Event-Driven

Back in December last year, Aussie-listed equities manager Perpetual Ltd (PPT AU) rejected Washington H. Soul Pattinson (SOL AU)‘s $3bn all-scrip non-binding indicative proposal.
Yet Soul Patt’s proposal was in sync with Perpetual’s previously flagged intentions to explore a potential separation of its corporate trust and wealth management businesses, from its asset management business.
Perpetual has now entered a Scheme, to carve out the corporate trust and wealth management businesses to KKR for A$2.175bn. A lack of clarity on net proceeds saw shares rollover.

KKR Deal for Alps Logistics (9055) Appears Imminent

There was a news article I missed in late February saying Alps Alpine (6770 JP), parent of Alps Logistics (9055 JP) was in the process of selling the logistics unit.
A deal made sense for a strategic given the upcoming “2024 Problem”. Pre-close, headlines blared, the stock popped 12%, now we’re at double the end-February price.
Late in the evening,Alps Logistics said it had received a bid from Logisteed but nothing had been decided. This morning we have a few more details, but nothing concrete

China Traditional Chinese Medicine (570 HK): Evaluating Deal-Break Risks

On 21 February, China Traditional Chinese Medicine (570 HK) announced a privatisation offer from the Sinopharm-led consortium at HK$4.60 per share, a 47.4% premium to the undisturbed price.
The wide gross spread (7.0%) reflects risks around the re-rating of peers, the slow pace of satisfying the pre-condition, the completion timetable and Ping An’s blocking stake.
The key risk is the deal close timing due to the slow pace of regulatory approvals, which increases the chance that the vote will held after the August interim.

Nippon Yusen (9101) – Another Big Buyback Announced, But Details Matter

Last May, Nippon Yusen Kk (9101 JP) announced buybacks of ¥200bn over 2 years. In August, they changed it to say ¥200bn in the next nine months.
That helped support the stock through early March. It was big, and a decent percentage of ADV. Today, they announced earnings and guidance and another ¥100bn buyback through April 2025.
Earnings were OK. Guidance is a little low vs the Street. The stock popped 5% from where it was trading. Lower impact vs 2023. More cross-holder overhang consideration.

Naver: Under Pressure from the Japanese Government To Sell Its Stake in LINE

On 8 May, it was mentioned in numerous local media that Naver is under pressure from the Japanese government to sell its stake in LINE.
One of the reasons behind Japanese government’s efforts to force Naver to sell its stake in LINE is due a major data breach incident in November 2023.
Based on our current understanding of this situation, the most likely scenario is for Naver to sell about 20-30% stake in A Holdings (the controlling shareholder of LINE) to SoftBank.

HD Hyundai Marine Solution (443060 KS): Nearing KOSPI200 Index Inclusion in June

After a 96.5% gain on listing day, HD Hyundai Marine Solution (443060 KS) is very close to levels needed for Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) inclusion in June.
HD Hyundai Marine Solution needs to outperform the 50th ranked stock in the KOSPI2 INDEX by 11.4% on average over the next 15 trading days to be added to the index.
Retail investors sold 25% of their allocation on listing day while foreign investors sold 22% of their IPO allocation with local institutions mopping up the shares.

Qantm IP (QIP AU): IPH Enters the Fray with a Competing Offer

Qantm Intellectual Property (QIP AU)‘s non-binding proposal from IPH Ltd (IPH AU) is at A$0.11 cash + 0.291 IPH shares per QIP share, a 4.5% premium to Adamantem’s A$1.817 offer.
Since announcing the Adamantem non-binding proposal on 14 March, the IPH offer has been 4.3% higher than the Adamantem offer on average.
The IPH proposal also requires approval from the ACCC and NZCC. The presence of two bidders increases the probability of a binding proposal (with a bump).

QANTM (QIP AU): IPH Wades In As Adamantem Tarries

It always seemed like a question of when, not if, IPH (IPH AU) would make an Offer for QANTM (QIP AU). IPH previously approached QANTM in 2018, but was spurned.
Capitalising on ongoing extensions to Adamantem’s exclusivity, as it relates to its all-cash A$1.817/share Offer by way of a Scheme, IPH has now tabled an all-scrip, plus A$0.11/share dividend NBIO.
IPH’s implied Scheme value of A$1.90/share is a premium to Adamantem’s proposal. The catch: apart from terms being indicative, IPH’s Offer requires ACCC and NZCC clearance.

Local Institutional Flows Towards Overweighting Samsung SDS in Samsung Group Context

Local institutions, notably pension funds, are increasingly investing in Samsung SDS, coinciding with the company’s more active investor engagement. This has sparked speculation about Samsung’s strategic motives.
Timing-Wise, as AI infra demands rise in Samsung Group, conditions for boosting SDS’s performance improve. They monitor Samsung’s moves to drive SDS’s stock upward, considering its reliance on Samsung’s revenue.
Local pension funds actively adopting overweight positions in Samsung SDS underscore the importance of crafting strategies tailored to overweighting SDS within the broader Samsung Group context.

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May 08

Daily Brief Event-Driven: Nikkei 225 Index Rebalance Preview (Sep 2024): Ranking and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Nikkei 225 Index Rebalance Preview (Sep 2024): Ranking, Capping, Funding & Other Changes
KLINE (9107) – More Profit, More Shareholder Return 3mo Buyback Inbound
Chilled & Frozen’s Target Opinion Statement; Chotto Matte (Four Counterbidders)
Namoi Cotton (NAM AU): Bloom Times As Louis Dreyfus & Olam Agri Tangle
Wuxi XDC Lock-Up – US$300m Lockup Expiry Could See Some Selling Owing to the Regulatory Overhang
Quiddity Leaderboard STAR 50 Jun 24: SHORTs Down 12% Vs Peers in 1 Month; Final Ranks & New Trade
Quiddity Leaderboard KOSPI 200 Jun 24: One Last-Minute Change to Rankings
ChiNext/ChiNext50 Index Rebalance Preview: Outperformance Continues
Hostile or Not?

Nikkei 225 Index Rebalance Preview (Sep 2024): Ranking, Capping, Funding & Other Changes

The review period for the Nikkei 225 (NKY INDEX) September rebalance ends in July. There could be three changes at the rebalance with sector balance in focus for the additions.
Depending on the changes, passive trackers will need to buy between 5-16x ADV (10.1%-24% of real float) on the inclusions and sell between 4-42x ADV on the deletions.
Fast Retailing (9983 JP) will be capped to 10% of the index weight while Tokyo Electron (8035 JP) is also close to the 10% cap.

KLINE (9107) – More Profit, More Shareholder Return 3mo Buyback Inbound

Kawasaki Kisen Kaisha (9107 JP) today announced earnings. Ocean Network Express earnings were out earlier and beyond that, Consolidated Revs beat, OP faltered, but NP was spot on guidance.
Guidance for the year to March 2025 is well ahead of consensus on revenue, slightly ahead on OP, and just a wee bit ahead on NP.
But the company raised its 5yr MTMP Shareholder Return from ¥500bn to ¥700bn and set a new ¥100bn (5.5%) buyback to be executed in the next 3 months.

Chilled & Frozen’s Target Opinion Statement; Chotto Matte (Four Counterbidders)

Today, after the close, Chilled & Frozen Logistics Holdings (9099 JP) released a required (by the FIEA) Target Opinion Statement saying “Opinion Withheld.”
C&F notes that it had received 9 possible counter-proposals, offered due dili to a certain extent, and by May 1, had 4 binding offers.
There are interesting competitive dynamics at play here, but cross-holding concentration matters. The question is… How much is enough?

Namoi Cotton (NAM AU): Bloom Times As Louis Dreyfus & Olam Agri Tangle

Singapore’s Olam Agri and global commodity merchant Louis Dreyfus Company (LDC) are duking it out for Namoi Cotton Co Operative (NAM AU), Australia’s largest cotton producer.
After both initially lobbed competing Schemes, both have now tabled off-market Offers – A$0.67/share from LDC, A$0.66/share from Olam – each contingent on a 50.1% acceptance hurdle, FIRB, and ACCC.
LDC, currently holding 17%, announced it will reject Olam Agri’s Offer. Top shareholder Samuel Terry Asset Management, with 24.5%, is expected to support the winning (or superior) bid.

Wuxi XDC Lock-Up – US$300m Lockup Expiry Could See Some Selling Owing to the Regulatory Overhang

By Clarence Chu

WuXi XDC Cayman (2268 HK) was listed in Hong Kong on 17th Nov 2023 after raising US$470m. Its six-month lockup will expire on 16th May 2024.
WuXi XDC Cayman (WXDC) is a contract research, development, and manufacturing organization (CRDMO) focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Quiddity Leaderboard STAR 50 Jun 24: SHORTs Down 12% Vs Peers in 1 Month; Final Ranks & New Trade

By Janaghan Jeyakumar, CFA

STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
In my last insight (link), I discussed how the rankings had to be monitored closely before finalizing the index change expectations for the June 2024 index rebal event.
Now that the reference period is complete, I have discussed my final expectations for the June 2024 review. The official index changes will be announced later this month.

Quiddity Leaderboard KOSPI 200 Jun 24: One Last-Minute Change to Rankings

KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
The reference period for the June 2024 index rebal event ended recently. In this insight, we take a look at our final expected ADDs/DELs.
There has been one change to our list of expected ADDs presented in my last insight (link).

ChiNext/ChiNext50 Index Rebalance Preview: Outperformance Continues

With the review period now complete, we forecast 7 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
There are 4 stocks that could be added to both indices while some stocks will also have same way flows from CSI Smallcap 500 Index (SH000905 INDEX) trackers.
The potential adds have outperformed the potential deletes over the last 6 months. There has been a big move higher in the potential adds over the last few weeks.

Hostile or Not?

By Jesus Rodriguez Aguilar

On 6 May, the Board of Sabadell rejected the merger proposal as “it significantly undervalues its growth prospects and is not aligned with the interests of its customers and shareholders”.
BBVA could take the offer directly to Sabadell shareholders, but a hostile offer seems extremely unlikely and there are no precedents in the Spanish banking sector.
I find it unlikely that both parties reach an agreement because the terms would likely be unfavourable for BBVA (premium 40%-50%). Market sentiment also suggests a low probability.

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May 07

Daily Brief Event-Driven: L’Occitane (973 HK): The Rollover Option and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

L’Occitane (973 HK): The Rollover Option, And Alternate Listing Valuations
Sigma Healthcare (SIG AU): ASX200 Inclusion Now, MUCH More Squeezy Fun Later. Maybe…
SSE50 Index Rebalance Preview: Financials Continue to Outperform
L’Occitane (973.HK) Privatization – The Offer Price Is Good Enough
CPMC Holdings (906 HK): ORG Nearing the Cut-Off Point for Its Competing Offer
Adbri (ABC AU): Scheme Vote on 12 June
Hankook Tire & Technology to Become the Controlling Shareholder of Hanon Systems
ASMedia GDR Early Look – Momentum Has Been Strong, and Raising Would Grow Its Cash Base Almost 6x
STAR50 Index Rebalance Preview: Adds Steamroll Deletes
Quiddity Leaderboard SSE50/180 Jun 24: US$2bn One-Way; LONGs up +9.8% Vs SHORTs in ~2 Months

L’Occitane (973 HK): The Rollover Option, And Alternate Listing Valuations

Concurrent with its HK$34/share VGO, L’Occitane (973 HK)‘s disinterested shareholders may be entitled to a share scrip alternative. IF afforded, up to 5% of shares out can participate.
The big unknown is whether you receive shares of the levered-up Bidco, at some as yet undetermined scrip ratio; or keep shares of L’Occitane as-is.
To trigger the rollover option, 10% of disinterested shareholders need to express interest by the 15th May (a Hong Kong holiday btw). A deadline without details.

Sigma Healthcare (SIG AU): ASX200 Inclusion Now, MUCH More Squeezy Fun Later. Maybe…

In early December, pharmacy distributor Sigma Healthcare (SIG AU) arranged a “transformational merger” with mega chain Chemist Warehouse (CWG). Effectively a reverse takeover designed to get CWG listed.
SIG issued shares, raising cash, enabling it so NEWCO had high enough minimum float upon merging. Financial engineering for the win. SIG popped – a kind of IPO premium trade.
But plenty of people are against the deal, and ACCC hasn’t yet opined (13 June is the provisional date), but on Thursday, S&P announced SIG would join ASX200 despite risks.

SSE50 Index Rebalance Preview: Financials Continue to Outperform

With the review period nearing completion, 6 stocks are in inclusion zone and 9 are in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 7.1% at the June rebalance leading to a one-way trade of CNY 9.9bn (US$1.37bn). Index arb balances should increase the impact on the stocks.
The potential inclusions (of which four are Financials) have continued to outperform the mixed bag of potential deletions. With pretty big impact on the deletes, expect further divergence.

L’Occitane (973.HK) Privatization – The Offer Price Is Good Enough

By Xinyao (Criss) Wang

The HK$34/share offer price is final, which exceeds all-time high closing price of HK$33.60/share since IPO in 2010. EUR6 billion is equivalent to a PE of 52.17x, higher than peers.
Deploying China’s sinking market is “a good story full of imagination”. However, it may fail to bring expected profits considering increasing competition/potential price war, leading to uncertain future performance growth.
For minority shareholders, this privatization provides an attractive opportunity to monetise their investments at a premium over market price. We don’t think the current “technical bull market” to be lasting.

CPMC Holdings (906 HK): ORG Nearing the Cut-Off Point for Its Competing Offer

CPMC Holdings (906 HK) has a pre-conditional voluntary offer from Changping Industrial at HK$6.87 and potentially a competing offer from ORG Technology Co., Ltd. A (002701 CH).
Five months after announcing its offer, Changping Industrial obtained regulatory approvals from all except SAMR, SAFE, and the Vietnam Competition Commission.
An ORG offer seems unlikely due to a lack of progress in May and timing risk, as the Changping Industrial offer could be unconditional before the ORG obtains regulatory approvals.

Adbri (ABC AU): Scheme Vote on 12 June

The Adbri (ABC AU) IE considers CRH (CRH US) and Barro’s A$3.20 offer fair and reasonable as it is within its A$ A$3.09-3.53 per share valuation range.
The scheme is conditional on FIRB approval, which should be forthcoming as CRH, the offeror, is a Fortune 500 company headquartered in Ireland.
The offer is attractive, and this is a done deal. At the last close and for the 1 July payment, the gross/annualised spread was 1.3%/8.4%.

Hankook Tire & Technology to Become the Controlling Shareholder of Hanon Systems

On 3 May, it was reported that Hankook Tire & Technology agreed to purchase a 25% in Hanon Systems for 1.37 trillion won from Hahn & Co private equity firm.
After this deal, Hankook Tire & Technology will own a controlling 50.5% stake in Hanon Systems.
We have a negative view on Hankook Tire & Technology’s additional purchase of Hanon Systems, which has experienced a declining profit margins in the past several years.

ASMedia GDR Early Look – Momentum Has Been Strong, and Raising Would Grow Its Cash Base Almost 6x

By Clarence Chu

Asmedia Technology (5269 TT) is looking to raise up to US$333m in its upcoming global depository receipts (GDRs) offering.
ASMedia recently announced its board’s resolution to offer between 4.3-5.3m shares in the form of GDRs, with the proceeds geared towards purchasing raw materials and machinery, R&D and working capital.
Similar to previous GDR listings, the deal is a long drawn out process with the firm required to jump through a number of board/shareholder/regulatory approval loops.

STAR50 Index Rebalance Preview: Adds Steamroll Deletes

With the review period complete, we forecast 3 changes for the SSE STAR50 (STAR50 INDEX) in June. All changes are migrations from/to the STAR 100 Index.
One way turnover is estimated at 3.4% resulting in a one-way trade of CNY 4.5bn (US$630m). There is a lot to trade from passive trackers, especially on the inclusions.
The potential adds have outperformed the potential deletions by ~18% over the last month with Hangzhou EZVIZ Network (688475 CH) and APT Medical (688617 CH) moving higher.

Quiddity Leaderboard SSE50/180 Jun 24: US$2bn One-Way; LONGs up +9.8% Vs SHORTs in ~2 Months

By Janaghan Jeyakumar, CFA

SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
The 12-month reference period used for the June 2024 review is now complete. The SSE 180 expected ADDs/DELs list has changed slightly since I published my last insight (link).
In this insight, we take a look at our final expectations for index changes during the June 2024 index rebal event.

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May 06

Daily Brief Event-Driven: Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update
CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
Merger Arb Mondays (06 May) – China TCM, L’Occitane, Hollysys, Shinko, QV Equities, Qantm IP, Adbri
Addressing Areas of Confusion Surrounding the KOSPI 200 June Rebalancing
HK Connect SOUTHBOUND Flows (To 30-Apr/3-May 2024); Banks/SOEs Bought, Meituan, Tencent, Mobile Sold
HSCEI Dividend Futures: Sell the 2024/25 Steepener
Hollysys (HOLI US): Further Thoughts on the Widening Spread
CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes
China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
A/H Premium Tracker (To 3 May 2024): Minimal Moves in 2-Day Week

Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update

When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
15wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 8wks ago, recommended taking profits.
Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 3.6% wider than at narrowest, but gap risk has widened as Shinko outperforms, Ibiden.

CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived

The review period for the June rebalance is complete and we expect 11 changes to the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).
We estimate one-way turnover of 1.4% at the rebalance leading to a one-way trade of CNY 8.82bn (US$1.22bn). There are a lot of stocks with multiple days ADV to trade.
The potential deletes have bounced off their lows as the market has recovered. But the potential passive selling could see them underperform over the next month.

Merger Arb Mondays (06 May) – China TCM, L’Occitane, Hollysys, Shinko, QV Equities, Qantm IP, Adbri

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Southern Cross Media (SXL AU), Qantm Intellectual Property (QIP AU), Probiotec Ltd (PBP AU), China TCM.
Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Jastec Co Ltd (9717 JP).

Addressing Areas of Confusion Surrounding the KOSPI 200 June Rebalancing

Ssangyong C&E will be excluded in June pre-delisting due to the float rate rule. Replacement will be chosen from the highest market cap existing constituents excluded in the June review.
Likely owing to the recent expansion of macro variables in the local market, a clear correlation between results and price impact is not observed even at the screening period’s conclusion.
There’s a chance of price impact closer to the effective date, suggesting potentially more effective basket trading. However, short instrument absence necessitates using market indices as hedges.

HK Connect SOUTHBOUND Flows (To 30-Apr/3-May 2024); Banks/SOEs Bought, Meituan, Tencent, Mobile Sold

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 +HK6.0bn. Net buys every day and now 22 days straight, but buying still appears foreign-led price-taking action.
The only big news this week in China/HK was probably the Politburo’s new stance of trying to do more for the mainland property market, concentrating on unsold homes.

HSCEI Dividend Futures: Sell the 2024/25 Steepener

The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.
The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.
Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.

Hollysys (HOLI US): Further Thoughts on the Widening Spread

I have received several questions from readers on Ascendent’s binding proposal for Hollysys Automation Technologies (HOLI US) in the context of the current gross spread of 12.1%.
The questions primarily concerned the Capital Forum article, NSR approvals, timelines, auditor resignation and deal break risks.
Most of the questions concerned regulatory approval risk. The delay in closing is mainly procedural (government red tape) rather than an indication that regulators will block the deal.

CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes

With the review period now complete, we forecast 50 changes (the maximum permitted) for the CSI Smallcap 500 Index – Shang (SH000905 INDEX) at the close on 14 June.
We estimate a one-way turnover of 9.3% at the rebalance resulting in a one-way trade of CNY10.88bn (US$1.5bn). The Industrials and Information Technology sectors gain at the expense of Materials.
The potential adds have outperformed the potential deletes by 8% over the last 3 months. There could be further outperformance over the next few weeks.

China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”

By Xinyao (Criss) Wang

Some investors have concerns that the privatization may fail. We also noticed that Morgan Stanley raised China TCM’s target price to HK$5.4. However, the privatization of China TCM seems “mandatory”.
At this stage, some background information is worth the attention, which will help investors better understand the logic behind this privatization and thus resolve the “confusion”.
According to regulatory requirements, it’s expected that both CNPGC and Taiji will integrate resources in pharmaceutical manufacturing and distribution sectors, so as to solve horizontal competition issue between the two.

A/H Premium Tracker (To 3 May 2024): Minimal Moves in 2-Day Week

The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND’s consecutive buying streak ended on Monday 25-March, then started again. 20 days straight net buying. NORTHBOUND saw big inflows Friday. A record day I believe.
HK stocks bounced VERY hard. Seemed like big allocation trade. HSCEI +8.7% vs CSI300 +1.2%. In H/A Pairs, liquid pairs saw Hs outperform their A by 4+% on average.

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May 05

Daily Brief Event-Driven: Weekly Deals Digest (05 May) – L’Occitane and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Weekly Deals Digest (05 May) – L’Occitane, C&F Logistics, KFC Japan, Austal, Hyundai Marine, ZEEKR
(Mostly) Asia-Pac M&A: L’Occitane, KFC Holdings Japan, CSR, Azure Minerals, CIMC, Chilled & Frozen
Quiddity Leaderboard CSI 300/500 Jun 24: Final Expectations; US$3.4bn One-Way; New Trade Idea
S&P500 Index Rebalance: Bitcoin Miner Is a SPCY Add
Adbri (ABC AU): 12th June Shareholder Vote
Last Week in Event SPACE: Aussie Tax-Loss Selling, Austal, West Japan Railway, PICC/PICC P&C

Weekly Deals Digest (05 May) – L’Occitane, C&F Logistics, KFC Japan, Austal, Hyundai Marine, ZEEKR

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) IPOs.
Event-Driven developments: L’Occitane (973 HK), Chilled & Frozen Logistics Holdings (9099 JP), Kfc Holdings Japan (9873 JP), Mimasu Semiconductor Industry (8155 JP), Austal Ltd (ASB AU).

(Mostly) Asia-Pac M&A: L’Occitane, KFC Holdings Japan, CSR, Azure Minerals, CIMC, Chilled & Frozen

Tally 47 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deals was discussed on Smartkarma this week: L’Occitane (973 HK)‘s VGO from major shareholder, Reinold Geiger. A deal for KFC Holdings Japan (9873 JP) is apparently imminent.
Key updates took place on: CSR Ltd (CSR AU), Azure Minerals (AZS AU), CIMC Vehicle Group Co Ltd (1839 HK), and Chilled & Frozen Logistics Holdings (9099 JP).

Quiddity Leaderboard CSI 300/500 Jun 24: Final Expectations; US$3.4bn One-Way; New Trade Idea

By Janaghan Jeyakumar, CFA

CSI 300 represents the 300 largest stocks by market cap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500.
The reference period for the June 2024 review is now complete. There are some changes to the expected ADDs/DELs list since I published my last insight (link) ~3 weeks ago.
In this insight, we take a look at our final expectations for index changes in June 2024.

S&P500 Index Rebalance: Bitcoin Miner Is a SPCY Add

Following Exxon Mobil (XOM US)‘s acquisition of Pioneer Natural Resources (PXD), Vistra (VST US) will be added to the S&P 500 INDEX (SPX INDEX) at the close on 7 May.
Marathon Digital Holdings (MARA US) is an add to the S&P SmallCap 600 Index and the stock could move higher till implementation.
Marathon Digital Holdings (MARA US) stock has underperformed its close peers this year and the ratio of Marathon Digital Holdings stock price to Bitcoin (XBTUSD CURNCY) is near the lows.

Adbri (ABC AU): 12th June Shareholder Vote

On the 27 Feb 2024, construction play Adbri (ABC AU) entered into a Scheme Implementation Deed with CRH (CRH US) and 42.7%-shareholder Raymond Barro (Chairman) at $5.20/share.
Conditions include Adbri’s shareholder approval and FIRB signing off. Optically, it doesn’t appear to be a knockout price. However, Adbri’s share price has laboured since the onset of Covid.
The Scheme Booklet is now out, with a Scheme Meeting to be held on the 12th June. Expected implementation on the 1 July. IE says fair & reasonable.

Last Week in Event SPACE: Aussie Tax-Loss Selling, Austal, West Japan Railway, PICC/PICC P&C

Tax-Loss Selling‘s a subject of interest in Australia. Retail investors will take gains on stocks which run up in price, or get taken over, then look for losses to offset.
Investors are caught out as the Aussie government “approves” Hanwha Ocean (042660 KS) buyng Austal Ltd (ASB AU). There is evidently a lot more going on in the background.
West Japan Railway Co (9021 JP) announces a biggish buyback. One could buy dips, but one should probably not chase. For that, suggest this acts as a range trade.

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May 04

Daily Brief Event-Driven: Updated Tool (30Apr24) & “Diff File Generator” For TSE “Mgmt Conscious of Capital Cost/Stock Price” and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Updated Tool (30Apr24) & “Diff File Generator” For TSE “Mgmt Conscious of Capital Cost/Stock Price”
Local Institutions’ Value-Up Momentum Moves: Watch the July Tax Reform Bill
EQD | The NIFTY May Be About to Start A Come Down

Updated Tool (30Apr24) & “Diff File Generator” For TSE “Mgmt Conscious of Capital Cost/Stock Price”

In mid-January, the TSE announced a “name-and-shame” list where they listed all the companies which had put forth a disclosure about 【資本コストや株価を意識した経営の実現に向けた対応】. But they did not actually shame.
The list shows which companies have disclosed a policy/consideration. But no data/links. We are weeks ahead of the TSE and we have all the links.
We created a tool to name everyone, show their reports, provide links to every document, and now a new tool. Put in a name, see the difference between the Old/New Reports.

Local Institutions’ Value-Up Momentum Moves: Watch the July Tax Reform Bill

MMAS prioritizes dividends over low-PBR, key to government’s Value-up momentum. Despite initial market disappointment, dividend stocks rebounded, underscoring continued investor interest.
Government officials are collecting historic dividend data to simulate separate taxation impact of dividend income, likely to be included in July’s tax reform bill for National Assembly approval.
Local institutions focus on dividend-centric Value-up trading, targeting stocks with high cash reserves and dividends. Strategy needed to manage market impact pre-tax reform bill in July.

EQD | The NIFTY May Be About to Start A Come Down

By Nico Rosti

The NIFTY Index kept rising for the past few months but has stalled its advance since March. It may be about to pullback and lose some gains, in May.
The index is currently up 2 weeks in a row, not yet strongly overbought but our model say that from a time perspective it could start to pullback next week.
If the index does not start to pullback soon, it could rally for another 2-3 weeks.

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May 03

Daily Brief Event-Driven: NPS Confirms Reference Portfolio & Risky Assets Upweight: Implications for Value-Up Stocks and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

NPS Confirms Reference Portfolio & Risky Assets Upweight: Implications for Value-Up Stocks
Austal (ASB AU): Spurned Suitor, Hanwha Ocean, Gets a Vote of Confidence
Honasa Consumer IPO Lock-Up Expiry – US$500m+ Lockup Expiry with Everyone Well in the Money
ASX200 Index Adhoc Rebalance: Sigma Healthcare (SIG) Replaces Boral (BLD)
Jusung Engineering: Announces Equity Spin Off + Physical Division Split

NPS Confirms Reference Portfolio & Risky Assets Upweight: Implications for Value-Up Stocks

Today, NPS made the final decision to introduce a reference portfolio. The critical point is the increase in risky assets from 56% to 65%, also decided at today’s meeting.
Initially, overseas equity was prioritized, but recent forecasts suggest significant potential in increasing local equity, aligning with the value-up policy.
Monitoring NPS’s execution plan, including allocation and timing by asset class, is vital to gauge inflow size, especially for Value-up beneficiaries.

Austal (ASB AU): Spurned Suitor, Hanwha Ocean, Gets a Vote of Confidence

On 2 April, Austal Ltd (ASB AU) rejected a non-binding proposal from Hanwha Ocean (042660 KS) at A$2.825 due to concerns about obtaining Australian and US regulatory approvals.
The Board’s claims are on shaky grounds. On 1 May, the AFR reported that Australian Defence Minister Richard Marles had no concerns with Hanwha’s privatisation bid.
The Board’s rejection is a clumsy attempt to negotiate better terms, such as a bump, ticking fees, or significant break fees. At the last close, the gross spread was 21.8%.

Honasa Consumer IPO Lock-Up Expiry – US$500m+ Lockup Expiry with Everyone Well in the Money

By Sumeet Singh

Honasa Consumer (HONASA IN) raised about US$200m in its India IPO. Its pre-IPO investors will be released from its IPO linked lockup soon.
HC’s product portfolio includes products in the baby care, face care, body care, hair care, color cosmetics and fragrances segments.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

ASX200 Index Adhoc Rebalance: Sigma Healthcare (SIG) Replaces Boral (BLD)

Seven Group Holdings (SVW AU) now holds 85.8% of Boral Ltd (BLD AU) and that will lead to deletion of Boral from the S&P/ASX 200 (AS51 INDEX).
As expected, Sigma Healthcare (SIG AU) will be added to the S&P/ASX 200 (AS51 INDEX) at the close on 9 May.
Sigma Healthcare (SIG AU) price movements will be largely influenced by its pending merger with Chemist Warehouse Group (CWG).

Jusung Engineering: Announces Equity Spin Off + Physical Division Split

On 2 May, Jusung Engineering (036930 KS) announced an equity spin-off as well as a physical division split.
We are negative on this combination of equity spin-off and physical division split of Jusung Engineering.
After the two units are listed on 6 December 2024, it is likely that the semiconductor unit (Jusung Engineering Co) will rise while Jusung Holdings Co is likely to decline.

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May 02

Daily Brief Event-Driven: JR West (9021 JP) – Shareholder Structure Means Large-Ish Buyback Could Have Impact and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JR West (9021 JP) – Shareholder Structure Means Large-Ish Buyback Could Have Impact
Selected European HoldCos and DLC: April’24 Report
AZ-Com Maruwa Launches Hostile TOB on Chilled & Frozen Logistics (9099) – Expect More Fun To Come
Chilled & Frozen Logistics (9099 JP): AZ-COM Maruwa Calls the Board’s Bluff, Launches the Offer
KOSDAQ150 Index Rebalance Preview: 15 Changes Possible as Review Period Ends
KOSPI200 Index Rebalance Preview: 5-6 Changes Possible from Now to June
The Bigger Picture As Aussie Government “Approves’ Hanwha Ocean’s Austal Bid

JR West (9021 JP) – Shareholder Structure Means Large-Ish Buyback Could Have Impact

Yesterday, West Japan Railway Co (9021 JP) announced FY23 earnings, a higher dividend, an update to the Medium-Term Management Plan (p10~), and a Buyback.
Short & Sweet: Revenues were +17.2%yoy, OP +114.1%, NP +1.6%. OPM was 11.0% and ROE 9.2% (both best since FY18). Guidance is Revenue up, OP down, NP tiny up.
The new FY25 (Mar26) OP guide in the MTMP is the old Mar28 target (mostly inbound tourism-driven). The Buyback is biggish. It is worth looking at the details.

Selected European HoldCos and DLC: April’24 Report

By Jesus Rodriguez Aguilar

The Discounts to NAV of covered holdcos mainly widened during April. Discounts to NAV: C.F.Alba, 49.1% (vs. 47.3%); GBL, 39% (vs. 38.1%); Heineken Holding, 17.3% (vs 16.7%);
Industrivärden C, 4.7% (vs. 1.4%); Investor B, 8.3% (vs. 6.1%); Porsche Automobile Holding, 41.1% (vs. 45.4%). Rio DLC spread tightened to 22.5% (vs. to 24.9%).
What seems interesting: Porsche SE vs. listed assets and the Rio DLC (long RIO LN/short RIO AU).

AZ-Com Maruwa Launches Hostile TOB on Chilled & Frozen Logistics (9099) – Expect More Fun To Come

Chilled & Frozen Logistics Holdings (9099 JP) had been sending out questions, and trying to get AZ-Com Maruwa Holdings (9090 JP) to delay the start until at least late-May.
AZ-Com Maruwa answered questions (first and second set) and on the 24th, C&F asked AZ-Com to extend. They did not extend. AZ-Com announced the Tender Offer at ¥3,000 today.
C&F responded today saying the TOB is launched without C&F Board approval. Then they said some other things that might be disclosed when C&F’s Board presents its Target Opinion.

Chilled & Frozen Logistics (9099 JP): AZ-COM Maruwa Calls the Board’s Bluff, Launches the Offer

AZ-Com Maruwa Holdings (9090 JP) has satisfied the precondition for its hostile Chilled & Frozen Logistics Holdings (9099 JP) JPY3,000 offer. The offer closes on 17 June (31 business days).
AZ-COM Maruwa has called the Board’s bluff by providing sufficient time (extending the offer period from 20 to 31 business days) for a white knight to lob a competing bidder.
While a bump is probable, the shares already factor in a significant bumpitrage premium. A potential bump has a good chance of being lower than the last close.

KOSDAQ150 Index Rebalance Preview: 15 Changes Possible as Review Period Ends

With the review period complete, there could be up to 15 changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance.
Even with 15 changes, there is some sector balance among the potential adds and deletes with big churn in the Information Technology sector.
The potential adds have outperformed the potential deletes and the KOSDAQ 150 Index (KOSDQ150 INDEX) since the start of the review period but performance has flattened over the last month.

KOSPI200 Index Rebalance Preview: 5-6 Changes Possible from Now to June

With the review period complete, there could be up to 5 changes for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) at the June rebalance.
Hahn&Co now own over 96% of the shares in Ssangyong Cement Industrial (003410 KS) and there could be another change at or before the June rebalance.
Passive trackers will need to trade between 0.5-15x ADV on the index changes. There are big shorts in L&F (066970 KS) and Lotte Tour Development Co, Ltd. (032350 KS).

The Bigger Picture As Aussie Government “Approves’ Hanwha Ocean’s Austal Bid

Recently, I surmised FIRB would approve Sociedad Quimica y Minera (SQM US)/Hancock’s bid for Azure (AZS AU); but ding Hanwha Ocean (042660 KS)‘s Austal (ASB AU) tilt. I’m batting 50%.
Whereas FIRB gave the green light for Azure this week; reportedly (no official ASX announcement as yet), the Aussie government is “not concerned” with Hanwha’s acquisition. Austal gained 3% yesterday.
Even Austal didn’t high hopes of securing Aussie approval. Presumably the US government is similarly onboard. This development also signals an expanding AUKUS security pact.

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May 01

Daily Brief Event-Driven: Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket
Leading Candidates for the First Value-Up Disclosure
Listing of a Beauty Giant
End of Mandatory Lock-Up Periods for 54 Companies in Korea in May 2024
Alpha Generation Through Share Buybacks in Korea: Bi-Monthly (Mar and Apr 2024)
(Mostly) Asia M&A, April 2024: Austal, L’Occitane, Langham Hosp., Jastec, Mimasu, Best World, Isetan
Ono Pharmaceutical (4528 JP): Deciphera Acquisition Will Not Bring Immediate Respite

Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket

I am not a tax advisor and I do not play one on TV but it is a subject of interest in Australia, as an AFR article from June 2022 shows.
The general gist: retail investors in Australia will take gains on stocks which run up in price, or get taken over, then look for losses to offset.
Below I present a study using data from 2012-2023 and this year’s portfolio.

Leading Candidates for the First Value-Up Disclosure

Of utmost importance in these guidelines will be the framework for Value-up disclosure. Local authorities aim to encourage proactive disclosure, starting with companies that are well-prepared.
Two companies are being closely watched as potential candidates for the first Value-up disclosure: CJ Cheiljedang (097950 KS) and Koh Young Technology (098460 KS).
The rationale for us to actively engage in alpha trading with these two names stems from the strong probability that they will emerge as cornerstone constituents of the Value-up index

Listing of a Beauty Giant

By Jesus Rodriguez Aguilar

Puig Brands (PUIG SM) will start trading next Friday 3 May at 12:00. The placement price was €24.5/share at the top of the range (which was increased due to investors’ demand).
Puig, valued at €13,900 million, has placed 32% of its capital among qualified investors. The Puig family will retain over 90% of the voting rights through their Class A shares.
Puig will foreseeably enter the Ibex 35 after the ordinary meeting of the Ibex Technical Advisory Committee corresponding to the month of December.

End of Mandatory Lock-Up Periods for 54 Companies in Korea in May 2024

We discuss the end of the mandatory lock-up periods for 54 stocks in Korea in May 2024, among which 4 are in KOSPI and 50 are in KOSDAQ.
These 54 stocks on average could be subject to further selling pressures in May and could underperform relative to the market.
The top three market cap stocks including those of which at least 1% of outstanding shares could be sold in May include EcoPro Materials, Enchem, and Gaonchips.

Alpha Generation Through Share Buybacks in Korea: Bi-Monthly (Mar and Apr 2024)

In this insight, we discuss the alpha generation through companies that announced share buybacks in Korea in March and April 2024.
We provide a list of 30 stocks in the Korean stock market that have announced share buyback programs in the past two months.
Major companies that have announced share buybacks in Korea in the past two months include Krafton (259960 KS), Celltrion Inc (068270 KS), and Woori Financial Group (316140 KS).

(Mostly) Asia M&A, April 2024: Austal, L’Occitane, Langham Hosp., Jastec, Mimasu, Best World, Isetan

For the month of April 2024, 7 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$4bn.
The average premium for the new transactions announced (or first discussed) in April was ~55%. The average premium YTD is ~42%.
This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

Ono Pharmaceutical (4528 JP): Deciphera Acquisition Will Not Bring Immediate Respite

By Tina Banerjee

Ono Pharmaceutical (4528 JP) is acquiring Deciphera Pharmaceuticals (DCPH US) for $25.60/share in cash through a tender offer. The total equity value of the acquisition is approximately $2.4B.
Ono is expected to reap the benefit of Deciphera acquisition earliest from FY27. In the short-run, the company’s major problem of loss of revenue will not be addressed.
Ono needs to stretch its balance sheet to fund Deciphera acquisition. The acquisition will be earnings dilutive for Ono. Pricey valuation of the deal is another deterrent.

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Apr 30

Daily Brief Event-Driven: L’Occitane (973 HK): Conditional VGO at HK$34 and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

L’Occitane (973 HK): Conditional VGO at HK$34
Carlyle Reportedly To Buy KFC Japan (9873) From MitCorp (8058) – Deal Likely Imminent
KFC Holdings Japan (9873 JP): Carlyle Edging Towards a Tender Offer
Worley (WOR): Impact of Dar Group’s A$1.4bn Sale
Pacific Smiles (PSQ AU): A Brace Of Offers
L’Occitane (973 HK): Geiger’s $34/Share Offer
Mimasu Semiconductor (8155 JP): Shin-Etsu (4063 JP)’s Pre-Conditional Tender Offer
Toyo Suisan: Activist Advocates For Legacy Divestiture & More Capital for Global Expansion
NPN X PRX Discount Update Post Tencent Early Game Release News Flow
ASX200 Index Rebalance Preview: Potential Changes Prior to the June Rebalance

L’Occitane (973 HK): Conditional VGO at HK$34

L’Occitane (973 HK) disclosed a conditional voluntary offer from Reinold Geiger at HK$34.00, a 15.3% premium to the last close and a 30.8% premium to the undisturbed price (5 February).
The minimum acceptance condition is that the offeror holds at least 90% of the shares held by disinterested shareholders, which enables the offeror to exercise compulsory acquisition rights.
Irrevocable and letters of support to accept represent 37.96% of disinterested shares. An attractive offer (representing an all-time high) should facilitate the offer being declared unconditional.

Carlyle Reportedly To Buy KFC Japan (9873) From MitCorp (8058) – Deal Likely Imminent

On 28 Feb, the Nikkei reported (an article I missed) Mitsubishi Corp (8058 JP) would seek to unload its 35% stake in Kfc Holdings Japan (9873 JP)
The stock popped, then continued to rise further. After the close Friday, the Nikkei reported MitCorp was close to a deal with Carlyle. A deal is apparently expected imminently.
I expect this could be a “Split Price Deal” (like Hitachi Transport and Pasona).

KFC Holdings Japan (9873 JP): Carlyle Edging Towards a Tender Offer

The Nikkei reports that Carlyle is in the final stages of buying Mitsubishi Corp (8058 JP)’s 35% stake in Kfc Holdings Japan (9873 JP), which will result in a tender offer.
The structure will likely be similar to the KDDI Corp (9433 JP)/ Lawson Inc (2651 JP) tender, where MitCorp provides an irrevocable NOT to accept but vote for share consolidation.
The shares have been up 33.6% since Nikkei flagged the sale on 28 February. KFC Japan will trade in line with peers’ multiples at a JPY5,700 offer.

Worley (WOR): Impact of Dar Group’s A$1.4bn Sale

Dar Al-Handasah has sold 19% of WorleyParsons Ltd (WOR AU) overnight at A$14.35/share, a 12% discount to the last close, to raise A$1.44bn (US$943m).
This reduces Dar’s stake in WorleyParsons Ltd (WOR AU) to 4.5% and will trigger upweights from index providers in the next few days.
The stake sale could also lead to a re-rating of the stock with a large blocking stake off the share register.

Pacific Smiles (PSQ AU): A Brace Of Offers

On the 18th December 2023, Pacific Smiles (PSQ AU), an operator of dental centers, announced and rejected a A$1.40/share non-binding proposal from Genesis Capital. Genesis subsequently increased its stake to 19.90%.
Genesis then bumped its NBIO to A$1.75/share on the 19 March and was granted due diligence on a non-exclusive basis. PSQ said it would support the revised terms if firmed.
PSQ has now entered a Scheme with National Dental Care at A$1.90/share. The Offer also requires FIRB signing-off. But the proposal is a non-starter if Genesis rejects terms.

L’Occitane (973 HK): Geiger’s $34/Share Offer

After nearly six years of conjecture, rumour – plus the key shareholder (holding 72.63% of shares out) contemplating a takeover – we finally have an Offer for L’Occitane (973 HK).
The price? $34/share, a 30.77% premium to undisturbed, and a figure a shade below the HK$35/share flagged by Reuters last August deemed “false and without basis“. The price is final.
This takeover is a Voluntary General Offer. The key condition is securing 90% of disinterested shareholders holding 27.36%. 9.6% of that number have provided irrevocable undertakings or letters of support.

Mimasu Semiconductor (8155 JP): Shin-Etsu (4063 JP)’s Pre-Conditional Tender Offer

Mimasu Semiconductor Industry (8155 JP) recommended a pre-conditional tender offer from Shin Etsu Chemical (4063 JP) at JPY3,700, a 14.4% and 35.4% premium to the last close and undisturbed price, respectively.
The pre-condition, which cannot be waived, is approval under the competition laws of Japan and Taiwan. The tender offer is expected to start in late July.
While the offer is below the mid-point of the IFA DCF valuation range and the requested price, it is 7.7% higher than the all-time high of JPY3,435. This is done.

Toyo Suisan: Activist Advocates For Legacy Divestiture & More Capital for Global Expansion

By Oshadhi Kumarasiri

Japanese instant noodle manufacturer Toyo Suisan Kaisha (2875 JP) has become the newest target for activist investors in Japan.
Nihon Global Growth Partners Management, Inc argues that Toyo Suisan’s investments are overly concentrated in its legacy businesses, despite these ventures yielding low returns.
Therefore, they are recommending that Toyo Suisan exit its legacy businesses, increase the payout ratio to 40%, and use some of its excess cash for a share buyback of ¥20bn.

NPN X PRX Discount Update Post Tencent Early Game Release News Flow

By Charlotte van Tiddens, CFA

Last week Monday, Tencent confirmed the early release of Dungeon and Fighter Mobile, a highly anticipated mobile adaptation of the computer game developed by Nexon.
The game is expected to be released in China on the 21st of May following positive test results.
Tencent was the 11th best performing constituent in the HSTECH index for the week (out of 30), returning 14.7%. The index ended the week up 13.4%.

ASX200 Index Rebalance Preview: Potential Changes Prior to the June Rebalance