TheChek News Flow

Autos O/W falls to net +4%; sector slips to 6th position

Asian Mid-session Update: China trade figures improve as exports decline narrows

***Economic Data***

- (CN) CHINA SEPT TRADE BALANCE: $60.3B (7-month high) V $48.2BE; IN CNY TERMS: CNY376.2B V CNY292.4BE

- (AU) AUSTRALIA SEPT NAB BUSINESS CONFIDENCE: 5 V 1 PRIOR (3-month high); CONDITIONS: 9 V 9 PRIOR

- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 115.6 v 110.0 prior

- (NZ) NEW ZEALAND SEPT FOOD PRICES M/M: -0.5% V -0.5% PRIOR; 2nd straight decline

- (JP) JAPAN SEPT BANK LENDING (INCL TRUSTS) Y/Y: 2.6% V 2.7% PRIOR; BANK LENDING (EX- TRUSTS) Y/Y: 2.6% V 2.7%E

- (KR) SOUTH KOREA SEPT IMPORT PRICE INDEX M/M: -0.5% V -0.4% PRIOR; Y/Y: -13.0% V -13.6% PRIOR

- (UK) UK SEPT BRC LFL SALES Y/Y: +2.6% V +1.5%E

***Index Snapshot (as of 02:30 GMT)***

- Nikkei225 -0.9%, S&P/ASX -0.8%, Kospi -0.4%, Shanghai Composite -0.4%, Hang Seng -0.5%, Dec S&P500 -0.2% at 2,007

***Commodities/Fixed Income***

- Dec gold -0.9% at $1,154/oz, Nov crude oil +0.8% at $47.47/brl, Dec copper -1.0% at $2.39/lb

- (CN) China may lower natural gas prices for non-residential use by 20-30%, effective on Nov 1st - Chinese press

- USD/CNY: (CN) PBoC sets yuan mid point at 6.3231 v 6.3406 prior setting (strongest Yuan setting since Aug 12th; Biggest Yuan strengthening since Nov 2014)

- (CN) PBoC to inject CNY40B in 7-day reverse repos (29th consecutive injection)

- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥400B in 5-10yr JGBs

- (AU) Australia MoF (AOFM) sells A$150M in 4% 2020 indexed Bonds; avg yield: 0.156%; bid-to-cover: 3.07x

***Market Focal Points/FX***

- Asian equities are down across the board as risk off sentiment resurfaced in all asset classes. After yesterday's rally in Shanghai Composite on reports of a refinancing scheme for high quality credit assets, today's mixed China trade report has done little to support more substantial gains. In Japan, Nikkei225 returned with a near 1% slide after yesterday's holiday, tracking firmer JPY. USD majors also favored safe haven currencies such as the dollar and JPY at the expense of high-beta commodity FX. AUD/USD fell about 60pips below 0.73, with the lows coming after China trade figures. NZD/USD was also down 60pips at 0.6660, while USD/JPY was off by some 25pips at 119.80. In notable emerging market FX, USD/SGD was up for the 2nd straight day above 1.4030 ahead of tomorrow's MAS decision.

- China Customs Bureau released Sept trade data showing a 7-month high on terms of trade, but 3rd and 11th respective continued declines in exports and imports. The drop in the former was less than expected, while the latter was wider than expected. Shipments to US rose, but those to Europe were down marginally and Japan fell by nearly 5% - in line with projections. Imports of iron ore and crude oil were up just over 1%. In accompanying commentary, Customs Bureau said exports decline was both due to policy and external orders, adding that Q4 will likely see exports return to growth and imports decline to continue to narrow. Separately, PBoC researcher said there's still concern over falling demand in real economy, with weak demand in credit market severely affecting lending.

- In Japan, Fin Min Aso maintained an upbeat view on economy, noting it is obvious there is a trend of recovery. BOJ Meeting Minutes from last month, when policymakers cut assessment on Exports and Industrial Output were surprisingly neutral, with many members expressing confidence that 2% inflation target will be achieved. Members added there's still a need to maintain QE to help encourage companies to raise wages.

- Australia's NAB business confidence figures saw a 3 month high and a recovery from last month's 2-year lows, thanks in part to political transition in the coalition govt. NAB said employment is finally improving, turning positive and increasing to its highest level since mid-2011, and that services sector continues to outperform, concluding it was difficult to anticipate additional easing moves by the RBA. Earlier, RBA Dep Gov Lowe said the central bank still has flexibility on interest rates if needed, but that domestic fundamentals are strong.

***Equities***

US equities / ADRs:

- JBLU: Reports Sept load factor 81.1% v 80.9% y/y; -1.3% afterhours

- FIG: Said to be planning to shut down its Macro Hedge Fund; Novogratz expected to leave the firm; -2.6% afterhours

- R: Guides Q3 lower $1.72-1.74 v $1.85e ($1.82-1.87 prior), Q4 $1.72-1.82 v $1.88e; cites lower than expected results in fleet management solutions; -7.3% afterhours

- FMC: Cuts FY16 EPS $2.35-2.45 v $3.08e (guided $3.00-3.30 prior) due to rapid devaluation of BRL; Guides Q3 $0.38 v $0.66e; To cut 800-850 jobs; -9.4% afterhours

Notable movers by sector:

- Consumer discretionary: China Yurun Food Group 1068.HK -7.0% (unit faces bond default)

Dick Smith Holdings DSH.AU +1.8% (potential takeover target); Mobile Embrace MBE.AU +18.9% (Q1 result); Skydive the Beach Group SKB.AU -1.6% (share offering); Galaxy Entertainment +9.9% (Macau golden week casino result)

- Financials: Agile Property Holdings 3383.HK -0.7% (Sept result); China Resources Land 1109.HK +0.5% (Sept result); Sunac China Holdings 1918.HK +0.8% (Sept result); Investa Office Fund IOF.AU -1.0% (offer speculation)

- Industrials: Hyundai Heavy 009540.KR +1.4% (speculation for Q3 earnings); Rusal 486.HK +0.3% (proposes interim dividend); Cardno CDD.AU +0.3% (comment on offer); Hyundai Heavy 009540.KR +1.4% (Q3 earning speculation)

- Technology: TCL Corp 1070.HK -5.2% (profit warning)

Sharp Corp 6753.JP +7.9% (Japan fund investment speculation); Hithink Flush Information Network Co 300033.CN +10.0% (profit alert); GBST Holdings GBT.AU -22.6% (H1 guidance)

- Materials: Glencore Xstrata Plc 805.HK -6.9% (asset sales); Shandong Chenming Paper Holdings 1812.HK +2.4% (profit alert); China Northern Rare Earth Group High-Tech Co 600111.CN -0.6% (to lower production); St Barbara SBM.AU +1.4% (guidance)

- Energy: JX Holdings 5020.JP -1.8% (said to write down inventory)

- Healthcare: Tonghua Dongbao Pharmaceutical Co 600867.CN +1.9% (guidance)

- Telecom: Telstra Corp. TLS.AU -1.2% (guidance and ACCC impact on earnings)

SABMiller

SABMiller warms to AB InBev's approaches as takeover offer rises

Budweiser maker raises its offer to £43.50 a share from £42.15, a 48% premium to the pre-approach share price

The board of SABMiller is warming to the approaches of Anheuser-Busch InBev following a fourth informal bid approach which values the UK-listed brewer at £67.4bn.

The maker of Budweiser and Stella Artois raised its offer to £43.50 a share from £42.15 in cash, with a partial share alternative aimed at SABMiller’s two largest shareholders Altria and the Santo Domingo family. It pointed out the new offer was a 48% premium to the UK-listed brewer’s share price on 14 September, before news broke of talks between the two.

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The combination of the world’s first and second brewers would create a giant company making a third of the world’s beer.

The SABMiller board, which has rejected three earlier approaches, did not issue a statement declining the latest offer as it has done on previous occasions nor did it say it was accepting the deal.

“This offer does provide the basis for some form of engagement,” said one person who knows some of the major players well.

Shares of SAB, maker of beers including Peroni and Grolsch, were down marginally at £36.67, as some investors worried the parties remained too far apart to agree to a deal. “The last reaction from SAB was that the previous offer was significantly undervaluing it,” said Morningstar analyst Phil Gorham. “The latest offer is not a significant improvement.”

At least one institutional shareholder contacted by the Guardian felt the 3% increase on the previous offer was not sufficient for it to agree to a deal.

Some said SABMiller should hold out for a bid nearer to £45 a share, but accepted the current offer might further split shareholders, raising fears among some that the bidder could walk away.

Altria, the owner of Phillip Morris cigarettes, which controls 27% of SABMiller, has already agreed to accept the lower offer. But Bevco, the vehicle controlled by the wealthy Santo Domingo family of Colombia, which has 14%, has so far rejected AB InBev’s approaches on valuation grounds.

The cash-and-share alternative, which is designed to appeal to Altria and the Santo Domingo families in particular, to assist them in avoiding large tax bills, has been sweetened in the latest proposal. However, it values SABMiller shares at only £38.88, short of the main cash offer and there may be room for it to be improved further. Significantly the cash element of that alternative offer has been raised by 119p to 356p.

The further increase in the offer from the Brazilian-Belgian brewer, albeit a relatively small one, will intensify pressure on SABMiller’s chairman, Jan du Plessis, to open talks on a deal to buy the group, which was founded 120 years ago as South African Breweries. The view of the Santo Domingo family will be crucial because the bidder has made it clear it favours a friendly merger. Du Plessis last year fought off a merger approach from Glencore as chairman of miner Rio Tinto.

Analysis AB InBev's offer isn't enough to break up SABMiller and the Santo Domingos

Nils Pratley

Read more

The new offer came before Wednesday’s bid deadline and after SABMiller’s fourth-biggest shareholder earlier in the day rejected AB InBev’s previous price as too low.

“We have confidence in the board and we will rely on their judgment. They have said the price is too low and we agree with them,” said Dan Matjila, chief executive of Public Investment Corporation..

The South African investment manager, which owns about 3% of SABMiller, said last week it would seek guidance from brewery group’s board about the financial aspects of the proposed deal.

It is the latest major SABMiller investor to say AB InBev’s approach is too low to buy the company, whose brands also include Castle beer in Africa. SABMiller’s board has said the proposal “very substantially undervalues” the business.

Aberdeen Asset Management said last week it could see the potential benefits of a merger but that AB InBev’s proposed offer was opportunistic and too low. SABMiller’s fifth-largest shareholder, Kulczyk Investments, rejected AB InBev’s valuation. Investec, another significant investor, was also reported to be against the deal.

AB InBev’s chief executive, Carlos Brito, has urged SABMiller shareholders to tell their board to enter serious talks before Wednesday’s 5pm deadline for AB InBev to lodge a formal offer.