Last Week in Event SPACE: Keppel, China Merchants, Bumrungrad, Clear Media, Luckin, Lotte Group

Five weeks since Travis Lundy's last insight, which was bullish vs proxies and spreads in the last third of March as the world was melting down, today we have a different environment. The S&P500 is up 20+% since then. Singapore REITs have rebounded significantly. Recently Keppel DC REIT (KDCREIT SP) closed just 1 tick off its all-time high (and Keppel Corp took the opportunity to sell a block of shares out of its now-private Keppel Telecom & Transport (KPTT SP) entity). Keppel Corp shares themselves are up 17% since then, with the back end at 100% participation up 31% and the spread of the back end against an average of four major proxy baskets having outperformed by 17+% (event-specific delta-neutral).

(link to Travis' insight: Keppel Corp Partial Tender Update - Odds Less In Your Favor Now Than Before)

Bumrungrad Hospital Pub Co (BH TB) (Mkt Cap: $2.9bn; Liquidity: $10mn)

On the 31 March, Clear-management-led Ever Harmonic made a voluntary cash offer for Clear at HK$7.12/share, a 50.21% premium to the last close of HK$4.74, that Clear's controlling shareholder, Clear Channel Outdoor Cl A (CCO US), with 50.91% of the company, was conducting a strategic review of its stake. The Offer is conditional on 50.1% acceptances. CCO has given an irrevocable to tender in their 50.91% holding. The Offer Price is Final. Dividends declared will be netted although none have been declared.

Nippon Rietec (1938 JP) (Mkt Cap: $0.5bn; Liquidity: $2mn)

On 19 February, Travis analysed (Nippon Rietec (1938) - SUPER Interesting Events Unfolding) the just-announced news of small-cap Nippon Rietec's ascension to the TSE's First Section. From the ¥1660 open the day following my first insight until TOPIX inclusion today, the total return was 39.9% against total return of TOPIX at -13.0% for the same period. That leaves us at crossroads for the stock.

• From the time of the trade idea to its TOPIX Inclusion event, the stock was up 39.9% while TOPIX was down 13% and the average comp was down 10%. Nippon Rietec (1938) has a similar OP Margin to the industry over the last three years, averaging 7%, but it is now quite a bit more expensive than its peers - any of them - on almost any EV or Adjusted EV metric vs EBITDA or Revenue, TTM or 3yr Average.
• It is, despite the recent increase in "liquidity" from the 1,035,000 share offer and greenshoe by financial crossholders selling down their stakes, illiquid. In fact, because the TOPIX Inclusion was on the order of 2.0mm shares and the selldown of shares from non-float to float was 1.035mm shares, Real World Float actually decreased in this exercise.
• Of the remaining Real World Float, Individuals make up 70% of that total float, and Fidelity makes up two-thirds of the institutional holding. A lot will depend on what Fidelity does. It is not easy to see that there will be a cascade of institutional sellers because it has suddenly become expensive - there just aren't that many. It was a good buy for the event. Now the stock is a sell.
• If you are long the stock, it is a sell, and if you like the space, there are larger stocks which are cheaper which have direct exposure to East Japan Railway Co (9020 JP) maintenance cycle such as Totetsu Kogyo (1835 JP) - higher float, larger cap, cheaper in every way. There are also electrical work/maintenance companies such as Tokyo Energy & Systems (1945 JP), Kinden Corp (1944 JP), Kyudenko Corp (1959 JP) which are quite a bit less expensive for what they do. If you have no position and are interested in a long-term short position which should drift/underperform, this is a good one.

(link to Travis' insight: Nippon Rietec's (1938) Gangbusters TOPIX Inclusion)

Subsequent to property agency service provider Hopefluent entering into a trading halt on the 15 April, an Unconditional Mandatory Cash Offer was announced at $1.50/share - a 7.14% premium to last close of $1.40. The Offer was triggered by the Fu family and various concert parties, currently holding 38.62% of shares out, acquiring 80.0mn shares (11.87%) from various vendors (many of which are employees of Hopefluent), taking the Concert Group's holding to 50.49%. In addition, the Concert Group is joined by Country Garden Services Hold (6098 HK) (CGSH) in this MGO, wherein CGSH will purchase up to a maximum of 67.38mn shares, or 9.99% of shares out. Any additional shares tendered, will be taken up by the Concert Group.

• The Offer is not fair - not even close. Hopefluent had HK$1.45bn of net cash ($2.15/share) on its books as at 31 Dec 2019 (inclusive of lease liabilities), up from HK$1.045bn in FY18. On a net net basis, Hopefluent had HK$3.3bn (HK$4.90/share) as at FY19.
• The Joint Offerors intend to maintain Hopefluent's listing. To note, in Hong Kong, shareholders with 10% or more of shares out are excluded from the public float. This explains why CGSH is only seeking 9.99% of shares out. If it bought 10% (for example), plus Fang's (16.30%) and the Concert Group (50.49%) holdings, collectively they would hold 77.09%, breaching the public float of 25%.
• This is a done deal. I think the docs will be fast-tracked. But it's currently trading through terms - no doubt the introduction of CGSH has spurred interest. Suggest you buy lower and closer to the Offer price - that's a hard floor for around six weeks, probably more.

On 28th April 2020, DBS' parent company Nomura Research Institute Ltd (4307 JP) announced a Tender Offer to buy out minorities. Nomura currently owns 51.8% and aims to buy out the remaining shareholders. If the minimum acceptance condition is met, the Acquirer will reach 66.67+% and will be able to squeeze out minority shareholders who did not accept the original Offer. The Offer Price is ¥920/share and this comes at a large premium of 63% to the undisturbed price.

• This is a done deal. A quick glance at the list of top shareholders shows that there will be enough friendly shareholders who will accept this Offer to satisfy the minimum acceptance condition.
• Janaghan Jeyakumar also feels the Offer Price is fair and the majority of remaining shareholders are likely to accept the Offer on account of the Offer Premia; the Offer Price is close to the mid-points of the DCF ranges suggested by FAs; and the PBV implied by the Offer is 33% higher than the 5-year average PBV of the Target.
• Expect the shares of DSB to go limit-up over the next few trading days until the price reaches close to the Offer price and then expect it to trade very tight to terms until completion. There is effectively zero risk to this trade. It is a simple rate-of-return trade.

Toei Co Ltd (9605 JP) / Toei Animation (4816 JP)

I estimated Toei is trading at a ~21% discount to NAV (around its one-year low) compared to a one-year average of ~10%. The implied stub is at a two-year low. The holding in Toei Animation accounts for 52% of Toei's market cap. Stripping out its 16% holding in television network Tv Asahi Holdings (9409 JP), assets at the parent level largely comprise property, listed securities, and net cash.

• Toei is cheap, having bounced off a three and a half year low P/B last month. The implied P/B of 0.81x for what is largely a property company and cash/equities, is not unattractive. Toei could benefit its shareholders by selling its cross-holdings, such as TV Asahi, and also selling its property/land, which no doubt is not booked to market in its accounts, and leasing back what is needed. There is also a non-negligible library of movies and content which could be monetized as well.
• However... broadcasters and studios in Japan are notoriously difficult activist targets, and this company has 52% of voting rights held by corporates as of the last yuho. It is quite clear that the shareholder structure is designed to block any possibility of a change in control.

Three months have elapsed since the founder of the Lotte Group Shin Kyuk-Ho passed away in January 2020. Even after his death, his two sons Shin Dong-Bin (second son and the current Chairman of the Lotte Group) and Shin Dong-Ju (first son and chairman of the SDJ Corp) are still fighting over the control of the Lotte Group. Lotte Corp shares went limit up (30%) on Tuesday to reach ₩37,300 on strong volume. On the same day, Shin Dong-Ju announced that he had submitted a proposal for the shareholders including the dismissal of Shing Dong-Bin as the Chairman of the Lotte Holdings Japan ahead of the AGM of Lotte Holdings Japan in June.

• At this point, it appears that despite Shin Dong-Ju's attempt to oust his brother, once again, Chairman Shin-Dong-Bin is likely to maintain his position as the Chairman of the Lotte Group.
• The main fight is for the controlling shareholding of Lotte Holdings Japan, because the latter stock is yet to be listed, and investors will likely focus on Lotte Corp. The younger brother (SDB) still controls about 20% in Lotte Holdings Korea. However, Lotte Japan and Hotel Lotte combined control 14%. Hotel Lotte is under Lotte Japan's control. So, whoever owns Lotte Japan will get this 14%.
• What is the deciding factor for the controlling stake in Lotte Japan? It is the Employee Shareholders' Association (ESA) that controls virtually half of the total shares. SDJ owns Kojunsha, which owns 28.1% in Lotte Japan. But he still needs the ESA. So far, the younger brother has successfully got ESA on his side.

Since Brian Freitas' last Insight, Bangkok Bank Public (BBL TB) has outperformed Kasikornbank PCL (KBANK TB) by 8.25% and the price ratio is now trading closer to the upper end of the trading band. We should hear from the Thai NVDR company in May on the Bank of Thailand's decision on the NVDR limit for BBL. Brian expects this will be lowered to 25% from the current limit of 35%. There is an outside chance of the BBL NVDR line being included in the MSCI Thailand index. Given the gains already made since his last insight and with the price ratio trading at the upper end of the trading band, Brian recommends (in BBL / KBANK : Switch Time) selling BBL and buying KBANK. He would do this gradually as BBL may continue outperforming KBANK for some time and the price ratio may overshoot on the upside.

In Unilever's DLC Structure, Jesus tackled Unilever NV (UNIA NA) or Unilever PLC (ULVR LN) dual-class structure. Unilever NV shares were trading at a discount of 3.5% to Unilever Plc, below the 10-year average discount of 0.19%. He recommended a Long NV/Short Plc.

For the month of April, just six new deals were discussed on Smartkarma with an overall announced deal size of ~US$9.4bn. The average premium for the new deals announced in April was ~38% and the YTD average premium for all deals discussed on Smartkarma is 34%. The average for all deals discussed on Smartkarma in 2019 (145 all-in) was 31.5%. ((Mostly) Asia M&A: April 2020 Roundup)