In this briefing:
- StubWorld: A 2018 Review In Charts
- Maoyan Entertainment IPO: The Trouble with Blockbusters
- LG Uplus: Two Key Catalysts in 2019 (5G Roll-Out & Potential Acquisition of CJ Hellovision)
- JD.com (JD): Lawsuit Over, Price Falling Back to First Trading Day, Defensive in Bear Market
- M1 Offer Coming – Market Odds Suggest a Bump But…
1. 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.
2. 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).
Maoyan is yet another proxy in the battle between Tencent and Alibaba Group Holding (BABA US). However, we believe that challenges abound for Maoyan and would be cautious about participating in the IPO.
3. 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.
4. JD.com (JD): Lawsuit Over, Price Falling Back to First Trading Day, Defensive in Bear Market
- Minnesotan Authorities declined to charge the founder of JD.
- JD’s stock price has already plunged 52% in 2018. We believe JD is a defensive equity for portfolios, as the NASDAQ Composite just plunged 50% at most in the financial crisis of 2008.
- Compared to 2014, today’s JD has a higher market share in the larger e-commerce market. However, JD’s stock price is at the same level as the first trading day in 2014.
- JD continued to generate operating cash inflows in 2018 as previous years despite of its zero net margins.
- We are not concerned about the programmer layoff in December, as we believe JD overly invested in “hi-tech” that will not bring revenues in the near future.
- Based on historical Price / GMV, we believe there is an upside of 270% for JD’s stock price.
5. M1 Offer Coming – Market Odds Suggest a Bump But…
Singapore telecom firm M1 announced on the 28th of December 2018 that Konnectivity Pte. Ltd. (a company jointly owned by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP)) had made a Voluntary Conditional General Offer following the satisfaction of the pre-condition (IMDA approval) mentioned in the pre-conditional offer made in September.
The offer is to buy a minimum of 16.69% of the total share capital of M1 at a price of S$2.06 in order to increase the collective holding of the acquirer and its related parties from the current level of 33.32% to 50+% of fully-diluted shares (current shares out + 26.826mm Options + ~2.1mm Award shares).
The Offerors will buy all shares tendered if they get to a minimum of 50+%.
The other terms and conditions of this deal will be set out in the offer document which is expected to be despatched in mid-January 2019 (14-21 days from 28 December).
The offer price of S$2.06 translated to a premium of 26.4% to the undisturbed price before the trading halt for the pre-conditional offer. At the time of writing, the stock is trading at S$2.10 which is higher than the proposed Offer Price, indicating the market is expecting a bump or an overbid.
We’ll see.
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