Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<p>In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the tables below, we provided a list of 10 stocks that could get included and 10 stocks that could get excluded in the next round of KOSDAQ150 rebalance.</p><p>In the past one month, the 10 stocks for inclusion are down 5.7% on average, outperforming KOSDAQ which is down 12.4% in this period. In the past one month, the 10 stocks for exclusion are down 21.5% on average, underperforming KOSDAQ in the same period. </p><p>The strategy here is to buy a basket of the stocks which could get included in the KOSDAQ150 index rebalance and combine this with bottom-up due diligence of each of these 10 companies to better understand their fundamentals. The same holds true for the companies that could potentially be excluded. The strategy would be to increase the weights of companies that could potentially get included in the KOSDAQ150 rebalance in the upcoming November announcement and reduce the weights of the bottom 5-7% market cap companies in KOSDAQ150 index. </p>

In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the tables below, we provided a list of 10 stocks that could get included and 10 stocks that could get excluded in the next round of KOSDAQ150 rebalance.In the past one month, the 10 stocks for inclusion are down 5.7% on average, outperforming KOSDAQ which is down 12.4% in this period. In the past one month, the 10 stocks for exclusion are down 21.5% on average, underperforming KOSDAQ in the same period. The strategy here is to buy a basket of the stocks which could get included in the KOSDAQ150 index rebalance and combine this with bottom-up due diligence of each of these 10 companies to better understand their fundamentals. The same holds true for the companies that could potentially be excluded. The strategy would be to increase the weights of companies that could potentially get included in the KOSDAQ150 rebalance in the upcoming November announcement and reduce the weights of the bottom 5-7% market cap companies in KOSDAQ150 index. 

A Trading Strategy for the Upcoming KOSDAQ150 Rebalance in December

Head of Content, Data & Research, Helixtap

Arusha Das

Head of Content, Data & Research

Global Commodities Alternative Data and Insights

Helixtap

Helixtap collects, processes and distributes proprietary data, analyses and forecasts for the rubber, latex and automotive markets

Commodities

<ul><li>The crackdown on power consumption coupled with the crisis of Evergrande Group looms large over the demand for natural rubber in China as the industrial manufacturing sector of the country faces a setback. With the ongoing Evergrande crisis and Beijing’s unprecedented curbs on the property sector, the power supply crisis has affected Jiangsu, Zhejiang, and Guangdong impacting the Chinese industrial manufacturing sector.This has jeopardized the natural rubber markets, given China accounts for around 40% of the global demand.</li><li>According to various industry sources, there is a lot of anxiousness around the revival of demand in China. The companies operating in the manufacturing industry are hit the hardest, so China must rebound as quickly as possible for the rubber markets to revive. “The power shortage is impacting the factories in China, and no one knows how long it would take to reach normalcy.</li><li>No one can predict the future at the moment,” said a market source, adding the debt issue due to Evergrande has also wavered the market confidence. According to some industry reports, a prolonged power crisis would be a significant setback for the rubber market.</li></ul>

The crackdown on power consumption coupled with the crisis of Evergrande Group looms large over the demand for natural rubber in China as the industrial manufacturing sector of the country faces a setback. With the ongoing Evergrande crisis and Beijing’s unprecedented curbs on the property sector, the power supply crisis has affected Jiangsu, Zhejiang, and Guangdong impacting the Chinese industrial manufacturing sector.This has jeopardized the natural rubber markets, given China accounts for around 40% of the global demand.According to various industry sources, there is a lot of anxiousness around the revival of demand in China. The companies operating in the manufacturing industry are hit the hardest, so China must rebound as quickly as possible for the rubber markets to revive. “The power shortage is impacting the factories in China, and no one knows how long it would take to reach normalcy.No one can predict the future at the moment,” said a market source, adding the debt issue due to Evergrande has also wavered the market confidence. According to some industry reports, a prolonged power crisis would be a significant setback for the rubber market.

Rubber Industry Grapples With Aftershock Of China’s Crackdown

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<p><a href="https://www.smartkarma.com/entities/chinese-estates-holdings-limited" target="_blank" data-smartkarma-citation="entities:20954:1" rel="noopener">Chinese Estates Holdings (127 HK)</a> is principally engaged in property investment and development, building and property management, brokerage, securities investment, money lending and cosmetics distribution and trading. After market close on Wednesday, it announced a privatisation offer by way of a scheme of arrangement from an entity controlled by Ms HW Chan, the CEO. The offeror will offer HK$4.00 in cash for each scheme share. The bid represents a premium of 83.5% over the closing price of HK$2.18 per share on the last full trading date (28 September prior to the trading halt). </p><p>Chinese Estates’ shares are down 40% since 30 June largely due to the fallout from its substantial shareholding in <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a>. Chinese Estates built up a 6.48% shareholding in Evergrande in 2017 and 2018 at an eye-watering cost of HK$13,596.0 million ($1.7 billion) and an average cost of HK$15.8 per share. Due to the precipitous decline in Evergrande share price (HK$2.95 last close prior to a trading halt), since 30 August, Chinese Estates has reduced its shareholding in Evergrande to 4.39% of outstanding shares for total cash proceeds of HK$689.2 million ($89 million). If Chinese Estates disposes of its entire shareholding, it could result in a realised loss in other comprehensive income of -HK$10,408.3 million (-$1.3 billion) in 2021. Unabashedly, the CEO justifies the privatisation based on the “<em>material adverse change to the financial position of the Group</em>” due to this material loss. </p><p>The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 408.4 million shares or 21.41% of shares outstanding, the 10% blocking stake is 40.8 million shares or 2.14% of shares outstanding. No shareholder holds a blocking stake. </p><div class="content-highlight"><p>Chinese Estates predicament is self-inflicted and due to Joseph Lau’s (HW Chan’s husband), close relationship (said to be poker pals) with Hui Ka Yan, Evergrande’s Chairman. The Lau family which controls Chinese Estates is taking advantage of the fallout from their ill-advised investment in Evergrande to privatise Chinese Estates at the cost of minority investors. While we think the offer price is unattractive, the shareholding structure suggests that that privatisation bid will be likely successful. </p></div>

Chinese Estates Holdings (127 HK) is principally engaged in property investment and development, building and property management, brokerage, securities investment, money lending and cosmetics distribution and trading. After market close on Wednesday, it announced a privatisation offer by way of a scheme of arrangement from an entity controlled by Ms HW Chan, the CEO. The offeror will offer HK$4.00 in cash for each scheme share. The bid represents a premium of 83.5% over the closing price of HK$2.18 per share on the last full trading date (28 September prior to the trading halt). Chinese Estates’ shares are down 40% since 30 June largely due to the fallout from its substantial shareholding in Evergrande (3333 HK). Chinese Estates built up a 6.48% shareholding in Evergrande in 2017 and 2018 at an eye-watering cost of HK$13,596.0 million ($1.7 billion) and an average cost of HK$15.8 per share. Due to the precipitous decline in Evergrande share price (HK$2.95 last close prior to a trading halt), since 30 August, Chinese Estates has reduced its shareholding in Evergrande to 4.39% of outstanding shares for total cash proceeds of HK$689.2 million ($89 million). If Chinese Estates disposes of its entire shareholding, it could result in a realised loss in other comprehensive income of -HK$10,408.3 million (-$1.3 billion) in 2021. Unabashedly, the CEO justifies the privatisation based on the “material adverse change to the financial position of the Group” due to this material loss. The key condition precedents are the headcount test along with the scheme approved by at least 75% disinterested shareholders and &lt;10% rejection by all disinterested shareholders. As disinterested scheme shareholders represent 408.4 million shares or 21.41% of shares outstanding, the 10% blocking stake is 40.8 million shares or 2.14% of shares outstanding. No shareholder holds a blocking stake. Chinese Estates predicament is self-inflicted and due to Joseph Lau’s (HW Chan’s husband), close relationship (said to be poker pals) with Hui Ka Yan, Evergrande’s Chairman. The Lau family which controls Chinese Estates is taking advantage of the fallout from their ill-advised investment in Evergrande to privatise Chinese Estates at the cost of minority investors. While we think the offer price is unattractive, the shareholding structure suggests that that privatisation bid will be likely successful. 

Chinese Estates’ Privatisation Bid from the Lau Family

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<div class="content-highlight">
<p><em><strong>Corrigenda: There is an error in this Insight. Please note the correction.</strong></em></p>
<p><em><strong>Correction: [Under the section “On the Evergrande holding”], that (unrealised &amp; realised) loss on the investment in Evergrande (3333 HK) of HK$10.4bn almost certainly includes the HK$3.99bn loss on investment included in the 2021 interims.</strong></em></p>
<p><em><strong>Therefore the additional (unrealised &amp; realised) loss on investment, using the $2.95/share price for Evergrande as provided in the announcement, is ~HK$6.4bn, or HK$3.37/share, giving an adjusted NAV of HK$9.61/share (ignoring forward earnings), implying a P/B under the Offer of ~0.42x compared to a three-year average of 0.31x.</strong></em></p>
</div>
<p>After being <a href="chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/viewer.html?pdfurl=https%3A%2F%2Fwww1.hkexnews.hk%2Flistedco%2Flistconews%2Fsehk%2F2021%2F0929%2F2021092900219.pdf&amp;clen=26125&amp;chunk=true" target="_blank" rel="noopener">suspended</a> on the 29 September pursuant to the Hong Kong Code on Takeovers and Mergers, <a href="https://www.smartkarma.com/entities/chinese-estates-holdings-limited" target="_blank" data-smartkarma-citation="entities:20954:1" rel="noopener">Chinese Estates Holdings (127 HK)</a>, a leading property developer in Hong Kong, has now <a href="chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/viewer.html?pdfurl=https%3A%2F%2Fwww1.hkexnews.hk%2Flistedco%2Flistconews%2Fsehk%2F2021%2F1006%2F2021100601285.pdf&amp;clen=203491&amp;chunk=true" target="_blank" rel="noopener">announced</a> an Offer, by way of a Scheme, from its founder, Joseph Lau, and his wife Chan Hoi Wan.</p>
</div>
<div>
<p>The consideration is $4.00/share, a 37.9% premium to last close, but an impressive 83.5% premium to the close on the last full trading day. The Offer price will NOT be increased.</p>
</div>
<div>
<p>Lau and Chan control <a href="https://di.hkex.com.hk/di/NSAllSSList.aspx?sa2=as&amp;sid=206&amp;corpn=Chinese+Estates+Holdings+Ltd.&amp;sd=29/09/2013&amp;ed=29/09/2021&amp;cid=0&amp;sa1=cl&amp;scsd=29%2f09%2f2013&amp;sced=29%2f09%2f2021&amp;sc=127&amp;src=MAIN&amp;lang=EN&amp;g_lang=en&amp;" target="_blank" rel="noopener">74.99%</a> of the company. Disinterested shareholders comprise 21.41% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.141% of shares out. </p>
<p>The headcount test applies.</p>
</div>
<div>
<p>In <em><a href="https://skr.ma/1HQM2" target="_blank" rel="noopener">Chinese Estates (127 HK): Potential Privatisation?</a></em>, I expected a punchy premium (to the "undisturbed price") upwards of up 75%, or $3.82/share, to get this over the line. This has been exceeded. </p>
<p>Optically, Lau and Chan appear to be getting Chinese Estates at a bargain. But the current realised plus unrealised losses on the <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a> holding is HK$10.4bn, which dramatically alters what is deemed to be book value, and therefore the implied valuation metric under the Offer.</p>
<p>This looks like a done deal and should trade tight to terms.</p>
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<p></p>
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Corrigenda: There is an error in this Insight. Please note the correction.
Correction: [Under the section “On the Evergrande holding”], that (unrealised &amp; realised) loss on the investment in Evergrande (3333 HK) of HK$10.4bn almost certainly includes the HK$3.99bn loss on investment included in the 2021 interims.
Therefore the additional (unrealised &amp; realised) loss on investment, using the $2.95/share price for Evergrande as provided in the announcement, is ~HK$6.4bn, or HK$3.37/share, giving an adjusted NAV of HK$9.61/share (ignoring forward earnings), implying a P/B under the Offer of ~0.42x compared to a three-year average of 0.31x.

After being suspended on the 29 September pursuant to the Hong Kong Code on Takeovers and Mergers, Chinese Estates Holdings (127 HK), a leading property developer in Hong Kong, has now announced an Offer, by way of a Scheme, from its founder, Joseph Lau, and his wife Chan Hoi Wan.


The consideration is $4.00/share, a 37.9% premium to last close, but an impressive 83.5% premium to the close on the last full trading day. The Offer price will NOT be increased.


Lau and Chan control 74.99% of the company. Disinterested shareholders comprise 21.41% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.141% of shares out. 
The headcount test applies.


In Chinese Estates (127 HK): Potential Privatisation?, I expected a punchy premium (to the "undisturbed price") upwards of up 75%, or $3.82/share, to get this over the line. This has been exceeded. 
Optically, Lau and Chan appear to be getting Chinese Estates at a bargain. But the current realised plus unrealised losses on the Evergrande (3333 HK) holding is HK$10.4bn, which dramatically alters what is deemed to be book value, and therefore the implied valuation metric under the Offer.
This looks like a done deal and should trade tight to terms.







Chinese Estates (127 HK): $4.00/Share Offer

<div class="content-highlight">
<p>In this insight, we provide a trading strategy on the upcoming KOSPI 200 rebalance announcement in November amid heightened market volatility. The classic "bread and butter" trading strategy is to go long on the companies that could get included in the KOSPI 200 rebalance and go short on the companies that could get excluded. However, this is typical on relatively normal market conditions. In this high vol market environment, we would argue that this strategy should be tweaked a bit. </p>
<p>In the tables below, we provided a list of 7 stocks that could get included and 10 stocks that could get excluded in the next round of KOSPI 200 rebalance. In normal conditions, the regular strategy would be to go long on the 7 stocks which could get included and go short on the 10 stocks that could get excluded. </p>
<p>Because of heightened market volatility, we would argue that a BETTER strategy is to go long on the top 3 high market cap companies (which tend to be more resistant to high volatility environment) which would be SK Telecom/SK Square, Hyundai Heavy Industries, and Meritz Financial and go short on the 10 stocks that could get excluded in the KOSPI 200 rebalance. </p>
</div>


In this insight, we provide a trading strategy on the upcoming KOSPI 200 rebalance announcement in November amid heightened market volatility. The classic "bread and butter" trading strategy is to go long on the companies that could get included in the KOSPI 200 rebalance and go short on the companies that could get excluded. However, this is typical on relatively normal market conditions. In this high vol market environment, we would argue that this strategy should be tweaked a bit. 
In the tables below, we provided a list of 7 stocks that could get included and 10 stocks that could get excluded in the next round of KOSPI 200 rebalance. In normal conditions, the regular strategy would be to go long on the 7 stocks which could get included and go short on the 10 stocks that could get excluded. 
Because of heightened market volatility, we would argue that a BETTER strategy is to go long on the top 3 high market cap companies (which tend to be more resistant to high volatility environment) which would be SK Telecom/SK Square, Hyundai Heavy Industries, and Meritz Financial and go short on the 10 stocks that could get excluded in the KOSPI 200 rebalance. 


A Trading Strategy on the Upcoming KOSPI 200 Index Rebalance Amid Heightened Market Volatility

China

China Evergrande Group is an integrated residential property developer. The Company, through its subsidiaries, operates in property development, investment, management, finance, internet, health, culture, and tourism markets.

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Evergrande (3333 HK)

A Trading Strategy for the Upcoming KOSDAQ150 Rebalance in December

In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the past one month, the 10 stocks...

Douglas Kim

Rubber Industry Grapples With Aftershock Of China’s Crackdown

The crackdown on power consumption coupled with the crisis of Evergrande Group looms large over the demand for natural rubber in China as the...

Helixtap

Chinese Estates’ Privatisation Bid from the Lau Family

The Lau family is taking advantage of the Evergrande stake fallout to privatise Chinese Estates at the cost of minorities. The offer is...

Arun George

A Trading Strategy on the Upcoming KOSPI 200 Index Rebalance Amid Heightened Market Volatility

In this insight, we provide a trading strategy on the upcoming KOSPI 200 rebalance announcement in November amid heightened market volatility.

Douglas Kim

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52-week Range

Market Cap (USDm)

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A Trading Strategy for the Upcoming KOSDAQ150 Rebalance in December

In this insight, we provide a trading strategy on the upcoming KOSDAQ150 rebalance announcement in November. In the past one month, the 10 stocks...

Douglas Kim

Rubber Industry Grapples With Aftershock Of China’s Crackdown

The crackdown on power consumption coupled with the crisis of Evergrande Group looms large over the demand for natural rubber in China as the...

Helixtap

Chinese Estates’ Privatisation Bid from the Lau Family

The Lau family is taking advantage of the Evergrande stake fallout to privatise Chinese Estates at the cost of minorities. The offer is...

Arun George

Chinese Estates (127 HK): $4.00/Share Offer

There may be some pushback on pricing, but factoring in the Evergrande loss (real & unrealised), the Offer Price appears fair.

David Blennerhassett

A Trading Strategy on the Upcoming KOSPI 200 Index Rebalance Amid Heightened Market Volatility

In this insight, we provide a trading strategy on the upcoming KOSPI 200 rebalance announcement in November amid heightened market volatility.

Douglas Kim