In this briefing:
- Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement
- Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
- Maoyan Entertainment IPO Valuation: Press the Skip Button
- Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns
- A Bear Investment Case for TSMC (In-Depth Version)
1. Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement
Total Access Communication (DTAC TB) recently settled a number of outstanding cases with CAT, one of the two Thai Telecom authorities (the other being TOT). DTAC agreed to pay THB9.5bn ($300m) to CAT to settle a number of outstanding disputes. They did NOT clear all their disputes and there are substantial remaining potential liabilities. In the past, The Thai telcos have tended to ignore these cases given the glacial moves through the system (some are 20+ years), but DTAC’s moves suggest it is time to take a closer look. The total numbers for the industry are substantial at around $20bn and, following DTAC’s settlement, Chris Hoare thinks the risk of crystallizing losses has increased. We have cut our target prices as a result. The industry was already facing headwinds from the business revival at DTAC now that it has secured access to spectrum.
2. Dubious Delisting Deals: New Sports, LEAP, China Singyes Solar
My colleagues strive to cover M&A transactions in Asia-Pac – and further afield – with a market cap >US$100mn and/or when liquidity or the backdrop story warrant comment. This insight is no exception.
In the past two weeks, two companies who form part of the Huarong-CMB network (HCN), as discussed by David Webb, and one company enmeshed in the Enigma network, have received official offers or are have made announcements pursuant to the Hong Kong Code on Takeovers and Mergers.
- [HCN] New Sports Group (299 HK) was halted from trading on the 18 January and announced a cash or scrip offer, with the cash alternative of $0.435/share priced at a premium of 3.57% to last close.
- [Enigma] LEAP Holdings Group Ltd (1499 HK) is currently suspended pending an announcement.
- [HCN] China Singyes Solar Tech (750 HK) announced it may be subject to a mandatory takeover pending the outcome of an MOU.
Below are brief comments on all three situations. In the case of New Sports, it is a very real deal, with financing in place for the cash option.
It is arguable whether the tanking in CSST shares yesterday after the resumption of trading, increases or lessens the chances of an official Offer unfolding.
3. Maoyan Entertainment IPO Valuation: Press the Skip Button
Maoyan Entertainment (EPLUS HK) is the largest online movie ticketing service provider in China. The mid-point of Maoyan’s IPO price range of HK$14.8-20.4 per share implies a market value of $2.5 billion (HK$19.8 billion). Five cornerstone investors have agreed to buy $30 million or 10% of the offering at the IPO mid-point. The cornerstone investors are Imax China Holding (1970 HK), Hylink Digital Solutions, Prestige of The Sun, Welight Capital and Xiaomi Corp (1810 HK).
Our analysis suggests Maoyan is being offered at a material premium to a peer group of major Chinese internet companies. Due to challenging prospects faced by Maoyan as outlined in our previous research, we believe a premium rating is unwarranted. Consequently, we are inclined to sit out this IPO.
4. Hujiang Education (沪江教育) Pre-IPO – Spending More than It Earns
Hujiang Education (1414698D CH) (HET) is planning to raise US$200m in its upcoming IPO.
HET has grown its revenue at an impressive 73% CAGR from 2015 to 2017 and has been accompanied by gross margin expansion. The strong growth was supported by improving operating metrics such as an increase in student enrollment and average spending.
However, HET has been making losses and continues to spend more than its net billing. It is unclear whether HET had already achieved break even for its proprietary courses before expanding into its CCtalk platform. But from its high level of expenses, it seems unsustainable for HET to be relying heavily on the sales and marketing spending to get users to purchase online courses.
In this insight, we will look into the company’s financial and operating performance, regulatory risks regarding K12 courses, aggressive spending on sales and marketing, and the performance of other online education companies.
5. A Bear Investment Case for TSMC (In-Depth Version)
From end of 2008 to end of 2017, Taiwan Semiconductor Manufacturing Company (TSMC) (2330 TT) had a remarkable run with the share price up more than 400%. However, TSMC share price has not fared so well in the past year with its share price down nearly 16% during this period. In this report, we provide a BEAR INVESTMENT CASE for TSMC. We do not believe all its troubles are over. Rather, we expect its sales and earnings to be much lower than the consensus in 2020. The following are the seven major reasons that are likely to negatively impact TSMC’s share price and its financials in the next two years:
- Samsung Electronics’ technological edge in 7nm EUV foundry process. [More intense competition]
- SMIC & China [More intense competition]
- The major tipping point period of higher demand for autonomous vehicles (which is likely to drive higher incremental demand for semiconductor products) is not likely until 2023. [Timing of incremental customers demand]
- The major tipping point period of higher demand for 5G service (which is likely to drive higher incremental demand for semiconductor products) is not likely until 2021/2022. [Timing of incremental customers demand]
- Increasing threats to Apple. [Threats to a major customer]
- Major semiconductor memory prices such as DRAM and NAND Flash have been declining in the past few weeks. This could foreshadow a further softening of demand and prices in the entire semiconductor sector, including the foundry. The semiconductor companies increased their capex excessively in 2017 and this is likely to result in further reduced prices in 2019. [Concerns about oversupply/capex]
- Collapsing demand for cryptocurrency mining machines. [Concerns about a customer segment]
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
