Event-Driven

The Hang Seng Index, HSCEI, and HS Tech rebals were announced on 16 Feb. Janaghan Jeyakumar, CFA had expected GDS out, Tongcheng Travel in on HSTECH, along with the…
…deletion of Zhongsheng Group (881 HK) in HSCEI, with a low conviction replacement of Zijin Mining, which turned out to be an add of China Unicom Hong Kong (762 HK).
No changes to the main HSI Index, which means evolution is further delayed. Today was the day to recap the caps. Mar1 Flow estimates are included below for all three.

Rakuten’s New “Bond-Type Share” Issuance – Quite Quirky to Quantulate Rakuten’s Quisquous New Quoz

Today, Rakuten Group (4755 JP) announced it would propose an amendment to its Articles at the AGM (28 March) to issue “Bond-Type Class Shares.” First reaction: You wot, mate?
The company states it wants to “strengthen its financial base through reducing interesting-bearing debt by equity-related financings and conduct proactive control of debt maturity schedule, etc.”
Now it wants to issue listed bond-type shares. Dividends not interest. The last Japanese issuer of something similar was NEC in 2001. Few will remember, so we study the situation.

HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Mar 2024)

The March rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
Tencent (700 HK), Meituan (3690 HK) and Tongcheng Travel (780 HK) are the biggest buys while Alibaba (9988 HK), Li Auto (2015 HK), HSBC (5 HK) are the biggest sells.
The round-trip trade across all stocks across the four indices is estimated at HK$16.16bn (US$2.06bn).

Samsonite (1910 HK): Evaluating a Potential Privatisation

Bloomberg reports that Samsonite (1910 HK) is drawing takeover interest from several PE firms which aim to relist Samsonite in the US to draw a higher valuation.
A standard takeover premium (around 30%) should be sufficient due to the shareholder register. There is no single large shareholder(s) to pose an issue to an offer.
The probability of an offer is medium, with an offer price likely around HK$30.00. Irrespective of a binding offer, the upside remains as Samsonite trades at an undemanding valuation.

Outsourcing (2427) MBO Arrives! Bain Launches Cheeky, Opportunistic, Low(Priced) TOB

After an extension due to a European Foreign Subsidies Review filing, and a small ‘accident’ regarding the earnings release, we have a deal.
The earnings release itself seemed more innocuous than articles and rumour suggested show the causes of impairments and so it seemed like there was little cause to walk/declare MAC.
Now it will be done in 20 days. I still think this is cheeky, opportunistic, and low, and it is up to the float to decide what to do.

Samsonite (1910 HK): Leader Of The Pack

Luggage maker Samsonite (1910 HK) is up 11.8% today, as I type, after Bloomberg reported it is working with advisers as it studies possibilities, including going private.
With the reopening of China and the ongoing recovery in travel globally, Samsonite’s net sales improved markedly across all regions. 1H23 profit gained 185.3% versus 1H22.
FY23 figures should be out in the middle of next month.

Ecopro BM KOSPI Transfer Listing Disclosure

The schedule includes submitting the transfer listing application post-EGM on March 26th. KRX approval expected in 4-6 weeks due to Ecopro BM’s financial soundness. KOSPI listing follows in 2-3 weeks.
As for KOSDAQ 150 ad-hoc change, it will be replaced with the top reserved issue. The anticipated timing for this ad-hoc change is around mid or late May.
Following Feb 7 disclosure, stock surged over 10% in 2 days. Precedents show rallies pre-shareholder meetings, but KOSPI listing brings corrections. Today’s resolution could boost Ecopro BM short term.

Block Deal Sale of 5% Stake In SFA Engineering by Samsung Display

By Douglas Kim

After the market close on 27 February, Samsung Display announced that it will sell its 4.95% stake in Sfa Engineering (056190 KS) in a block deal sale.
We would take the trade. We like the relatively large block deal sale discount as well as the company’s attractive valuations.
SFA Engineering is trading at P/E of 8.3x, EV/EBITDA of 2.7x, and P/B of 0.7x in 2024, which are much lower than historical valuations.

Outsourcing (2427 JP): Relief as Bain Launches Tender at Unchanged Terms

Outsourcing Inc (2427 JP) announced that the pre-condition was satisfied, and Bain’s tender offer remains unchanged at JPY1,755 per share, a 52.1% premium to the undisturbed (8 December).
Shareholders will breathe a sigh of relief as the weak 4Q and significant impairments have raised concerns that Bain would cut its offer or walk away.
The offer attractiveness has increased partly due to lower consensus. At the last close and for a 3 April payment, the gross/annualised spread is 2.0%/22.8%.

Ecopro BM (247540 KS): Index Impact of KOSDAQ to KOSPI Transfer

Ecopro BM (247540 KS)‘s Board has approved the delisting of the stock from the KOSDAQ market and to list on the KOSPI market. The shareholder meeting is on 26 March.
Historically, the KRX has taken an average of 64 days from application to approve the listing to transfer from the KOSDAQ market to the KOSPI market.
Ecopro BM (247540 KS) will be deleted from the KOSDAQ 150 Index on its last trading day and inclusion in the KOSPI 200 Index could take place in September.

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Feb 27

Daily Brief Event-Driven: Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger?
Rakuten Bank (5838 JP) – Introduces a Yutai Program to Goose the Mar24 Price, Mar25 EPS
Alcoa (AA US) Makes an Offer for Alumina (AWC AU)
Aeon, Welcia and Tsuruha: Creating an FMCG Behemoth
StubWorld: Keisei Electric Appears Stretched Amid Latest Buyback
CSR (CSR AU): Saint-Gobain’s Binding Proposal at A$9.00
Alumina (AWC AU): Alcoa’s All-Scrip Non-Binding Proposal Seems Opportunistic
KOSPI Size Indices – Potential Migrations as Focus Is on Price to Book
ABB Targets Superloop After Taking Out Symbio
CSR (CSR AU): Saint Gobain Firms $9/Share Bid

Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger?

Over the weekend there was an article in the Nikkei saying that Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) were considering a merger. Other media outlets followed.
This has been a possible outcome. Aeon Co Ltd (8267 JP) owns 51% of Welcia, 13.6% in Tsuruha, and is negotiating to buy another 13% in Tsuruha from Oasis.
This would create a behemoth. ¥2.2trln in revenues vs ¥1trln for MatsukiyoCocokara (3088 JP). It would be 25% of the market. Questions will be asked about concentration.

Rakuten Bank (5838 JP) – Introduces a Yutai Program to Goose the Mar24 Price, Mar25 EPS

The Rakuten Bank offering in early December was a great time to buy the dip of you sold end-September. It should have been a good time to buy outright.
Unfortunately, the stock priced at ¥2,470, then closed that day at ¥2,500. That was the high for the next ten weeks. Two weeks later it was 20% lower. Ouch.
But it climbed out of the abyss, gained 35% in 8wks, then Thursday the Bank announced a new Shareholder Benefit program. Today the stock was +7%. Worth looking at details.

Alcoa (AA US) Makes an Offer for Alumina (AWC AU)

Alcoa (AA US) has made a non-binding, indicative and conditional proposal to acquire all shares in Alumina (AWC AU). Shareholders will receive 0.02854 shares of Alcoa for each Alumina share.
Alcoa (AA US) has entered into an agreement with Allan Gray Australia that gives them the right to acquire 19.9% of Alumina Ltd (AWC AU) at the same swap ratio.
Alumina Ltd (AWC AU) is a potential delete from the ASX100 Index at the March rebalance and that could provide an entry into the stock.

Aeon, Welcia and Tsuruha: Creating an FMCG Behemoth

By Michael Causton

The possible merger between Welcia and Tsuruha under Aeon has been talked about for years despite concerns from both drugstores, but may now happen.
But calling these retailers drugstores is increasingly a misnomer: FMCG-drugstores is better because they and many others in the sector, increasingly compete with FMCG retailers like supermarkets and even CVS.
This evolution is rapid so the merits of a deal make more sense when we view it from a sector five years in the future than how it is today.

StubWorld: Keisei Electric Appears Stretched Amid Latest Buyback

Keisei Electric (9009 JP) has been an outperformer since activist fund Palliser Capital called on the company sell some Oriental Land (4661 JP) shares. It has now announced another buyback.
Preceding my comments on Keisei Electric are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

CSR (CSR AU): Saint-Gobain’s Binding Proposal at A$9.00

CSR Ltd (CSR AU) has entered a scheme implementation deed with Cie De Saint-Gobain (SGO FP) at A$9.00 per share, a 32.9% premium to the undisturbed price (20 February).
The offer has a ticking fee of A$0.02 per month (accrued daily) if the scheme’s effective date is delayed beyond 26 June. The offer requires FIRB approval.
The offer is attractive and represents a 15-year high. At the last close and for a mid-June payment, the gross/annualised spread is 7.4%/28.8%.

Alumina (AWC AU): Alcoa’s All-Scrip Non-Binding Proposal Seems Opportunistic

Alumina Ltd (AWC AU)‘s non-binding proposal from Alcoa (AA US) is 0.02854 Alcoa shares per Alumina share, implying a value of A$1.15, a 13.1% premium to the undisturbed price.
Alcoa has been granted a 20-business day exclusivity period. The Board intends to recommend a binding proposal. Allan Gray, the largest shareholder, is supportive.
While strategically sensible, the offer is not a knockout bid. The headcount test is a risk as retail forums suggest a majority view forming against the offer.

KOSPI Size Indices – Potential Migrations as Focus Is on Price to Book

The review period for the March rebalance of the KOSPI Size Indices started 1 December and will end 29 February. The changes will be implemented at the close 14 March.
We see 3 migrations from MidCap to LargeCap, 4 new adds to LargeCap, 7 migrations from LargeCap to MidCap, and 11 migrations from SmallCap to MidCap.
On average, stocks migrating from SmallCap to MidCap have the lowest price to book value and have historically outperformed stocks migrating between other categories.

ABB Targets Superloop After Taking Out Symbio

The hunter becomes the hunted. After Superloop (SLC AU) failed to clinch Symbio Holdings (SYM AU) last year, Aussie Broadband (ABB AU) has now made an Offer for Superloop.
ABB’s indicative Offer provides Superloop shareholders with 0.21 new ABB shares for each Superloop share held, or an indicative Offer price of A$0.95/share, a 33.2% premium to the three-month VWAP.
ABB has picked up 19.9% in Superloop, also at A$0.95/share. Superloop has yet to respond.

CSR (CSR AU): Saint Gobain Firms $9/Share Bid

On the 21st Feb, Saint-Gobain (SGO FP) made an indicative Offer to CSR Ltd (CSR AU) shareholders of A$9/share by way of a Scheme, a 34% premium to last close.
Saint-Gobain and CSR have now entered into a definitive agreement, also at $9/share. The business combination has been unanimously approved by the boards of both companies.
Conditions include CSR’s shareholder approval and FIRB signing off. No specific mention of ACCC. The transaction is expected to close in the second half of this year.

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Feb 26

Daily Brief Event-Driven: ESR Group (1821 HK): Evaluating a Potential Privatisation and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

ESR Group (1821 HK): Evaluating a Potential Privatisation
Keisei Electric Rail (9009) – A BUYBACK! But It’s Likely To Be Crossholders Selling in ToSTNeT-3
STAR100 Index Rebalance: Ten Changes a Side; Adds Outperforming as Expected
Hyosung Corp (004800 KS): Spin-Off & KOSPI200 Index Implications
Aussie Broadband’s Non-Binding Indicative Offer for Superloop
Walgreens Boots Alliance (WBA US) – How Do Dow Jones Deletes Do Historically?
Details of Korea Value-Up Initiatives & Index, Announced This Morning
Merger Arb Mondays (26 Feb) – China TCM, Azure, A2B, Boral, CSR, Outsourcing, Snow Peak, Genetron
Alumina (AWC AU) Agrees To Alcoa’s Offer
T G S/P G S: Delayed by Competition Review, Spread

ESR Group (1821 HK): Evaluating a Potential Privatisation

On 21 February, Bloomberg reported that due to the steep share price declines, major ESR Group (1821 HK) shareholders are considering options for their stakes, including ESR’s privatisation.
The reports also noted buyer interest in ESR’s significant assets. Past share dealings suggest that Warburg Pincus and the co-founders are the likely consortium to lead a potential privatisation.
The offer probability is low as a scheme would likely require a HK$16.00 offer, posing a funding challenge. Nevertheless, the upside remains as ESR trades at an undemanding valuation.

Keisei Electric Rail (9009) – A BUYBACK! But It’s Likely To Be Crossholders Selling in ToSTNeT-3

Keisei Electric Railway Co (9009 JP) has long been the target of activist-ish-y holders who seek to have the company monetise its 20+% stake in Oriental Land (4661 JP).
Last autumn (17-Oct-2023), Keisei was the subject of a presentation by activist-ish-y fund Palliser Capital who called the stock 43% undervalued. They want Keisei to sell some OLC shares.
Palliser wanted Keisei to use resulting monies for growth capex+shareholder return, improve IR/governance, shrink board, adopt KPIs, etc. Thursday we got an announcement of a 2.9% stock buyback.

STAR100 Index Rebalance: Ten Changes a Side; Adds Outperforming as Expected

There are 10 changes for the STAR100 Index in March. We correctly forecast all 10 deletes and got 8 of the 10 adds right.
Estimated one-way turnover is 6.8% and that results in a one-way trade of CNY 1.79bn. Nearly all constituent changes have more than 1 day of ADV to trade.
The adds have started to outperform the deletes and the index over the last couple of weeks and there could be more outperformance in the next two weeks.

Hyosung Corp (004800 KS): Spin-Off & KOSPI200 Index Implications

Hyosung Corporation (004800 KS) has announced that it is spinning off part of its business holdings to Hyosung New Holding Corporation in a 0.818:0.182 ratio.
The stock will remain suspended from late June to late July. We expect Hyosung Corporation (004800 KS) to maintain its index membership while the New Entity will not be added.
The dynamics between listed ETFs and non-listed passive trackers differ and we take a look at the potential index flows.

Aussie Broadband’s Non-Binding Indicative Offer for Superloop

Right on the heels of acquiring Symbio Holdings (SYM AU), Aussie Broadband (ABB AU) has made a non-binding indicative offer to take Superloop (SLC AU) private.
Superloop (SLC AU) had initiated the proposal to take Symbio Holdings (SYM AU) private before Aussie Broadband (ABB AU) swooped in. Now ABB has SLC in its sights.
The offer is a small premium and Aussie Broadband Pty Ltd (ABB AU)‘s 33.2% premium claim is disingenuous at best. Expect pushback from the Superloop Ltd (SLC AU) Board.

Walgreens Boots Alliance (WBA US) – How Do Dow Jones Deletes Do Historically?

On 31 January, Walmart (WMT US) announced a 3:1 stock split. For cognoscenti, that meant a Dow Jones Industrial Avg might be in the offing.
The last change to the index was in Aug-2020, spurred by the 4:1 split for Apple (AAPL US). This time, the likely deletion candidate was Walgreens Boots Alliance (WBA US).
Indeed, last week, the Index Keepers announced Amazon.com Inc (AMZN US) would replace Walgreens Boots Alliance on 26 Feb (i.e. WBA would be booted on the close of 23 Feb).

Details of Korea Value-Up Initiatives & Index, Announced This Morning

The rollout of the Korea Value-Up Index has encountered a minor delay. Completion of the index is slated for 3Q, with ETFs scheduled for release in 4Q.
The government will encourage the National Pension Service to utilize it as a benchmark.
Dividend payout ratio, dividend yield, PER, and cash flow will be included as screening factors for this index, in addition to the already known factors of PBR and ROE.

Merger Arb Mondays (26 Feb) – China TCM, Azure, A2B, Boral, CSR, Outsourcing, Snow Peak, Genetron

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 Probiotec Ltd (PBP AU), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), CSR Ltd (CSR AU), China Traditional Chinese Medicine (570 HK), Lithium Power International (LPI AU).
Lowest spreads – Tietto Minerals Ltd (TIE AU), Orecorp Ltd (ORR AU), Pact Group Holdings (PGH AU), CPMC Holdings (906 HK), T&K Toka Co Ltd (4636 JP), Snow Peak.

Alumina (AWC AU) Agrees To Alcoa’s Offer

Pittsburgh-Based Alcoa (AA US) is offering 0.02854 of its own shares for each Alumina Ltd (AWC AU) share, a 13% premium to last close. Alumina recommends the Offer to shareholders.
Alumina owns a 40% stake in Alcoa World Alumina & Chemicals, a JV with Alcoa that operates bauxite mining, alumina refining, and aluminium smelting operations. Alcoa owns the remaining 60%.
Separately, Alcoa announced it has entered into an agreement with Allan Gray Australia that gives it the right to acquire up to 19.9% of Alumina. CITIC also holds 18.9%.

T G S/P G S: Delayed by Competition Review, Spread

By Jesus Rodriguez Aguilar

TGS is seizing an opportunity by acquiring a competitor at a low valuation, in an all-share deal 0.06829 TGS NO x 1 PGS NO, departing from its traditional asset-light approach.
The Merger is subject to ongoing review by UK and Norwegian competition authorities. I believe the deal will be cleared, but might be delayed until Q4.
The dividend-adjusted gross spread is 6.7%. Regulatory approval concerns seem overblown. I would set up the spread.

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Feb 25

Daily Brief Event-Driven: Index Rebalance & ETF Flow Recap: HSCEI and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: HSCEI, HSCI, HSTECH, HSIII, STTF, Top50, Div+, FXI, FnGuide
A/H Premium Tracker (To 23 Feb 2024): Liquid AH Premia See Sharpest Fall in a LOONG (He-He) Time
HK Connect SOUTHBOUND Flows (To 23 Feb 2024); Selling of Consumer Stocks, But Big Buys of SOEs
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Boral, CSR, Ansarada, TCM, Snow Peak, Azure Min, Genetron
Mainland Connect NORTHBOUND Flows (To 23 Feb 2024): Foreigners Buy, Natl Team Buys; Retail Sells
A2B Australia (A2B AU): Scheme Vote on 25 March
Weekly Deals Digest (25 Feb) – Azure, A2B, Boral, CSR, China TCM, Outsourcing, Payroll, Snow Peak
Hyosung Corp Split: Potential Mirror of December 2021 LX-LG Block Deal
Last Week in Event SPACE: Outsourcing, Boral, Itoki, CIMC Vehicle, Dissentient Shareholder Rights
STAR50 Index Rebalance: Three Changes a Side; One Surprise Change

Index Rebalance & ETF Flow Recap: HSCEI, HSCI, HSTECH, HSIII, STTF, Top50, Div+, FXI, FnGuide

The changes for the SSE STAR50 (STAR50 INDEX) and STAR100 Index were announced post market close on Friday.
The coming week is a full one with capping cutoffs, review cutoffs, announcements and implementations apart from futures expiries.
With China open after Lunar New Year, the National Team is back pouring money into ETFs with the largest inflows to the CSI 300, CSI 500, ChiNext and STAR50 indices.

A/H Premium Tracker (To 23 Feb 2024): Liquid AH Premia See Sharpest Fall in a LOONG (He-He) Time

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 and NORTHBOUND flows net positive. AH premia on average fell so Hs OUTperformed As by 2.1%. Liquid Hs saw their H outperform the A by 3.1% on average.
Last week was the sharpest one-week fall in AH premium in a very long time. SOUTHBOUND Flows Monitor here. NORTHBOUND Flows Monitor here.

HK Connect SOUTHBOUND Flows (To 23 Feb 2024); Selling of Consumer Stocks, But Big Buys of SOEs

A great week for HK and Chinese shares, especially the larger caps. Mainland indices were up 8 days in a row to Friday, helping HK shares stay bid.
Net SOUTHBOUND buying was HK$20.0bn in the first post-holiday week. LOTS of SOEs on the net buying side.
Remarkable this past week, was a new tendency to net sell names which were up a lot and net buy names which haven’t performed as well.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Boral, CSR, Ansarada, TCM, Snow Peak, Azure Min, Genetron

I tally 53 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Five new deals discussed this week on Smartkarma! Boral Ltd (BLD AU), CSR Ltd (CSR AU), Ansarada Group Ltd (AND AU),TCM (570 HK), and Snow Peak Inc (7816 JP).
Key updates took place on Azure Minerals (AZS AU), CIMC Vehicle Group Co Ltd (1839 HK), Outsourcing Inc (2427 JP), and Genetron Holdings Ltd (GTH US).

Mainland Connect NORTHBOUND Flows (To 23 Feb 2024): Foreigners Buy, Natl Team Buys; Retail Sells

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 10.7bn of A-shares on strong average activity after RMB +16.1bn, +9.9bn and +12.1bn the three weeks before. More National Team buying this week.
Five of the top ten buys among liquid NORTHBOUND stocks were finance. Again. Info Tech saw net selling. Again. People trading long gamma now instead of short gamma.

A2B Australia (A2B AU): Scheme Vote on 25 March

The A2B Australia (A2B AU) IE considers Comfortdelgro Corp (CD SP)’s A$1.45 offer fair and reasonable as it above the midpoint of its A$1.30-1.54 per share valuation range.
The scheme is conditional on ACCC approval, which should be forthcoming as ComfortDelGro is not a significant player in Australia.
Several substantial shareholders have sold or exited, lowering the scheme vote risk. At the last close and for the 11 April payment, the gross/annualised spread was 2.5%/22.3%.

Weekly Deals Digest (25 Feb) – Azure, A2B, Boral, CSR, China TCM, Outsourcing, Payroll, Snow Peak

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: Toei Animation (4816 JP)‘s US$550 Million secondary offering and Trial Holdings (5882 JP) IPO.
Event-Driven developments: Azure Minerals (AZS AU), Boral Ltd (BLD AU), CSR Ltd (CSR AU), China Traditional Chinese Medicine (570 HK), Outsourcing Inc (2427 JP), Snow Peak Inc (7816 JP).

Hyosung Corp Split: Potential Mirror of December 2021 LX-LG Block Deal

Hyosung Corp’s split diverges from usual Korean market splits. No tender offer is expected post-new holding company formation, reducing value accretion opportunities.
Sibling separation in Hyosung Corp’s split mandates shares cross-transfers. Hence, block deals among siblings are plausible.
This scenario resembles the case in December 2021 when LX Koo Bon-joon disposed of LG Corp shares through a block deal instead of a swap, causing an 8% drop.

Last Week in Event SPACE: Outsourcing, Boral, Itoki, CIMC Vehicle, Dissentient Shareholder Rights

There is no suggestion of precondition breach attached to Outsourcing Inc (2427 JP)‘s impairment losses.
Seven Group, now holding 71.6%, has returned to the well, and made a cash/scrip Offer for shares not owned in Boral (BLD AU), with certain tendering thresholds triggering more cash.
Itoki Corp (7972 JP)‘s mega ToSTNeT-3 buyback is now done.

STAR50 Index Rebalance: Three Changes a Side; One Surprise Change

There are three constituent changes for the SSE STAR50 (STAR50 INDEX) at the March rebalance. One inclusion and one non-inclusion are surprises.
One way turnover is estimated at 2.9% and will result in a one-way trade of CNY 4,075m with over 2.5x ADV to trade on all constituent changes.
The adds have outperformed the deletes over the last few months with a jump in the last few trading sessions. There could be more outperformance over the next two weeks.

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Feb 24

Daily Brief Event-Driven: EQD | Where to BUY the KOSPI On The Upcoming Pullback and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

EQD | Where to BUY the KOSPI On The Upcoming Pullback

EQD | Where to BUY the KOSPI On The Upcoming Pullback

By Nico Rosti

The KOSPI 200 INDEX has been rallying since January 2022, roughly up +22.5%, the rally can continue, but soon there could be a pullback, possibly this coming week.
If the index falls from its current highs, where are the best support levels to go LONG again?
The price area between 355 and 345 is where the index could find support and resume the uptrend.

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Feb 23

Daily Brief Event-Driven: The Launch of 1st Corporate Value Up ETF on 27 February – Focus on Low PBR and Cash Flow and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

The Launch of 1st Corporate Value Up ETF on 27 February – Focus on Low PBR and Cash Flow
CSR (CSR AU): Saint Gobain’s $9/Share NBIO
Quiddity Leaderboard S&P 500 Mar 24: Big Index Flows Possible for Workday and KKR
FnGuide Semiconductor Top10 Index Rebalance Preview: One Change Likely; Close Among Potential Adds
FnGuide Top10 Equal Weight Index Rebalance Preview: Celltrion Could Replace Samsung SDI
HK CEO & Director Dealings (23 Feb 2024): Fast Retailing, Far East Consortium, Pharmaron Beijing
Start of Acceptance Period with Guaranteed Success

The Launch of 1st Corporate Value Up ETF on 27 February – Focus on Low PBR and Cash Flow

By Douglas Kim

Samsung Asset Management announced today that it will be launching the first Corporate Value Up ETF on 27 February. It will focus on low PBR and positive cash flow generators.
This ETF which will be called KoAct Dividend Growth Active ETF. There are about 45 stocks that are expected to be included in this ETF.
Among the 92 companies in KOSPI 200 that are trading at less than 1x PBR, those that generate positive free cash flow are outperforming significantly.

CSR (CSR AU): Saint Gobain’s $9/Share NBIO

Cie De Saint-Gobain (SGO FP) is offering CSR (CSR AU) shareholders A$9/share by way of a Scheme, a 34% premium to last close. That’s a knockout price.
The Offer is indicative. Confirmatory due diligence is ongoing. CSR board has, not surprisingly “unanimously resolved to pursue the offer at an agreed price of A$9.00“.
A firm offer would be subject to FIRB and shareholder approval. Neither should pose an issue. Assuming a firm Offer is shortly forthcoming, this could be wrapped up late-July

Quiddity Leaderboard S&P 500 Mar 24: Big Index Flows Possible for Workday and KKR

The S&P 500 index tracks the 500 largest names listed in the US and it is one of the most highly-tracked indices in the world.
The index is reviewed quarterly. The next review will be in March 2024 and the evaluation date for the rankings for the constituent selection process is 29th February 2024.
In this insight, we take a look at Potential ADDs and Potential DELs for the rebalance. We estimate US$13.1bn one-way flow on 3 ADDs and 3 DELs.

FnGuide Semiconductor Top10 Index Rebalance Preview: One Change Likely; Close Among Potential Adds

ISC Co Ltd (095340 KS) could replace Wonik Ips (240810 KS) in the FnGuide Semiconductor Top10 Index at the April rebalance.
Jusung Engineering (036930 KS) is ranked just behind ISC Co Ltd (095340 KS) and could be added to the index instead depending on relative price performance.
Shorts on ISC Co (095340 KS) have been stable over the last few months while there has been big covering on Wonik Ips (240810 KS) and Jusung Engineering (036930 KS).

FnGuide Top10 Equal Weight Index Rebalance Preview: Celltrion Could Replace Samsung SDI

The Samsung KODEX Fn Top10 Equal Weight ETF (395170 KS) tracks the FnGuide Top 10 Equal Weight Index and has an AUM of US$241m.
We expect Celltrion Inc (068270 KS) will replace Samsung SDI (006400 KS) in the index at the March rebalance.
There will be 0.26x ADV to buy in Celltrion Inc (068270 KS) while passives will need to sell 0.17x ADV of Samsung SDI (006400 KS).

HK CEO & Director Dealings (23 Feb 2024): Fast Retailing, Far East Consortium, Pharmaron Beijing

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
The key stocks mentioned in this regular insight are Fast Retailing (9983 JP), Hang Lung (10 HK), Far East Consortium International (35 HK), and Pharmaron Beijing (3759 HK).

Start of Acceptance Period with Guaranteed Success

By Jesus Rodriguez Aguilar

Spanish renewables group Opdenergy Holdings (OPDE SM) will exit the stock market upon closing of Antin Infrastructure Partners (ANTIN FP)‘s takeover bid. The company is scheduled to delist on 23 April.
Minimum acceptance condition is 75%. Antin had 71.2% irrevocables, which together with a letter of intention for 6.09%, should mean the threshold is crossed.
Spread is 0.68%/7.54% (gross/annualised, assuming settlement on 26 March). Long and tender.

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Feb 22

Daily Brief Event-Driven: Korea NPS Abruptly Joins Corporate Value Up Program: According to Document Obtained from NPS and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Korea NPS Abruptly Joins Corporate Value Up Program: According to Document Obtained from NPS
Itoki (7972 JP) – Worth Thinking About Post Mega ToSTNeT-3 Buyback
Azure Minerals (AZS AU): MinRes Selling Out Paves the Way for the Scheme
Union Bank of India (UNBK IN) Placement: Using Index Inclusion Well
Azure (AZS AU): MinRes’ Discounted Exit
NPS Plans to Select Three Asset Management Companies For “Corporate Value Up” Program
China Traditional Chinese Medicine (570 HK): Sinopharm-Led Pre-Conditional Offer at HK$4.60
TCM (570 HK): Sinopharm’s $4.60/Share Offer
CSR Ltd (CSR AU): Saint-Gobain’s A$9/Share Offer
CSR (CSR AU): Saint-Gobain’s Non-Binding Proposal at A$9.00

Korea NPS Abruptly Joins Corporate Value Up Program: According to Document Obtained from NPS

NPS abruptly joins ‘Corporate Value Up Program’, plans to select three asset managers. Deadline: this month’s 29th; results: March 19th, possibly linked to Korea Premium Index ETF launch in mid-May.
The document outlines guidelines, allocating 90-100% to value stocks, with KOSDAQ under 20%. While benchmarked to the internally-built index, it will likely focus on Korea Premium Index and KOSDAQ Global.
The fund size is crucial. NPS will disclose details later. But still, there is considerable room to this year’s ceiling for local equity; a significant amount could flow into this.

Itoki (7972 JP) – Worth Thinking About Post Mega ToSTNeT-3 Buyback

As discussed in Itoki (7972) Mammoth Buyback Coming Imminently After 35% Jump, the company was going to do a mega ToSTNeT-3 buyback between then and end-Feb. That happened this morning.
The company bought back 7.966mm shares (13.96%) for ¥15.9bn. That should have cleared out the bulk of the risk of the original warrant holders who bought in 2020. But…
The dilution/accretion don’t offset perfectly, and there is a clause suggesting how this might play out from here. But we can infer things from other data we now have.

Azure Minerals (AZS AU): MinRes Selling Out Paves the Way for the Scheme

The AFR reports that JPMorgan is selling 14.5% of Azure Minerals (AZS AU) shares at A$3.42. The primary seller is said to be Mineral Resources (MIN AU), seeking to exit.
MinRes’ decision to sell out a discount rather than accept the scheme A$3.70 offer reflects the cost of securing a say on Andover and the opportunity cost of capital.
The transaction booklet will be despatched in early March. At the last close and for an early May scheme payment, the gross/annualised spread is 2.5%/13.4%.

Union Bank of India (UNBK IN) Placement: Using Index Inclusion Well

Union Bank Of India (UNBK IN) is looking to raise up to INR 30bn (US$362m) with the floor price set at INR 142.78/share and a maximum discount of 5%.
The stock has run up a lot and with index inclusion around the corner, this is as good a time as any to issue stock.
Union Bank Of India (UNBK IN) trades cheaper than peers and could continue to outperform over the near-term.

Azure (AZS AU): MinRes’ Discounted Exit

JPMorgan is placing MinRes (MIN AU)‘s 14.5% stake in Azure Minerals (AZS AU) at A$3.42/share, a 5% discount to last close and a 7.6% discount to the A$3.70/share Scheme price.
It was reported last month that MinRes, who paid up to ~A$4.00/share for some of its stake, was looking to exit. But cash now vs. ~8% more in two months?
Given the recent rout in lithium and nickel prices, one wonders if a MAC landmine lurks. Or, quite simply, MinRes just needs the cash. Expect Azure to fall tomorrow.

NPS Plans to Select Three Asset Management Companies For “Corporate Value Up” Program

By Douglas Kim

On 21 February, NPS announced that it will select three domestic asset management companies to manage funds that will be allocated to the “corporate value up” program.
NPS plans to accept proposals from the local asset management and investment advisory companies from 21 to 29 February. NPS is likely to finalize the selected candidates sometime in March.
We provide a list of 34 companies where the NPS has at least 5% ownership stake, with PBR of 0.5x or less, and included in KOSPI 200.

China Traditional Chinese Medicine (570 HK): Sinopharm-Led Pre-Conditional Offer at HK$4.60

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 pre-condition relates to various Chinese regulatory approvals. As SOE entities own the offeror, regulatory approvals will be a formality. The offer price is final.
Ping An Insurance (H) (2318 HK), which holds a blocking stake, will be supportive. The offer is fair when the previously (higher) rumoured offers are adjusted for the market downturn.

TCM (570 HK): Sinopharm’s $4.60/Share Offer

$4.60/Share. That’s the number – by way of a Scheme – that only matters. Below the recently rumoured $6/share, and $5.10/share a little over three years ago. Terms are final.
As widely expected, the Offeror is SASAC-managed China National Pharmaceutical Group Corporation (CNPGC), indirectly owning 32.46% in China Traditional Chinese Medicine (570 HK) (TCM) via Sinopharm Group Hongkong,
Optically, the Offer price appears light. But this should still get up. TCM is trading rich to peers. No other competing bidder will emerge. Expect regulatory pre-cons to be fast-tracked.

CSR Ltd (CSR AU): Saint-Gobain’s A$9/Share Offer

Cie De Saint-Gobain (SGO FP) has approached CSR Ltd (CSR AU) with a non-binding indicative offer to acquire all of CSR’s shares at A$9/share via a scheme of arrangement.
At the last close of CSR (pre-trading halt) the gross spread to the offer price is 13.21%. That will close significantly once the stock resumes trading.
Given the large premium to the last close, at a price higher than the highest high, and support from the CSR Board, the deal should go through.

CSR (CSR AU): Saint-Gobain’s Non-Binding Proposal at A$9.00

In response to media speculation, Cie De Saint-Gobain (SGO FP) confirmed a non-binding proposal for CSR Ltd (CSR AU) at A$9.00, a 32.9% premium to the undisturbed price.
Saint-Gobain is conducting confirmatory due diligence. CSR is at a trading halt concerning receiving a proposal regarding a potential material transaction involving CSR.
Shareholders should be supportive as the offer represents a 15-year high. The timing of a binding agreement is the key risk.

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Feb 21

Daily Brief Event-Driven: Snow Peak (7816) – Bain Deal at ¥1 and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Snow Peak (7816) – Bain Deal at ¥1,250 – 46% Premium Is Nice, Not A Home Run
Quiddity Leaderboard MV J-Gold Miners Mar 24: One High-Conviction DEL and More Low-Conviction Cases
Monitoring LG Display’s Stock Rights Trading
CIMC (1839 HK): Justification For Unjust Offer Price?
HSCEI Dividend Futures: Shrinking OI; Fair Value Estimates Show Upside
Snow Peak (7816 JP): Bain-Backed MBO at JPY1,250
JSE Mar ’24 Rebalance: No T40 or T40 SWIX Changes Expected
China Traditional Chinese Medicine (570.HK) – New Information on Privatization
Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)
EQD | NIFTY’s Rally Resistance Targets Approaching: Reversal?

Snow Peak (7816) – Bain Deal at ¥1,250 – 46% Premium Is Nice, Not A Home Run

The possibility/likelihood of a “¥50bn MBO” for Snow Peak Inc (7816 JP) was leaked in a Nikkei article last Friday. It went limit up two days in a row.
That TOB price is more than 70% off its three-year high. That will certainly disappoint some. Separately, the price seems a bit low given growth.
The family and friends own ~42% so if someone gets upset, or uppity, there could be a challenge. Just because an MBO exists doesn’t mean people have to tender in.

Quiddity Leaderboard MV J-Gold Miners Mar 24: One High-Conviction DEL and More Low-Conviction Cases

The MV J-Gold Miners index represents the performance small-cap gold and silver mining companies listed around the world.
This index is reviewed semi-annually in March and September. During these reviews, names can be added or deleted from the index.
In this insight, we take a look at the potential ADDs and DELs and our flow expectations for the index rebal event in March 2024.

Monitoring LG Display’s Stock Rights Trading

LG Display’s tight stock rights trading prompts a need to assess potential trading opportunities. Taihan Electric Wire’s concurrent capital increase warrants close observation.
Watch for a potentially wider spread in Taihan Electric Wire’s stock rights trading from the 22nd, given local institutional demand focus on LG Display may create a buying vacuum.
Observers speculate on a CJ CGV-like pattern at LG Display. With no current market movements, predicting such a scenario is difficult. Nonetheless, I’ll monitor closely and share any developments.

CIMC (1839 HK): Justification For Unjust Offer Price?

On the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a forgettable 8.6% premium to last close.
This Voluntary Offer followed by a Merger by Absorption requires shareholder approval and SAFE signing off. The SAFE condition was satisfied on the 26th Jan.
Last night, CIMC announced the CBP investigation into the evasion of U.S. anti-dumping and countervailing duties was extended. There is no mentioned in interim accounts or HKEx of this investigation.

HSCEI Dividend Futures: Shrinking OI; Fair Value Estimates Show Upside

The open interest of the HSCEI 2024 dividend futures is less than half that of the HSCEI 2023 and HSCEI 2022 open interest at the same time of the year.
Market volatility and the fallout of the losses faced by Korean investors (and the scrutiny of Korean ELS-issuing banks) are among the primary reasons for the low open interest.
Our fair value for the HSCEI 2024 dividend futures is higher than the current market but there is a lot of sensitivity to bank dividends and special dividends.

Snow Peak (7816 JP): Bain-Backed MBO at JPY1,250

Snow Peak Inc (7816 JP) has recommended a Bain Capital-sponsored MBO tender offer at JPY1,250 per share, a 58.0% premium to the undisturbed price (15 February).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 38.13% ownership ratio.
Based on the irrevocables, the minimum acceptance condition requires a 52.8% minority acceptance rate. While not a knockout offer, the acceptance condition is achievable.

JSE Mar ’24 Rebalance: No T40 or T40 SWIX Changes Expected

By Charlotte van Tiddens, CFA

Last night the price snapshot was taken for the March 2024 rebalance.
We do not expect there to be any changes to the Top 40, Top 40 SWIX, FINI, FINDI or INDI.
EXX is expected to enter the RESI with NPH falling out.

China Traditional Chinese Medicine (570.HK) – New Information on Privatization

By Xinyao (Criss) Wang

Since China TCM doesn’t deny the rumors so far after the trading halt, privatization is becoming likely this time.Rumor said formal negotiations may not begin until after the Lantern Festival.
CNPGC may not want to pay high prices on privatization.Weak sentiment/share price may help with the negotiations.But the key is to obtain the consent of other shareholders, especially Ping An.
There’s underlying logic for Taiji Group to drive this privatization. A price of higher than HKD5.1 is possible. If the price could reach HKD6 (or higher), it has exceeded expectations.

Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

Amazon.com Inc (AMZN US) will replace Walgreens Boots Alliance (WBA US) in the Dow Jones Industrial Average (INDU INDEX) at the close on 23 February.
Passives will need to sell a lot of Walmart (WMT US) following the 3:1 stock split and buy a lot of Amazon.com Inc (AMZN US).
Given the ad hoc nature of the rebalances and the short timeline between announcement and implementation, the stocks could move over the rest of the week.

EQD | NIFTY’s Rally Resistance Targets Approaching: Reversal?

By Nico Rosti

The NIFTY Index has been rising for 5 days in a row, this is the second week up (CC=+2), there is a good chance it will pullback soon.
The index is going towards the Q3 resistance level at 22354, that would be a good area from where to start to prepare for a pullback.
Going SHORT may not be worth it, the right trade is to wait for the pullback and go LONG again at better prices.

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Feb 20

Daily Brief Event-Driven: Outsourcing (2427 JP) – Earnings Out and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Outsourcing (2427 JP) – Earnings Out, With a Bigger Impairment, But Not Clearly A MAC
Outsourcing (2427 JP): The Weak 4Q Unlikely to Deter Bain
Seven Group Reloads On Boral (BLD AU)
Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: One Deletion & Capping Changes
Offshore China ETFs Rebalance Preview: Big Price Moves Could Lead to Four Changes
FXI Rebalance Preview: Three Potential Changes as Big Moves Unfold
APM Human Services (APM AU) Rejects CVC’s NBIO
Quiddity Leaderboard TDIV Mar 24: 8 Days to Sell in Bizlink
Quiddity Leaderboard T50/100 Mar 24: Bizlink TDIV DEL; Foxtron’s Futile Rally; One More Surprise
Taiwan Top 50 ETF Rebalance Preview: Alchip (3661) Could Replace Feng Tay (9910)

Outsourcing (2427 JP) – Earnings Out, With a Bigger Impairment, But Not Clearly A MAC

Outsourcing Inc (2427 JP) delayed its earnings from 14 February to 19 February on tardiness in calculating impairment losses. That caused a short sharp shock in share price.
An article came out suggesting it was a small number, and domestic biz EAS-related. Results today do not suggest EAS-related, and half is overseas. But no suggestion of precondition breach.
For that, I think this probably goes through, and the EC FSR review period should end on 20 Feb so a deal announcement by Friday is eminently possible.

Outsourcing (2427 JP): The Weak 4Q Unlikely to Deter Bain

Outsourcing Inc (2427 JP) has disclosed a weak 4Q materially below guidance due to cost overruns and JPY6,875 million in impairments. The results did not provide an update on Bain’s tender.
The weak 4Q has raised concerns that Bain would reconsider terms. Our take is that the results will not warrant a change in the DCF valuation or breach a pre-condition.
Bain is likely to consider the results a reflection of near-term industry weakness rather than company-specific issues. The annualised spread for a March-end completion is 9.8%.

Seven Group Reloads On Boral (BLD AU)

After Boral (BLD AU) rejected Seven Group (SVW AU)‘s $6.50/share Offer in 9 June 2021, Seven bumped to $7.30 cash if they got to 29.5%, and $7.40 if 34.5%.
Seven reached 29.5% by July 1, 34.5% less than a week later, then 52.65% on the 15 July, and at the close of the Offer (29 July 2021), held 69.6%.
Seven, now holding 71.6%, has made a cash/scrip Offer for shares not owned, with certain tendering thresholds triggering more cash. Terms are best & final.

Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: One Deletion & Capping Changes

Bizlink Holding (3665 TT) should be deleted from the Yuanta/P-Shares Taiwan Dividend Plus ETF in March and that will trigger selling of over 8 days of ADV.
There will be capping and funding flows due to the higher AUM and passive trackers will need to trade over 0.4x ADV in 5 stocks.
Shorts have covered positions in Bizlink Holding (3665 TT) but there has been a recent uptick that could be linked to positioning for the rebalance.

Offshore China ETFs Rebalance Preview: Big Price Moves Could Lead to Four Changes

As of the review cutoff date of 19 February, there could be four changes for the iShares A50 China (2823 HK) / CSOP China A50 (HKD) (2822 HK) in March.
Shaanxi Coal Industry, Hygon Information Technology, CGN Power and China Everbright Bank could replace Aier Eye Hospital Group, Bank Of Ningbo, WuXi AppTec and Jiangsu Yanghe Brewery.
CGN Power (1816 HK) is a potential iShares China Large-Cap (FXI) (FXI US) inclusion while Hygon Information Technology C (688041 CH) is an inclusion to a global index in March.

FXI Rebalance Preview: Three Potential Changes as Big Moves Unfold

With the review period complete, there could be 3 changes for the iShares China Large-Cap (FXI) (FXI US) in March.
CGN Power (1816 HK), Yankuang Energy (1171 HK) and China Coal Energy (1898 HK) could replace Wuxi Biologics (2269 HK), China Resources Beer (291 HK) and China Vanke (2202 HK).
Short interest on China Vanke (H) (2202 HK) and Yankuang Energy Group (1171 HK) is higher than the other stocks and there could be covering on implementation day.

APM Human Services (APM AU) Rejects CVC’s NBIO

Employment and disability services play APM Human Services (APM AU) has rejected PE-outfit CVC Asia Pacific’s proposal, which valued APM at less than half of its November 2021 IPO price.
APM confirmed it had received – on Friday, 16 February – a conditional and non-binding A$1.60/share indicative proposal. That’s a 93% premium to undisturbed. Yet, APM’s IPO Price was A$3.55/share.
CVC – and other suitors – need to persuade executive chair and founder Megan Wynne and US private equity group Madison Dearborn, who collectively control ~65% of the company.

Quiddity Leaderboard TDIV Mar 24: 8 Days to Sell in Bizlink

By Janaghan Jeyakumar, CFA

In this insight, we take a look at Quiddity’s flow expectations for the March 2024 index rebal event.
Today is the base date for the March 2024 index rebalance. Based on the closing prices today, I expect one DEL for the TDIV index in March 2024.
Separately, I also expect the AUM assumption to be revised in March 2024.

Quiddity Leaderboard T50/100 Mar 24: Bizlink TDIV DEL; Foxtron’s Futile Rally; One More Surprise

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the names leading the race to become ADDs/DELs for the T50 and T100 Indices for the March 2024 index rebal event.
I expect one change for the T50 index and two other changes for the T100 index.
The two T100 expected DELs are special because one could be a surprise deletion due to liquidity test failure and the other one is TDIV member with significant flow implications.

Taiwan Top 50 ETF Rebalance Preview: Alchip (3661) Could Replace Feng Tay (9910)

With the review period complete, Alchip Technologies is a high probability inclusion and Feng Tay Enterprise is a high probability deletion for the Yuanta/P-Shares Taiwan Top 50 ETF in March.
Passive trackers will need to buy around 0.4x ADV in Alchip Technologies (3661 TT) and sell 4x ADV in Feng Tay Enterprise (9910 TT).
There will be positioning in both stocks, though it appears larger in Alchip Technologies (3661 TT) as compared to Feng Tay Enterprise (9910 TT).

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Feb 19

Daily Brief Event-Driven: HSCI Index Rebalance: 25 Adds and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

HSCI Index Rebalance: 25 Adds, 29 Deletes & Changes to Southbound Stock Connect
HSTECH Index Rebalance: Tongcheng (780 HK) In; GDS (9698 HK) Out; Round Trip Trade US$1bn
Snow Peak (7816 JP): Bain Contemplating Backing an MBO at JPY1,200
What We’ve Gathered Thus Far Regarding KOREA PREMIUM INDEX: Schedule, Methodology, & NPS
Hang Seng Internet & IT Index Rebalance: Three Changes & One Big Surprise
Merger Arb Mondays (19 Feb) – Outsourcing, JSR, Shinko, YSK, Vinda, Altium, Azure, Ansarada
STTF Index Rebalance Preview: One High Probability Change in March
Boral (BLD AU): Seven Group (SVW AU)’s Best & Final Offer
Liquid Universe of European Ordinary and Preferred Shares: February‘24 Report

HSCI Index Rebalance: 25 Adds, 29 Deletes & Changes to Southbound Stock Connect

There are 25 adds and 29 deletes for the Hang Seng Composite Index (HSCI) at the March rebalance to take the number of index constituents down to 514.
We expect 21 of the 25 HSCI inclusions to be added to Stock Connect while we expect 27 of the 29 HSCI deletions to be removed from Southbound Stock Connect.
Since the start of the year, shares held though Southbound Connect have increased on 22 of the 29 HSCI deletions and there could be some unwinding in the weeks ahead.

HSTECH Index Rebalance: Tongcheng (780 HK) In; GDS (9698 HK) Out; Round Trip Trade US$1bn

As expected, Tongcheng Travel Holdings (780 HK) will replace GDS Holdings (9698 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the close on 1 March.
Estimated one-way turnover is 3.9% leading to a round-trip trade of HK$7.74bn (US$988m). There is nearly 14x ADV to buy in Tongcheng Travel Holdings (780 HK).
Positioning in Tongcheng Travel (780 HK) does not appear to be very high, while positioning in GDS Holdings (9698 HK) is very high with a couple of deletions coming up.

Snow Peak (7816 JP): Bain Contemplating Backing an MBO at JPY1,200

The Nikkei reports that Snow Peak Inc (7816 JP) is set to disclose a Bain-sponsored MBO this week “in the range of 1,200 yen per share.”
Mergermarket first disclosed a potential MBO on Friday. Snow Peak responded that while it is true that we are considering going private, no decision has been made at this time.
The rumoured JPY1,200 offer price is light vs historical trading ranges but attractive vs peer and historical multiples. The probability of an offer materialising is high.

What We’ve Gathered Thus Far Regarding KOREA PREMIUM INDEX: Schedule, Methodology, & NPS

The Feb 26th announcement introduces the Corporate Value Up Program and unveils the Korea Premium Index direction. Methodology finalization expected by mid-March; ETFs launch by mid-May.
Similar to JPX Prime 150, KRX aims to target enhancing equity spread and PBR trends (+1.0x) while also integrating dividend growth rate. KOSDAQ stocks may be omitted.
NPS’s role is vital for the Korea Premium Index, yet aligning its passive strategy with this index faces challenges. Ongoing discussions aim to adjust regulations for this index investment.

Hang Seng Internet & IT Index Rebalance: Three Changes & One Big Surprise

There will be 3 changes for the Hang Seng Internet & Information Technology Index (HSIII) at the March rebalance. There are some surprises.
Estimated one-way turnover at the rebalance is 5.6% resulting in a round-trip trade of HK$3.26bn (US$416m). 6 stocks will have over 1x ADV to trade.
There is huge short interest on East Buy Holding (1797 HK) and there could be some short covering ahead of the inclusion of the stock in the index.

Merger Arb Mondays (19 Feb) – Outsourcing, JSR, Shinko, YSK, Vinda, Altium, Azure, Ansarada

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 – Probiotec Ltd (PBP AU), Shinko Electric Industries (6967 JP), Genetron Holdings Ltd (GTH US), JSR Corp (4185 JP), Lithium Power International (LPI AU), Altium Ltd (ALU AU).
Lowest spreads – Tietto Minerals Ltd (TIE AU), Pact Group Holdings (PGH AU), Orecorp Ltd (ORR AU), QV Equities Ltd (QVE AU), Yaizu Suisankagaku Industry (2812 JP).

STTF Index Rebalance Preview: One High Probability Change in March

Emperador (EMI SP) fails the liquidity test and could be sold by the SPDR Straits Times Index ETF (STTF SP) in March.
Emperador (EMP PM) will also be sold by global index trackers in March and the stock should remain under pressure for the next few weeks.
Frasers Centrepoint Trust (FCT SP) is ranked ahead of CapitaLand Ascott Trust (CLAS SP) by 9% on full market cap and should be added to the ETF in March.

Boral (BLD AU): Seven Group (SVW AU)’s Best & Final Offer