In today’s briefing:
- Unloved Japan Round Up Jan. 3: Set Up for A Banner Year?
- How Has the Index Rebalance Strategy Performed in 2024?
- HSCEI Index Rebalance Preview: Increase in Velocity Could Lead to 3 Changes in March
- Australia: Six Stocks in Passive Selling Crosshairs for February
- InnoScience (2577 HK): Prices at Low End & Lists Today; Index Inclusion Timeline
- Adani Green Energy (ADANIGR IN): Facing the Passive Boot; But Who Will Buy?
- NZ: Contact Energy (CEN NZ) Hotter Than Mercury (MCY NZ) As Catalyst Looms
- Boqi Env (2377 HK)’s Partial Offer Now Open. But First The EGM
- 2024 Was Ugly for Turnarounds, 2025 Should Be Awesome!
- LG CNS: Updated IPO Valuation Analysis
Unloved Japan Round Up Jan. 3: Set Up for A Banner Year?
- 2025 will start with more attractive turnaround opportunities than we have seen in a long time.
- An uptick in TOBs, MBOs and merger discussions makes it suddenly no longer safe to short low-PBR companies indiscriminately.
- Investors are noticing. More than two-dozen large- and medium-cap stocks with deep discounts to the benchmark began to bounce off well-defined support levels in late December.
How Has the Index Rebalance Strategy Performed in 2024?
- It has been a decent year for the index rebalance strategy, though there have been some big hiccups along the way.
- Forecasting the index changes and impacts has been important, but timing (especially momentum/value regime changes) and hedge selection have also been major factors affecting the returns of the strategy.
- As passive AUM continues to increase, we expect focus on the strategy to continue in 2025 with market players taking different approaches to trading the potential and announced index changes.
HSCEI Index Rebalance Preview: Increase in Velocity Could Lead to 3 Changes in March
- BeiGene and ZTO Express Cayman are potential inclusions for the Hang Seng China Enterprises Index in March while Sino Biopharmaceutical and Li Ning are potential deletions.
- There is a lower probability of Yum China Holdings (9987 HK) replacing Sunny Optical Technology Group (2382 HK) in the index in March.
- There could be a few more index inclusions for ZTO Express Cayman in March and the stock could outperform its peers over the next few months.
Australia: Six Stocks in Passive Selling Crosshairs for February
- Up to six Aussie stocks could be deleted from global passive portfolios in February. The final list of deletions depends on stock performance over the next 2-3 weeks.
- If deleted, passive trackers will need to sell between A$370m-A$500m in the stocks. Impact is high at between 7-24 days of ADV.
- The potential deletions have underperformed the S&P/ASX 200 (AS51 INDEX) over every time period from 1 week to 3 months. Positioning is still low in a few stocks.
InnoScience (2577 HK): Prices at Low End & Lists Today; Index Inclusion Timeline
- InnoScience Suzhou Technology (2577 HK) has priced its IPO at HK$30.86/share, the low end of the range. Over half the shares have been allotted to cornerstone investors.
- InnoScience Suzhou Technology (2577 HK) should be added to the HSCI in March and will be added to Southbound Stock Connect early March.
- Inclusion in global indices will take place in 2026 and there will be supply in mid- and late-2025 following lock-up expiries.
Adani Green Energy (ADANIGR IN): Facing the Passive Boot; But Who Will Buy?
- Passive global index trackers sold Adani Green Energy (ADANIGR IN) in November following a big drop in free float for the stock.
- There could be more selling in Adani Green Energy in February as the stock is deleted from the same large global index due to failing free float market cap thresholds.
- With the company at the center of the U.S indictment focused on bribery charges, active foreign and local investors will be wary of buying the stock.
NZ: Contact Energy (CEN NZ) Hotter Than Mercury (MCY NZ) As Catalyst Looms
- Contact Energy (CEN NZ) has outperformed Mercury NZ Ltd (MCY NZ) over the last month off the back of expected passive flows in February.
- Despite the outperformance, Contact Energy (CEN NZ) trades at a lower forward PE compared to Mercury NZ Ltd (MCY NZ), though it does trade at a higher Price to Book.
- There could be large passive inflows to Contact Energy (CEN NZ) and large passive outflows from Mercury NZ Ltd (MCY NZ) in February.
Boqi Env (2377 HK)’s Partial Offer Now Open. But First The EGM
- On the 23rd October, flue gas treatment play China Boqi Environmental Hol (2377 HK) announced a buyback of 15% of shares out, at HK$1.20/share, a 16.5% premium to undisturbed.
- The buyback lifts the stake of co-founder Zeng Zhijun and concert parties to 32.59% – up from 27.71% – before options. To avoid an MGO, this requires a whitewash waiver
- The Offer Doc is now out. The EGM – and the first close – is the 20th December.
2024 Was Ugly for Turnarounds, 2025 Should Be Awesome!
- Buying the worst-performing stocks of the previous 12 months has outperformed Japan’s Topix index by an average of 7% annually for 9 straight years
- For most of 2024, the strategy didn’t work, but an uptick in TOBs, MBOs, and merger talks is suddenly making it unsafe to short low-PBR companies indiscriminately.
- Suddenly, dozens of previously complacent companies have the fear of God and are taking action to up their profitability and the market is taking notice.
LG CNS: Updated IPO Valuation Analysis
- According to our updated valuation analysis of LG CNS, it suggests a base case implied market cap of 7.4 trillion won, representing target price of 76,383 won per share.
- Our base case valuation target price of 76,383 won is 23% higher than the high end of the IPO price range.
- We lowered our target price by 6%, mainly due to greater political risks arising from the recent cancelled martial law and ongoing impeachment of President Yoon.
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