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.

Event-Driven

<ul>
<li>On 27 December, <a href="https://www.smartkarma.com/entities/nidec-corp" target="_blank" data-smartkarma-citation="entities:7245:1" rel="noopener">Nidec Corp (6594 JP)</a> announced a hostile preconditional tender offer for <a href="https://www.smartkarma.com/entities/makino-milling-machine-co" target="_blank" data-smartkarma-citation="entities:5200:1" rel="noopener">Makino Milling Machine Co (6135 JP)</a> at JPY11,000 per share.</li>
<li>The Board has raised several issues with the Nidec proposal through two questionnaires. Some assertions are valid, while others do not stand up to scrutiny.</li>
<li>The Board has launched an ambitious MTM plan to thwart the offer and hinted at potential competing offers. Nidec’s offer increasingly needs a bump. </li>
</ul>


On 27 December, Nidec Corp (6594 JP) announced a hostile preconditional tender offer for Makino Milling Machine Co (6135 JP) at JPY11,000 per share.
The Board has raised several issues with the Nidec proposal through two questionnaires. Some assertions are valid, while others do not stand up to scrutiny.
The Board has launched an ambitious MTM plan to thwart the offer and hinted at potential competing offers. Nidec’s offer increasingly needs a bump. 


Makino Milling Machine (6135 JP): State of Play

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>In a big surprise, there is only one change for the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> in March with <a href="https://www.smartkarma.com/entities/baycurrent-consulting-inc" target="_blank" data-smartkarma-citation="entities:25985:1" rel="noopener">BayCurrent Consulting (6532 JP)</a> replacing <a href="https://www.smartkarma.com/entities/mitsubishi-logistics-corp" target="_blank" data-smartkarma-citation="entities:11909:1" rel="noopener">Mitsubishi Logistics (9301 JP)</a>. </li>
<li>The non-inclusion of <a href="https://www.smartkarma.com/entities/kokusai-electric-corp" target="_blank" data-smartkarma-citation="entities:40152:1" rel="noopener">Kokusai Electric (6525 JP)</a> is a big surprise given that the stock was ranked among the top 75 stocks by liquidity. There could be selling near-term.</li>
<li>
<a href="https://www.smartkarma.com/entities/baycurrent-consulting-inc" target="_blank" data-smartkarma-citation="entities:25985:1" rel="noopener">BayCurrent Consulting (6532 JP)</a> has been added at a 0.5 PAF and that will increase to 1 in September. <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> could be capped yet again in September.</li>
</ul>


In a big surprise, there is only one change for the Nikkei 225 (NKY INDEX) in March with BayCurrent Consulting (6532 JP) replacing Mitsubishi Logistics (9301 JP). 
The non-inclusion of Kokusai Electric (6525 JP) is a big surprise given that the stock was ranked among the top 75 stocks by liquidity. There could be selling near-term.

BayCurrent Consulting (6532 JP) has been added at a 0.5 PAF and that will increase to 1 in September. Fast Retailing (9983 JP) could be capped yet again in September.


Nikkei 225 Index Rebalance: Baycurrent (6532) Replaces Mitsubishi Logistics (9301); Kokusai Elec👎

<ul>
<li>The vote on <a href="https://www.smartkarma.com/entities/pentamaster-corp-bhd" target="_blank" data-smartkarma-citation="entities:15302:1" rel="noopener">Pentamaster Corp (PENT MK)</a> and AchiCapital’s HK$1.00 for <a href="https://www.smartkarma.com/entities/pentamaster-international-ltd" target="_blank" data-smartkarma-citation="entities:31099:1" rel="noopener">Pentamaster International (1665 HK)</a> is on 28 February. Over the last two days, the gross spread has increased to 8.7%.</li>
<li>There are valid arguments for the vote to pass or fail. Despite the IFA’s assertions that the offer is fair and reasonable, it is not and will leave minorities short-changed. </li>
<li>While there is no visible opposition, the share price indicates that an activist could have secured a blocking stake (3.34% of shares, which does not require HKEx disclosure). </li>
</ul>


The vote on Pentamaster Corp (PENT MK) and AchiCapital’s HK$1.00 for Pentamaster International (1665 HK) is on 28 February. Over the last two days, the gross spread has increased to 8.7%.
There are valid arguments for the vote to pass or fail. Despite the IFA’s assertions that the offer is fair and reasonable, it is not and will leave minorities short-changed. 
While there is no visible opposition, the share price indicates that an activist could have secured a blocking stake (3.34% of shares, which does not require HKEx disclosure). 


Pentamaster International (1665 HK): A Deal Break Will Be the Right Result for a Light Offer

<ul>
<li>
<a href="https://www.smartkarma.com/entities/pentamaster-international-ltd" target="_blank" data-smartkarma-citation="entities:31099:1" rel="noopener">Pentamaster International (1665 HK)</a>’s IFA opines that <a href="https://www.smartkarma.com/entities/pentamaster-corp-bhd" target="_blank" data-smartkarma-citation="entities:15302:1" rel="noopener">Pentamaster Corp (PENT MK)</a> and AchiCapital’s HK$1.00 privatisation offer is fair and reasonable. The vote is on 28 February. </li>
<li>The IFA analysis is biased because it conveniently ignores a relative valuation analysis, which would show that the final offer is unattractive compared to its global peers.</li>
<li>Disappointingly, there is little minority opposition to an arguably light offer in which the Holdco is privatising its OpCo by arbitraging valuation multiple discrepancies across two exchanges. </li>
</ul>



Pentamaster International (1665 HK)’s IFA opines that Pentamaster Corp (PENT MK) and AchiCapital’s HK$1.00 privatisation offer is fair and reasonable. The vote is on 28 February. 
The IFA analysis is biased because it conveniently ignores a relative valuation analysis, which would show that the final offer is unattractive compared to its global peers.
Disappointingly, there is little minority opposition to an arguably light offer in which the Holdco is privatising its OpCo by arbitraging valuation multiple discrepancies across two exchanges. 


Pentamaster International (1665 HK): Light Offer but Lack of Opposition Ahead of the Vote

<ul>
<li>With 3 days left in the review period, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> has a 11.29% weight in the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a>. That means double capping in March.</li>
<li>If <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> underperforms the other index stocks by 1.8% from now to the close on 31 January, there will only be a single level of capping.</li>
<li>Double capping will result in big selling on <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a> and big inflows into the other index constituents. Smaller impact for single level capping.</li>
</ul>


With 3 days left in the review period, Fast Retailing (9983 JP) has a 11.29% weight in the Nikkei 225 (NKY INDEX). That means double capping in March.
If Fast Retailing (9983 JP) underperforms the other index stocks by 1.8% from now to the close on 31 January, there will only be a single level of capping.
Double capping will result in big selling on Fast Retailing (9983 JP) and big inflows into the other index constituents. Smaller impact for single level capping.


Fast Retailing (9983 JP): Double Capping & The Reverse Funding Trade

Japan

FANUC CORPORATION manufactures factory automation (FA) systems and equipments, and robots. The Company's products include computerized numerically-controlled (CNC) equipment, servo motors, laser systems, industrial robots, wire-cut electric discharge machines, and CNC drill.  Fanuc participates in a joint venture with General Electric in the FA field.

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Fanuc Corp (6954 JP)

Makino Milling Machine (6135 JP): State of Play

The Board has launched an ambitious MTM plan to thwart the offer and hinted at potential competing offers. Nidec’s offer increasingly needs a bump.

Arun George

Nikkei 225 Index Rebalance: Baycurrent (6532) Replaces Mitsubishi Logistics (9301); Kokusai Elec👎

Baycurrent replaces Mitsubishi Logistics in the NKY at the close 31 March. Kokusai Electric misses out and Fast Retailing is capped. One-way...

Brian Freitas

Pentamaster International (1665 HK): A Deal Break Will Be the Right Result for a Light Offer

The share price action suggests a deal break, which would be a fair result for a light offer. It is best to steer clear, as verifying whether a...

Arun George

Pentamaster International (1665 HK): Light Offer but Lack of Opposition Ahead of the Vote

The IFA analysis is biased. Disappointingly, little minority opposition to an arguably light offer suggests that the vote passes.

Arun George

Fast Retailing (9983 JP): Double Capping & The Reverse Funding Trade

Fast Retailing will be capped (again) in March - the question is whether it will be single or double. Passives will need to sell either 5x or 10x...

Brian Freitas

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