In this briefing:
- HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
- Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn
- SPCG: Laying Foundations for Next Stage of Growth
- PG&E: Turnaround; A Mission Impossible Task
- GLOW’s Done Deal As SPA (Almost) Completes
1. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we highlight the WH Group, which led the inflows last week.
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. SPCG: Laying Foundations for Next Stage of Growth
We initiate coverage of SPCG with a BUY rating and a 2019E target price of Bt22.80, derived from a discounted cash flow valuation (WACC 7.0% and terminal growth of 1.0%). This is equivalent to 8.4x PE’19E.
The story:
- Promising industry outlook
- Striding toward overseas opportunities
- Expiring adder should have been priced in already
- Expected stable earnings in 2019-21E
Risks: Single source supplier
Forex fluctuation
Uncertainty about sunlight
4. PG&E: Turnaround; A Mission Impossible Task
We write this note to provide P G & E Corp (PCG US) current state of affairs. First and foremost, we believe that the equity value is zero as the company restructures under chapter 11 bankruptcy code. Most companies that enter chapter 11 bankruptcy either face operational or financial headwinds. PG&E problems are compounded by complications of litigation and regulatory risk along with operational and financial risks.
5. GLOW’s Done Deal As SPA (Almost) Completes
The revised SPA between Engie SA (ENGI FP) and Global Power Synergy Company Ltd (GPSC TB) is expected to the close this week, triggering a mandatory Tender offer for Glow Energy Pcl (GLOW TB).
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
The divestment of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn (~2.5% of GLOW’s market cap at the time) was announced on the 22 February and was completed yesterday.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
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