Last Week in Event SPACE: Japan Post, JD.com, Toyota, NTT, Jardines, Indices/Exec. Orders, Tianneng

Japan Post Insurance (7181 JP) (Mkt Cap: $11.5bn; Liquidity: $22mn)

The news in the Bloomberg article titled "Japan Post Insurer Plans $2.9 Billion Buyback to Cut Owner Stake" was a surprise, and a welcome one at that. This stated goal is to allow the insurer more freedom to expand its business. An already cheap insurer would a) see EPS rise because of a large share buyback, b) see Embedded Value rise in future from greater policy sales, c) get higher ROE from lower equity and lower solvency margin. A low-growth insurer would suddenly become one of the few domestic insurers with the capacity to grow domestically.

• This is an Unalloyed Good Thing for Japan Post Insurance, and if there is any truth to it, Japan Post Insurance is a Very Good Stock To Own Here. In that case JPI is, in my opinion, a Stock That Goes Up (STGU), and would attract significant foreign investor interest. Given that foreign investors only own 11% as of last March and given that
• A selldown to below 50% would mean additional TOPIX buying in future (not necessarily immediately though the change in FFW would be so dramatic as to warrant an ad hoc change near-term.
• When will this happen? Travis Lundy doesn't know. It is in JPH's interest to stoke the fires of the story to get the shares up before selling. But JPI is still completing the latter stages of its Business Improvement Plan following the sales scandal unearthed in 2019. Note that JPH could still consolidate (with JPI's agreement) even at 49.9% ownership. THE TRADE: Be long Japan Post Insurance.
• Separately, this insight provides a thorough big picture background for those seeking the full story, and which was originally discussed in Japan Post Insurance Offering - Now It Gets Real.

(link to Travis' insight: Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy)

Soilbuild has announced a proposal from executive chairman Lim Chap Huat (LCH) and Blackstone Real Estate to take the company private at S$0.55/unit, a 34.5%, 34.8%, 53.2%, and 29.1% premium over the one-month, three-month, six-month, and 12-month VWAP. The Offer price implies a price to adjusted NAV of 0.98x-1.00x, above Soilbuild's historical averages. In tandem with the Scheme, Soilbuild has also entered into an agreement with Blackstone affiliates to dispose of its Australian assets. The disposal is inter-conditional with the Scheme.

• The Scheme Offer consideration will be reduced by any dividends paid after the announcement. However, if the Scheme becomes effective after 31 March, any dividend declared and paid afterward will be added to the Scheme Offer consideration.
• Soilbuild portfolio was valued down by 2.7 to 4.0 Singapore cents to S$0.55 to S$0.563/unit by independent valuers as at 30 November, compared to 30 September. With the benefit of this downward revaluation, the Offer is pitched at a ~1x P/B. It has not traded above book since September 2018, and has traded on average of 0.78x P/B since that time.
• Should all go to plan - and pricing looks fair - Soilbuild is expected to be delisted in early April. Trading at a gross/annualised return of 3.8%/12.6%, at the time of the insight. This Offer has not been declared final.

Back on the 23 October, JM announced an intention to invest up to US$500mn in a share buyback program through to 30 June 2021. Any shares repurchased would be canceled. Using the then-last-traded price of US$44/share, US$500mn translated to 11.4mn shares or 1.56% of shares out, or 3.8% of minorities, excluding Jardine Strategic Holdings (JS SP)'s stake. JM has repurchased 3.2mn shares at a cost of US$166mn since that announcement, at an average price of US$51.69/share. Shares acquired accounted for roughly 30% of daily volume. And that is one-third of the buyback programme. At this clip, the stated buyback program could be completed by the 1Q20, or early 2Q.

• At ~40% discount to NAV, JS is cheap. Yet a privatistion Offer will not occur, on account of the onerous costs involved, as per above. Hypothetically, JM can theoretically make a derisory delisting Offer, on account of its UK standard listing, but it is unfathomable JM would take such a drastic measure. There is somewhat of a news vacuum for JS until its full-year results in March next year.
• There are no restrictions keeping Matheson from loading up another buyback program. JM is also not regulatorily obligated to inform the market of any forward buyback program after moving its primary listing to London's standard board in 2014. The only restriction I see is that JM must adhere to the 25% free float requirement.
• JMH has aggressively committed itself to the buyback program. Previously I advocated setting-up a Long JMH/Short JSH at 2.0x or below. I'd move that up to 2.10x. I see no let up near term. The newsflow remains with JM near-term. The pushback - IM imposes a 30-day blackout ahead of its full-year results, which may see a pullback in the ratio.

Tianneng Power International (819 HK) ("TPI") (Mkt Cap: $2.3bn; Liquidity: $15mn)

On the 9 November 2018,"TPI" announced the possible spin-off and separate listing of Tianneng Battery Group ("TBG"). This is the same entity TPI attempted to list back in November 2015. Further announcements followed, culminating in a circular to shareholders on the 24 June 2019 seeking shareholder approval to list TBG on the Science and Technology Innovation Board of the Shanghai Stock Exchange - better known as the Star Market. That approval was received at an EGM on the 12 July 2019. This week, TPI announced the proposed A-share listing on the Star Board has been approved by the CSRC.

• After the spin-off, TBG will account for ~95%+ TPI's NAV - applying the indicative price of RMB30.65 for TBG, and 10x earnings for the stub ops. Yes, it will be a cross-border parent/subsidiary relationship, but it will be a clean holding company structure. TPI may have gained 180% in the past year but it is not expensive. It's trailing PER of 9.8x compares to the five year average of 7.7x. The peer group average far exceeds the implied TBG valuation based on the indicative price from the June circular.
• Global auto majors are increasingly seeking out EV batteries sources to ensure a steady battery supply. Other deals, in addition to Daimler/Farasis, include the RMB8.7bn transaction between Volkswagen and Gotion High-tech in May of this year. In November of last year, TPI/TBG signed a cooperation agreement with SAFT, a subsidiary of Total S.A.

• I'd buy TPI here. The key regulatory approvals are in place. The Star Market will welcome another battery manufacturer, one that is an up & coming supplier of lithium batteries, and one that promotes and develops the light electric vehicle industry. I can see TPI re-testing its recent high, or ~29% up from here.

(link to my insight: Tianneng (819 HK): Battery Spin-Off And The Tesla Effect)

EQT AB (EQT SS) has announced a SEK 220 per share (a 22.9% premium) mandatory offer for Recipharm AB (RECIB SS), valuing the company at ~$2.8 bn. The offer represents 2.8x EV/Fwd Revenue, 15.9x EV/Fwd EBITDA and 24.5x P/Fwd E. ~25.7% of the shares and 74.3% of the votes have been secured. Squeeze-out afforded at 90%. Recipharm closed at a 0.8% gross spread at the time of writing, Link to Jesus' insight: Recipharm-EQT Takeout.

This previous week was something of a doozy. Spreads were all over the place. Momentum ruled the day. More names were added to the Trump List, but The National Team has been buying. Financials and Industrials get shellacked. Healthcare Hs all over the place. Materials H/S spreads heavily split. And utilities can't buy friends. And we have 40+ spread recommendations for next week. Watch for Travis' latest installment to be issued shortly.