Boyu’s general offer a good opportunity to offload positions
- Boyu Capital (JSS’s second-largest shareholder) makes a general cash offer to acquire JSS’s shares at HK$12 per share.
- We think the offer provides a good opportunity for minority shareholders to exit their positions at a valuation premium to non-state-owned PM firms.
- We upgrade JSS to Hold with a higher TP of HK$11.6 (8x FY22F P/E), adjusting for a higher P/E but a lower exchange rate of CNY vs. HK$.
Boyu to make general offer to acquire JSS shares at HK$12
Jinke SS (JSS) announced in the afternoon that Boyu Capital (JSS’s second-largest shareholder) will make a general cash offer to acquire JSS’s shares (i.e. shares not owned by or pledged to Boyu currently; see Figure 1), at HK$12/share. The date of dispatching the circular for the general offer is yet to be confirmed. The offer is conditional upon 1) at least 50,359,122 shares (7.7% of share capital) having accepted the offer, as intended by Boyu; 2) anti-trust clearance or deemed clearance from the State Administration for Market Regulation (SAMR) of China; and 3) no adverse material impact on JSS’s business and financial position since the last audited results. Nevertheless, Boyu intends to maintain JSS’s listing status with a public float of not less than 23.4% after the close of the general offer.
A premium valuation for minority shareholders to exit positions
In our view, Boyu’s purchase of Jinke Property’s (JSS’s parent) shares in JSS should offset, fully or partially, Jinke Property’s debt payable to Boyu, for which Jinke Property pledged 107.8m JSS shares (c.16.5% of share capital). JSS’s minority shareholders could also take this opportunity to offload their positions at a valuation premium to other non-state-owned property management (PM) companies under our coverage. At today’s closing price of HK$11.96 (0.3% discount to offer price), JSS’s valuation translates into 8.3x FY22F P/E and 7.5x FY23F P/E, a 56% and 71% premium to the non-state-owned PM companies we cover (excluding CG Services and CIFI Ever Sunshine).
Upgrade to Hold with a higher TP of HK$11.6
We leave FY22-24F EPS unchanged but lift our target FY22F P/E to 8x (4x previously) following Boyu’s general offer; in deriving this new target P/E we take reference to the existing average FY22F forward P/E of quality non-state-owned PM companies (namely, CG Services and CIFI Ever Sunshine). Adjusting the target HK$/CNY exchange rate to 0.91 (0.87 previously), we raise our TP for JSS to HK$11.6 and upgrade JSS to Hold. Key downside risks to our Hold rating include rejection or non-clearance of the general offer by SAMR, and fewer than the required hurdle of 50.3m shares held by minority shareholders accepting the offer. Key upside risks: Boyu raising the offer price and Jinke Property honouring its trade payables to JSS.