (5G Roll-Out & Potential Acquisition of CJ Hellovision)

1. Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?

• A big takeaway from our conversations with Indo e-commerce industry sources is that they vouch for Shopee’s (Sea Ltd’s (SE US) e-commerce arm) MS gains story in the country.
• Indo e-commerce market has been enjoying super growth period (94% CAGR in 2015-18E) despite three major challenges (logistics, payment and highly subsidized market).
• With SE’s fund raising a matter of when, not if (2H20 as most likely timetable), Shopee’s tremendous progress in key metrics (MS, take rate) provides comfort.
• Assuming fair valuation of US$3 bn (vs. US$1.4 bn implied in SE’s ADR price) for Shopee, 12-mo PT for SE works out to be US$15.73/ADR, representing 43% upside potential.  

2. Jardine C&C (JCNC SP): Close the Stub Trade

In my original insight on October 17, 2018 TRADE IDEA – Jardine Cycle & Carriage (JCNC SP) Stub , I proposed setting up a stub trade to profit from volatility in the markets that caused the Jardine Cycle & Carriage (JCNC SP) stub to trade at a historically low discount to NAV. During the 78 calendar days that followed, Jardine Cycle & Carriage (JCNC SP) has gained 23% and the trade has made 5.03% on the gross notional. I now recommend closing the trade.

In this insight I will discuss:

• Performance of ALL my recommended stub trades
• a post-mortem trade analysis on the JCNC stub

3. StubWorld: A 2018 Review In Charts

This week in StubWorld …

• The average NAV discount of a basket of 40 Holdcos steadily, and not altogether unsurprisingly, widened throughout the year.
• Passive, tech-related and illiquid Holdcos widened most; while cross-border and property Holdcos were the best of the worst.  
• Illiquid, property, and passive Holdcos’ underperformance (or widening) was more pronounced in the first half. Tech Holdcos primarily widened in the second half.
• Worst performers (discount widening): In absolute % terms, United Co Rusal Plc (486 HK) and Asm International Nv (ASM NA) roughly shared the largest moves; while Dah Sing Financial (440 HK), First Pacific Co (142 HK), Genting Bhd (GENT MK) and Pasona Group (2168 JP) are trading at or near their 52-week wides and 52-week low prices.
• Best performers (discount narrowing): China Conch Venture Holdings Ltd (586 HK) is the only Holdco in positive territory; while Japan Post Holdings (6178 JP) is trading closest to its narrowest level in the last 12 months.

Below the various NAV discount chart summaries of various baskets are my weekly setup/unwind tables.

This, and other relationships discussed below, trade with: 1) a minimum liquidity threshold of US$1mn on a 90-day moving average; and 2) a minimum 20% ‘market capitalisation’ threshold, whereby the value of the holding/Opco held must be at least 20% of the parent’s market cap.

Comments on Jardine Matheson Hldgs (JM SP) / Jardine Strategic Hldgs (JS SP) also follow the setup/unwind tables.

4. Maoyan Entertainment IPO: The Trouble with Blockbusters

Maoyan Entertainment, formerly Entertainment Plus (EPLUS HK), is the largest online movie ticketing service provider in China. According to press reports, Maoyan has started pre-marketing to raise $0.3 billion (down from earlier indication of $0.5-1.0 billion) through a Hong Kong IPO. Maoyan is backed by Beijing Enlight Media (300251 CH) (20.0% shareholder), Tencent Holdings (700 HK) (16.3% shareholder) and Meituan Dianping (3690 HK) (8.6% shareholder).

5. LG Uplus: Two Key Catalysts in 2019 (5G Roll-Out & Potential Acquisition of CJ Hellovision)

• LG Uplus Corp (032640 KS) was a clear market winner in 2018 as the stock was up 26% last year versus KOSPI which was down 17%. We think that LG Uplus is likely to continue to outperform the market over the next 12 months. There are many catalysts with this stock but the two most important catalysts on this stock over the next 12 months include the 5G roll-out and the potential acquisition of Cj Hellovision (037560 KS). 
• LG Uplus experienced a breakout year in 2013 with a steep increase in its share price. LG Uplus’ wireless ARPU increased 13.6% YoY in 2013, driven by higher ARPU 4G/LTE subscribers, which jumped from 4.4 million at end of 2012 to 7.1 million at end of 2013. Similar to the positive impact that the roll-out of 4G services had on LG Uplus’ wireless service ARPU and its share price, we believe that the roll-out of 5G services will have a positive impact on the company’s ARPU and its share price in 2019 and 2020. 
• At current price of 9,060 won for CJ Hellovision (market cap of 702 billion won), the EV is 1.3 trillion won, which would suggest an EV/EBITDA of 3.9x, using an estimated EBITDA of 272 billion won. If we double the value, the EV/EBITDA multiple would spike to 7.4x. LG Uplus is currently trading at 4.0x EV/EBITDA using 2018 consensus EBITDA estimates. Although it is a normal practice to pay a significant premium in Korea for an acquisition of a large controlling stake in a company, LG Uplus is probably analyzing on every angle to see if it is worth it paying a hefty 7.4x EV/EBITDA multiple for CJ Hellovision.