Last week, the potential trading opportunities in BGF Co Ltd (027410 KS)'s share swap; Philippine Long Distance Tel (TEL PM) may be at risk should the current duopoly be dismantled; IDFC Ltd (IDFC IN) finds a Capital partner; a higher DPU from the Sekisui House Si Residential (8973 JP) / Sekisui House Ltd (1928 JP) merger is, at least, attractive; Pou Sheng Intl Holdings Ltd (3813 HK) relocates to granddad's residence; and Television Broadcasts Ltd (511 HK)'s buyback lapses and major shareholders are being sounded out.
BGF Co Ltd (027410 KS) (Mkt Cap: $471mn; Liquidity: $8.1mn)
Sustinvest and I tag-teamed on this tender offer/share swap, which will commence on the 14th February. With BGF Chairman Hong Suk-jo's seeking to solidify his stake in the BGF Co Ltd (027410 KS) (Holdco), BGF Retail Co Ltd (282330 KS) (Opco)'s share price has not wholly unexpectedly increased, whereas the Holdco has declined since the 8 December 2017 listing/relisting.
links to:
My insight: The BGF Retail Swap Shop
Sustinvest's insight: BGF and BGF Retail - Tender Offer and Stock Swap
Mirae Asset Daewoo Securities Co Ltd (006800 KS) ("MAD")(Mkt Cap: $6.9bn; Liquidity: $36.1mn)
MAD's first round offering price was set at ₩5,000, as expected. On Jan 23, the ex-rights day, the base price of MAD's common was adjusted to ₩9,600 and prefs to ₩6,080. The same day, the common had a strong "share price restoration" with a 9.38% gain. That uptick in the common may not solely have been due to the ex-rights date factor, but an improved outlook for the local brokerage industry. This may lead to a higher dividend of ₩200- ₩300 in FY18, against the market consensus of ₩165.
(link to Sanghyun's insight: Mirae Asset Daewoo Pref Issuance - Status Update)
Philippine Long Distance Tel (TEL PM)(Mkt Cap: $6.4bn; Liquidity: $3.7mn)
New Street Research discussed President Duterte’s push for a new entrant, which resulted in the weighted aggregated telecoms out-performance of 20% in 1H17 reverting to a 21% under-performance in 2H. Recent official statements suggest a third mobile entrant will be chosen by 1Q18 end, with (China Telecom (728 HK)) the frontrunner, although Chinese involvement in the telecoms sector may raise concerns on national security.
Congress is seeking to remove telecommunications as a public utility, allowing foreign ownership restrictions (currently 40%) to be lifted, easing the way for a foreign entrant. New Street questions how attractive the Philippines is for a new entrant given issues around interconnect, equipment sharing, lack of engineers, ownership rules, lack of suitable partners etc.
PLDT is at risk from an increase in capex from a new entrant. On the flipside, fixed revenue growth should be robust in the medium term, where PLDT is best exposed, helped by low penetration rates. Furthermore, the topography of the Philippines will prove challenging for a new entrant.
(link to New Street's insight: Philippine Telcos: Third Entrant Noise to Persist)
CJ O Shopping Co Ltd (035760 KS) (Mkt Cap: $1.3bn; Liquidity: $7.9mn)
The merger ratio of CJ O Shopping and CJ E&M was set at 1: 0.4104397 (CJ O Shopping : CJ E&M Corp (130960 KS) ) and prices have quickly moved to a level where you wouldn't be able to seize meaningful arbitrage opportunities.
(link to Sanghyun's insight: CJ O Shopping & CJ E&M Merger - Arbitrage Opportunity Assessment)
Hanssem Co Ltd (009240 KS) (Mkt Cap: $3.8bn; Liquidity: $10.6mn)
Shinsegae Co Ltd (004170 KS) has acquired Casamia, the sixth largest home furnishing provider in Korea for ₩180bn (92% stake). Casamia had sales of ₩122bn in 2016 and net profit of ₩8.4bn, implying a purchase consideration of 23x earnings and 1.6x sales.
(link to Douglas' insight: Korea M&A Spotlight: Shinsegae Acquires Casamia)
Minato Bank Ltd/The (8543 JP) (Mkt Cap: $786mn; Liquidity: $1mn)
After calling off a proposed merger with the Shriram Group due to a disagreement in valuation, IDFC has found a new partner in Capital First Ltd (CAFL). Pursuant to the merger which is subject to regulatory and shareholders approval, IDFC will issue 139 shares for every 10 shares of CAFL, valuing CAFL at ~2.3x FY19E P/B. According to Das Capital Management and Advisors, the post-merger combined entity will have an AUM of Rs.1.3 tn (US$20.6bn) and a distribution network of 250 branches and 13000 micro ATM points, serving more than 7 mn customers across the country.
(link to Das Capital's insight: IDFC Bank-Capital First Merger, Win-Win for Both Entities)
Sekisui House Si Residential (8973 JP) (Mkt Cap: $1.2bn; Liquidity: $2mn)
On the 24th of January 2018, J-REITs Sekisui House Reit Inc (3309 JP) ("SHR"), an office and hotel REIT with assets in the three major metropolitan areas of Japan (Tokyo, Osaka, Nagoya), and Sekisui House Si Residential (8973 JP) ("SHI") announced SHR will issue shares to SHI shareholders and SHR will act as the surviving entity.
This looks like a pretty clean deal and will likely go through. The great thing about REITs in Japan is that they are quite transparent about their assets, earnings, costs, yields, occupancy, etc.
Neither company comes across as particularly compelling to Travis Lundy – SHR & SHI go from being two small REITs to being a slightly larger REIT.
However, the forecast for an 11% higher DPU a year from now is attractive. Expect the ratio to trade very tight.
(link to Travis' insight: Sekisui REITs to Merge - An Extremely Stable (Genius?) Portfolio)
Pou Sheng Intl Holdings Ltd (3813 HK; "PSI")(Mkt Cap: $1.3bn; Liquidity: $3.3mn)
Pranav Rao looked at this relatively straightforward deal wherein Pou Chen (9904 TT) made a scheme offer at HK$2.03/share, a ~32% premium to last close and at the 52-week high for Pou Sheng. A 10% blocking stake is equivalent to 198.7mn shares, or 3.72% of total shares outstanding.
YYI shareholders will receive a special dividend from the disposal, up to ~HK$4.14/share, or ~12% of YYI's share price.
Given the deal dynamics, Pranav would be long Pou Sheng International at HK$1.95-1.96 for an annualized return of 8-10%, assuming payment in mid-May.
(link to Pranav's insight: Pou Sheng International: Privatization by Grandparent)
Television Broadcasts Ltd (511 HK) (Mkt Cap: $1.6bn; Liquidity: $2.1mn)
As expected, and discussed in my note last Monday, the Offer/Buyback has now lapsed. The Buyback was a management-led initiative premised on excess cash on the balance sheet. Once the Offer lapses, the company can revert to its $2.60/share dividend policy (~9.1% yield) and/or pay a special dividend, suggesting limited downside. The $9.60/share special dividend proposed by Silchester appears optimistic. TVB is up 5.2% since the lapse announcement.
As an aside, there are media reports Silchester has been approached by a third party to sell its ~14% stake.
(link to my insight: TVB - Back to the Beginning)
Tai United Holdings Limited (718 HK)(Mkt Cap: $671mn; Liquidity: $0.4mn)
Songbird SG Pte. Ltd has acquired ex-chairman Chua Hwa Por’s 73.98% stake in Tai United at $0.92/share and will now make an unconditional MGO at the same price. That offer price is 9.8% below last Friday’s closing price of $1.02 and represents an 18 month low. It is Songbird’s intention to maintain Tai United’s listing.
There is not a lot to do in this takeunder. Pricing appears okay on a 0.9x adjusted book value, according to Pranav. Tai United still holds an 11.55% stake in Hongkong & Shanghai Hotels (45 HK), having last acquired shares in October last year.
I'd be interested to know who is behind Songbird but the announcement is light on details. Also, in a period of time when property assets, where Tai United is primarily vested, have consistently risen, I'm curious why Chua has agreed to a discounted exit. For some further background on Chua/Tai United, please refer to my earlier note Hongkong & Shanghai Hotels - Check-Out Time.
(link to Pranav's insight: Tai United: Unconditional Take-Under)
Hang Lung Group Ltd (10 HK) / Hang Lung Properties Ltd (101 HK)
A 5.1% weekly gain for HLP sent the share price to a 52-week high. HLG's discount to NAV is now out to 28.5% compared to a 23% 12-month average. A simple ratio (HLG/HLP) is the lowest since June 2016.
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