Smartkarma Daily Briefs

In May 2023, KDDI Corp (9433 JP) announced a ¥300bn buyback program, did nothing for two months, then announced a Tender Offer Buyback to buy shares from Toyota.
Toyota had increased its stake years before, then KDDI bought back shares from others, so Toyota was backing its ownership down. I discussed the relationships, history, etc, here.
This year, KDDI announced Friday with earnings that is buying back another large stake from Toyota.

Local Reports in Korea Regarding A Holdings Stake Sale Between Naver & Softbank

By Sanghyun Park

Naver doesn’t view the sale of its A Holdings stake unfavorably; insiders suggest it’s been planning this move since last year.
Market speculation suggests Naver was disappointed by Softbank’s rejection of CLOVA X in LINE, prompting plans to sell A Holdings stake for AI development. A sale agreement is expected soon.
The method through which Softbank secures funds for this acquisition is worth the attention from a short-term trading perspective.

Himax: Signs of Automotive Demand Rebound; Why Demand Strength Is Different Than NXP and Infineon

By Vincent Fernando, CFA

Automotive display driver IC leader Himax reported 1Q24 results last week that were ahead of guidance. The company also guided for rising margins.
Management believes 1Q24 represents a cyclical bottom for the company’s financial performance and expects automotive demand to rise in 2H24E.
Himax rallied but remains 55% below its 2021 highs, yet its market opportunity larger than ever. Himax could be benefitting from different positioning within automotive chips than NXP & Infineon.

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May 13

Daily Brief Health Care: Zhangzhou Pientzehuang Pharmaceutical Co., Ltd., BeiGene and more

By Smartkarma Daily Briefs | Daily Briefs, Healthcare

In today’s briefing:

China Healthcare Weekly (May12)-Policy Catalyst in Medical Device, GLP-1 Overvaluation, Pientzehuang
BeiGene (6160.HK/BGNE.US/688235.CH) 24Q1- A Breakeven Point Is on the Horizon, but It Is Not Stable

China Healthcare Weekly (May12)-Policy Catalyst in Medical Device, GLP-1 Overvaluation, Pientzehuang

By Xinyao (Criss) Wang

The National Health Commission and eight other departments issued “Opinions on strengthening the capacity building of critical care medical services”. New policy catalysts in the medical device sector arrives.
Current valuations of weight-loss drug companies have “large bubble”, which have basically priced in all the potential of GLP-1s even based on optimistic assumptions. We advise investors to be rational.
The price of core raw materials is showing a continuous upward trend, which will inevitably cause certain difficulties for Pientzehuang’s performance growth in 2024. Valuation has more downside ahead.

BeiGene (6160.HK/BGNE.US/688235.CH) 24Q1- A Breakeven Point Is on the Horizon, but It Is Not Stable

By Xinyao (Criss) Wang

The market is satisfied with BeiGene’s 24Q1 performance. The major reason for BeiGene to narrow net loss in 24Q1 was based on strong product revenue growth rather than cost control.
Given the varying pace of product promotion/R&D expenditure and the changes of product sales growth, BeiGene’s adjusted loss may achieve breakeven in a certain quarter of this year (e.g. 24Q4).
BeiGene (6160 HK) is hard to cut costs largely. Sustained overall profitability may not be achieved until 2026 or 2027. But at least, we still see hope for a turnaround.

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May 13

Daily Brief Financials: Great Eastern Holdings, NIFTY Index, China Jinmao Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, Financials

In today’s briefing:

Great Eastern Holdings (GE SP): OCBC’s Offer Needs a Bump to Achieve Privatisation Ambitions
EQD / NSE Volatility Update / 06-May-24 to 10-May-24
Morning Views Asia: China Jinmao Holdings, Sunny Optical Technology Group, Yuexiu Property

Great Eastern Holdings (GE SP): OCBC’s Offer Needs a Bump to Achieve Privatisation Ambitions

OCBC (OCBC SP) has announced a voluntary unconditional general offer for Great Eastern Holdings (GE SP) at S$25.60 per share, a 36.90% premium to the undisturbed price.
OCBC aims to privatise Great Eastern by delisting resolutions or exercising compulsory acquisition rights. The offer has not been declared final.
While the offer is reasonable, it is not a knockout bid which would comfortably allow OCBC to privatise through either option. A bump is highly likely.

EQD / NSE Volatility Update / 06-May-24 to 10-May-24

By Sankalp Singh

Election-Related volatility being reflected in options. India VIX has surged 70% over the past two weeks. Quarterly IVs have seen the largest rise as they capture election result date.
BankNifty IVs are finally responding as the market plays catch up to the bank regulator’s new-found aggressiveness
Elevated Vol-of-vol observed the past few weeks. Vol-regime Switching Model continues to point to “High & Down” state. Odds of switching to a “High & Up” state are increasing.

Morning Views Asia: China Jinmao Holdings, Sunny Optical Technology Group, Yuexiu Property

By Leonard Law, CFA

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

China Jinmao Holdings
Sunny Optical Technology Group
Yuexiu Property

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May 13

Daily Brief Consumer: JD.com , ZEEKR, Dream International and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

HSTECH Index Rebalance Preview: Round-Trip Trade of US$2.4bn in June
ZEEKR IPO: Strong First-Day Return and Upsized Offering
Dream International (1126 HK) Management Concall: 4x PE,11.4% Div Yield,40% of Mkt Cap in Cash

HSTECH Index Rebalance Preview: Round-Trip Trade of US$2.4bn in June

By Brian Freitas

We do not forecast any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June but there could be capping changes for 7 stocks.
Capping changes will result in a one-way turnover of 7.6% leading to a round-trip trade of US$2.4bn. 17 stocks will have over 0.5x ADV to trade from passive trackers.
Li Auto (2015 HK) will have the largest inflow while there will be big outflows from Meituan (3690 HK), Xiaomi Corp (1810 HK), JD.com (9618 HK) and Tencent (700 HK).

ZEEKR IPO: Strong First-Day Return and Upsized Offering

By Andrei Zakharov

ZEEKR, a rapidly growing premium EV maker, has successfully completed its IPO and raised ~$441M. The offering was priced at the top of the range at $21 per share.
The company sold a total of 21M ADSs, up from the initial target of 17.5M shares. ZEEKR’s stock soared more than 30% following its strong debut on NYSE on Friday.
Geely Auto, Mobileye and CATL have acquired ~14.3M ADSs and overall investor sentiment was positive. I believe ZEEKR may succeed as a high-volume EV maker worldwide.

Dream International (1126 HK) Management Concall: 4x PE,11.4% Div Yield,40% of Mkt Cap in Cash

By Sameer Taneja

We summarize our gleanings from the conference call with Dream International (1126 HK) to better understand growth opportunities and future expansion plans.
The company is expanding in Indonesia to increase its capacity by 30 million USD ( over 830 million USD). (capacity utilization for FY23:83%).
Trading at 4x FY24e PE, with an 11.4% dividend yield and a 15-year average ROE of 20%, this is a stock worth exploring.

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May 12

Daily Brief South Korea: Cosmecca Korea , LG Chem and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Cosmecca Korea Plans to Switch Listing from KOSDAQ to KOSPI
Underexposed Flow Trading Opportunity: LONG Banks & SHORT LG Chem/Energy on June 14

Cosmecca Korea Plans to Switch Listing from KOSDAQ to KOSPI

By Douglas Kim

On 10 May, Cosmecca Korea (241710 KS) announced that it plans to switch its listing from KOSDAQ to KOSPI.
The company plans to convene an extraordinary general meeting of shareholders on 29 August to finalize on the switching of Cosmecca Korea listing from KOSDAQ to KOSPI.
Cosmecca Korea is one of the leading Korean ODM manufacturers of cosmetic products.

Underexposed Flow Trading Opportunity: LONG Banks & SHORT LG Chem/Energy on June 14

By Sanghyun Park

Despite time until screening, predictions likely hold due to market cap gaps; all candidates are banks, benefiting from recent momentum.
Historical patterns show profit-taking selling affecting price impact, particularly on additions with significant pre-inclusion price rises. Monitor banks’ pre-June 14th price appreciation to anticipate impact distortions.
Shorting LG Chem and LG Energy Solution based on high price cointegration, consider basket-trading them before the rebalancing, using the battery sector as a long hedge.

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May 12

Daily Brief Singapore: OCBC and more

By Smartkarma Daily Briefs | Daily Briefs, Singapore

In today’s briefing:

(Mostly) Asia-Pac M&A: Namoi Cotton, Great Eastern, GAPack, Nihon, Chilled & Frozen, Shinko Electric

(Mostly) Asia-Pac M&A: Namoi Cotton, Great Eastern, GAPack, Nihon, Chilled & Frozen, Shinko Electric

By David Blennerhassett

Tally 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Six(!) new deals was discussed on Smartkarma this week: Perpetual (PPT AU), Alps Logistics (9055 JP), Namoi Cotton (NAM AU)‘; Great Eastern (GE SP); Nihon Housing (4781 JP) and GAPack (468 HK)‘.
Key updates took place on: QANTM Intellectual Property (QIP AU), Adbri (ABC AU), L’Occitane (973 HK), Chilled & Frozen Logistics Holdings (9099 JP), and Shinko Electric Industries (6967 JP).

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May 12

Daily Brief United States: Sirius Xm Holdings, Lear Corp, Clorox Company, Ecolab Inc, Eli Lilly & Co, Gartner Inc, Incyte Corp, Corning Inc, Mastercard, Archer Daniels Midland Co and more

By Smartkarma Daily Briefs | Daily Briefs, United States

In today’s briefing:

Sirius XM Holdings: Improving Conversion
Lear Corporation: Industrial Automation
The Clorox Company: A Story Of Innovation-Led Growth
Ecolab Inc.: Leveraging Digital Capabilities For The Pest Elimination Business! – Major Drivers
Eli Lilly & Co: The Story Behind The Increasing Demand vs. Production of Orforglipron & Progress of Other Drugs! – Major Drivers
Gartner Inc.: Increasing Interest In Artificial Intelligence (AI) & Its Expected Impact On The Top-Line! – Major Drivers
Incyte Corporation: Can It Capitalize On The Potential For Expansion Into Dermatology? – Major Drivers
Corning Incorporated: Are The Returns On Its Display Business Good Enough? – Major Drivers
Mastercard Incorporated: Cross-Border Travel and Consumer Behaviors Impact! – Major Drivers
Archer-Daniels-Midland Company: Strengthening Margins Through Operational Improvements & Renewable Production! – Major Drivers

Sirius XM Holdings: Improving Conversion

SiriusXM Holdings Inc. delivered a strong financial performance for its first quarter of 2024, with an encouraging 7% year-over-year increase in advertising revenue to over $400 million.
This growth in ad revenue, driven by a growing addressable advertising audience and a strengthening ad market, helped offset a slight 1% drop in subscription revenue.
The firm’s adjusted EBITDA was up 4% year over-year and delivered a margin of 30%, up 1 percentage point from the previous year.

Lear Corporation: Industrial Automation

Lear Corporation’s record-setting first quarter revenues of $6 billion show an increase of 3%.
Core operating earnings were up 6% at $280 million, while adjusted earnings per share rose 14% to $3.18.
Operating cash flow matched that of the same period the previous year.

The Clorox Company: A Story Of Innovation-Led Growth

The Clorox Company’s third-quarter financial results suggest a continuing recovery from the August cyberattack that affected its operations.
Despite lower sales and significant investments in its brands, the company’s adjusted earnings per share exceeded its own expectations in the said quarter.
Adjusting for the effects of the cyberattack, the company reported that Q3 sales performance was, for the most part, in line with the management’s expectations.

Ecolab Inc.: Leveraging Digital Capabilities For The Pest Elimination Business! – Major Drivers

Ecolab Inc.’s first-quarter 2024 earnings showcased strong progress with adjusted earnings per share increasing by 52%.
This impressive outcome can be attributed to a 5% growth in organic sales and the expansion of organic operating income margin by 400 basis points.
The company is also expected to maintain its long-term earnings growth of 12% to 15%.

Eli Lilly & Co: The Story Behind The Increasing Demand vs. Production of Orforglipron & Progress of Other Drugs! – Major Drivers

In Q1 2024, Eli Lilly and Company achieved strong growth and strategic milestones, with revenue growing by 26% and new products increasing by nearly $1.8 billion in comparison to the same period last year.
The company’s new products, primarily Mounjaro and Zepbound, primarily drove the growth.
Eli Lilly also accomplished various pipeline milestones during this period.

Gartner Inc.: Increasing Interest In Artificial Intelligence (AI) & Its Expected Impact On The Top-Line! – Major Drivers

In Q1 2024, Gartner delivered strong profitability and free cash flow, which both surpassed expectations, leading the company to increase its guidance for the year.
The company proved its resilience in what’s described as a “complex environment”, with contract value growth in the high single digits.
However, there remain several challenges to face.

Incyte Corporation: Can It Capitalize On The Potential For Expansion Into Dermatology? – Major Drivers

Incyte Corp’s first quarter 2024 earnings pointed towards the company’s steady performance during the quarter and provided an update on its ongoing projects.
The company’s total revenue grew by 9% in Q1 as compared to the same period last year, with growth driven largely by the drugs Jakafi and Opzelura.
In particular, Jakafi’s net product revenue was $572 million, not fully reflecting its demand growth due to an increase in total patients, particularly those with PV and GVHD. Similarly, Opzelura’s net product revenues in the first quarter were $86 million, indicating a 52% growth when compared to the same period last year.

Corning Incorporated: Are The Returns On Its Display Business Good Enough? – Major Drivers

Based on the Q1 2024 earnings, Corning Incorporated appears to be in a position of growth and profitability.
With sales close to $3.3 billion and EPS of $0.38, the company exceeds its guidance predictions.
There was a year-over-year gross margin growth of 160 basis points to 36.8%, and a substantial improvement in free cash flow by $300 million.

Mastercard Incorporated: Cross-Border Travel and Consumer Behaviors Impact! – Major Drivers

Mastercard Inc.’s Q1 2024 earnings showcased the company’s firm position in the payments sector, underpinned by robust revenue and adjusted net income growth on a non-GAAP, currency-neutral basis.
The company’s strong results go beyond the uptake in consumer spending, extending to the rapid growth in cross-border volumes.
There are several factors at play that make Mastercard attractive from an investment standpoint.

Archer-Daniels-Midland Company: Strengthening Margins Through Operational Improvements & Renewable Production! – Major Drivers

In its first quarter 2024, Archer-Daniels-Midland (ADM) reported adjusted earnings per share of USD1.46, and an adjusted segment operating profit of USD1.3bn, representing an on-year decrease of 24%.
ADM also achieved a trailing 4-quarter average of 11.2% for its adjusted Return on Invested Capital (ROIC) during the same quarter, while maintaining a strong balance sheet and healthy cash flows.
Although the global grain and oilseed supply is expected to increase throughout the year amid an anticipated improvement in weather conditions, ADM proactively managed the risk of falling margins by driving the structural earnings, ROIC, and cash flow generation, enabling the company to continue investing in its business and returning cash to its shareholders.

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May 12

Daily Brief ESG: Since Cash on Hand Will Not Decrease in FY2024 and more

By Smartkarma Daily Briefs | Daily Briefs, ESG

In today’s briefing:

Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

By Aki Matsumoto

Most large companies initially estimate sales and profits conservatively, and CapEx, which is often planned more than a year in advance, isn’t often above plan.
Companies have a cautious earnings outlook, but the market consensus still expects profit growth in FY2024. CapEx growth in the BOJ Tankan is expected to be slightly higher than profits.
Assuming an 8.5% increase in CapEx for large manufacturing companies and a low single-digit growth in the recurring profit outlook, the level of cash on hand is unlikely to decrease.

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May 12

Daily Brief Japan: Alps Logistics, TSE Tokyo Price Index TOPIX and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

Last Week in Event SPACE: Alps Logistics, L’Occitane, Hanon Systems, Perpetual Ltd
Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

Last Week in Event SPACE: Alps Logistics, L’Occitane, Hanon Systems, Perpetual Ltd

By David Blennerhassett

KKR’s Offer for Alps Logistics (9055 JP) is a knock-out price. HUGE MINORITY WIN. This trades a little wide because the “gap risk” is so large, but it’s still safe.
It’s reasonable to expect the listing of various components of L’Occitane (973 HK) other than in HK, would (should) be hugely accretive; for those investors who can (or may) participate.
Hankook Tire & Technology (161390 KS) seeks a controlling stake in Hanon Systems (018880 KS).

Since Cash on Hand Will Not Decrease in FY2024, Shareholder Returns Remain a Hot Topic

By Aki Matsumoto

Most large companies initially estimate sales and profits conservatively, and CapEx, which is often planned more than a year in advance, isn’t often above plan.
Companies have a cautious earnings outlook, but the market consensus still expects profit growth in FY2024. CapEx growth in the BOJ Tankan is expected to be slightly higher than profits.
Assuming an 8.5% increase in CapEx for large manufacturing companies and a low single-digit growth in the recurring profit outlook, the level of cash on hand is unlikely to decrease.

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May 12

Daily Brief China: Greatview Aseptic Packaging, Yichang HEC Changjiang Pharma, China Traditional Chinese Medicine, China Citic Bank Corp Ltd H, BYD , China International Capital Corporation and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

Greatview Aseptic (468 HK): Shandong Xinjufeng VGO Could Force Mengniu to Act
HEC CJ Pharma (1558 HK): Pre-Conditional Share Exchange Offer from Largest Shareholder
Weekly Deals Digest (12 May) – China TCM, GA Pack, HEC CJ Pharma, CPMC, Alps Logistics, Infocom
HK Connect SOUTHBOUND Flows (To 10 May 2024); Banks, Coal, and High-Div Energy/Materials Names
Mainland Connect NORTHBOUND Flows (To 10 May 2024): So-So Volumes, As Did Not Play Catchup
A/H Premium Tracker (To 10 May 2024): Excellent Quiddity Portfolio Gains as Hs Rally Huge Vs As

Greatview Aseptic (468 HK): Shandong Xinjufeng VGO Could Force Mengniu to Act

Shandong Xinjufeng Technology Packaging (301296 CH) disclosed a pre-conditional voluntary offer for Greatview Aseptic Packaging (468 HK) at HK$2.65, a 26.2% premium to the undisturbed price.
The pre-condition relates to Chinese regulatory approvals and Shandong Xinjufeng shareholder approval. The offer is conditional on a 50% minimum acceptance condition.
Shandong Xinjufeng’s previous acquisition of Jardine Matheson’s 28.22% stake elicited a defensive move by China Mengniu Dairy Co (2319 HK). This development is likely to force a Mengniu competing VGO.

HEC CJ Pharma (1558 HK): Pre-Conditional Share Exchange Offer from Largest Shareholder

Yichang HEC Changjiang Pharma (1558 HK)‘s pre-conditional privatisation from Sunshine Lake Pharma comprises scrip (0.263614 new offeror H Share per HEC CJ Pharma share) and cash (special dividend of HK$1.5).
The pre-condition is regulatory approvals from NDRC, MOFCOM, and SAFE. The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection).
There is valuation uncertainty as the offeror is unlisted, and its valuation hinges on pipeline products. Nevertheless, with no shareholder close to a blocking stake, the deal should get up.

Weekly Deals Digest (12 May) – China TCM, GA Pack, HEC CJ Pharma, CPMC, Alps Logistics, Infocom

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments: HD Hyundai Marine Solution (443060 KS) and ZEEKR (ZK US) have strong IPO debuts.
Event-Driven developments China Traditional Chinese Medicine (570 HK), Greatview Aseptic Packaging (468 HK), Yichang HEC Changjiang Pharma (1558 HK), CPMC Holdings (906 HK), Alps Logistics (9055 JP), Infocom Corp (4348 JP).

HK Connect SOUTHBOUND Flows (To 10 May 2024); Banks, Coal, and High-Div Energy/Materials Names

A-Shares only two days of the week and were up small Monday and Tuesday. H-shares took a breather Wednesday after trailing A-shares, then rallied hard on Thursday and Friday.
Net SOUTHBOUND buying was +HK11.3bn. Thursday saw a break of the SOUTHBOUND buying streak.
The big news in China markets this week was the idea that mainland investors through SOUTHBOUND would no longer be hit with a 20% w/h tax on dividends.

Mainland Connect NORTHBOUND Flows (To 10 May 2024): So-So Volumes, As Did Not Play Catchup

The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
Last week saw NORTHBOUND net BUY RMB 4.8bn of A-shares on high gross low net volume in the two days. NORTHBOUND bought Kweichow Moutai, banks, Haier Smarthome, etc.
HUGE week in H vs A (since the 30 April close). This may be colouring foreigner activity in As quite a bit.

A/H Premium Tracker (To 10 May 2024): Excellent Quiddity Portfolio Gains as Hs Rally Huge Vs As