Event-Driven

On the 8th April, Azure Minerals (AZS AU) shareholders overwhelmingly approved the Sociedad Quimica y Minera (SQM US)/Gina Rhinehart’s Hancock transaction. Shares promptly closed down 7% on regulatory approval fears.
Those fears are unwarranted. China’s Tianqi Lithium would indirectly own just ~11% in Azure post-deal. China has recently lifted anti-dumping tariffs on a range of Aussie products. FIRB won’t block.
An expected approval may have spurred Gina to buy more shares in Lynas (LYC AU). Why buy now if FIRB dings Azure; that outcome would push the whole sector lower.

Shinko Electric (6967 JP): Widening Spread Is an Opportunity

Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread widened from a low of 3.1% on 14 March to 7.0%.
The widening spread can be attributed to China SAMR approval timing, earnings risk, Ibiden Co Ltd (4062 JP)’s material underperformance lowering the break price and a large fund liquidating positions.
The deal break risks remain low with the timing remaining the key risk. The current 7.0% spread is an attractive opportunity to add.

Inageya (8182 JP): Share Exchange Offer from USMH (3222 JP)

Inageya Co Ltd (8182 JP) announced a share exchange offer by United Super Markets (3222 JP) at 1.46 USMH shares per Inageya share.
The share exchange aligns with Aeon Co Ltd (8267 JP)’s well-flagged intention of making Inageya a wholly-owned subsidiary of USMH.
Aeon’s 50%+ shareholding in Inageya and USMH facilitates the two EGM votes. The deal metrics are broadly fair for both sets of shareholders.

SoftBank (9984 JP): Arm Out-Stretched (On Valuation) And Is JPY Depreciation Largely Done?

By Victor Galliano

Arm – which we estimate accounts for 45% of SoftBank group’s equity value – is experiencing limits to its “growth at any price” stock status; the shares fell 12% yesterday
The JPY’s depreciation is supportive of the group NAV, but with the Fed’s hawkish stance well known and BoJ expected to raise interest rates, JPY weakness may be largely done
SoftBank shares trade at a wide 53%+ discount to the estimated NAV; yet we see downside risks to Arm’s valuation, along with the potential for JPY weakness to reverse

NPN X PRX: Discounts Widen as Fed Pivots on Rate Outlook

By Charlotte van Tiddens, CFA

The discounts of both Naspers and Prosus have widened during the last 5 trading sessions.
We see current levels as attractive entry points for trading the rump.
In our view, there are a number of fundamental factors that could act as positive catalysts to a further structural narrowing of the discount.

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Apr 18

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

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Shinko Electric (6967) – Break/Gap Risk Update
JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters
Hang Lung Group: Thoughts On HLP’s Scrip Dividend
Hang Lung Properties (101 HK): Scrip Div Helps the Family to Chip Away at Minorities
Lynas (LYC AU): Gina’s Stake Revives MP Materials Merger
ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices
Hollysys (HOLI US): This Is A Buy
Lock&Lock Tender Offer: Different Trading Angles Compared to Recent Ssangyong C&E Case
Lock & Lock: Affinity Equity Partners Offers a Tender Offer of a 30% Stake at 8,750 Won Per Share
Quiddity Leaderboard ASX Jun 24: A Couple of Intra-Review Changes Likely

Shinko Electric (6967) – Break/Gap Risk 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.
12wks 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 5wks ago, reco’d trimming.
Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.

JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters

Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer.
That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence.
News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been.

Hang Lung Group: Thoughts On HLP’s Scrip Dividend

And eagle-eyed reader spotted Hang Lung Properties (101 HK)‘s scrip dividend option for the FY23 final dividend. That’s the first time I’ve seen HLP provide this alternative.
Over the years, the Chan family and Hang Lung (10 HK) have chipped away at HLG’s and HLP’s minorities. HLP and HLG are currently trading at all-time low P/Bs.
This scrip dividend, which takes a page out of Jardine Matheson (JM SP)‘s playbook, would boost HLG’s stake in HLP to ~63% from 61.24% currently; if opting only for scrip.

Hang Lung Properties (101 HK): Scrip Div Helps the Family to Chip Away at Minorities

In its final results on 30 January, the Hang Lung Properties (101 HK) board declared a final dividend of HK$0.60 per share, which can be paid in cash or by scrip.
The Chan family’s share of outstanding shares has steadily increased from 53.15% in 2013 to 61.89%. The scrip dividend could increase the family to 63.57% of post-dividend outstanding shares.
The Chan family have plenty of headroom to chip away at minorities before breaching the 25% public float requirements. HPL’s valuation is undemanding, but a privatisation offer is unlikely.

Lynas (LYC AU): Gina’s Stake Revives MP Materials Merger

Lynas Corp Ltd (LYC AU) is the proverbial Aussie battler. Post the 2018 general elections, the new Malaysian government put Lynas on notice it may halt it rare-earth operations.
Since then, Lynas’ Malaysian facility, which cuts into China’s near-monopoly on processing elements for defense/aerospace/EV/electronics industries, has (mostly) operated without substantial disruptions. Profit peaked in FY22; but has since rolled-over.
Gina Rhinehart’s Hancock has now disclosed a 5.82% stake in Lynas; having disclosed a 5.3% stake in MP Materials (MP US) earlier this month. Lynas confirmed discussions with MPM in February.

ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices

Nearing the end of the review period, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
There are overlapping names for the two indices and some of the stocks will also have flows from the CSI Smallcap 500 Index – Shang (SH000905 INDEX) trackers.
The potential adds have outperformed the potential deletes between 9-10% for both indices over the last month with the deletes dropping a lot more than the adds.

Hollysys (HOLI US): This Is A Buy

On the 8th February 2024, 85% of Hollysys Automation (HOLI US ) shareholders present and via proxy, voted for Ascendent Capital’s Offer. After three-plus years, the end was finally in sight.
Then crickets. The merger was to complete in the 1Q. On the 15th April, HOLI released an accountant resignation notice. No word on dissenters or regulatory approvals. Shares sold off.
The accountant resignation is a nothing burger. HOLI should lift their game and provide more transparency on the outstanding merger conditions. Still, the spread is attractive. This is a buy.

Lock&Lock Tender Offer: Different Trading Angles Compared to Recent Ssangyong C&E Case

The tendering price is ₩8,750, roughly 7% higher than the last close. However, Affinity’s commitment makes this event noteworthy.
Lock&Lock requires Affinity to target 30%. To reach 95%, securing 25% is needed, much higher than SsangYong C&E, indicating potential price volatility.
A second public offering is likely due to the widening gap between the ownership threshold and actual acquisition percentage in Lock&Lock. This could impact prices significantly during the tendering period.

Lock & Lock: Affinity Equity Partners Offers a Tender Offer of a 30% Stake at 8,750 Won Per Share

By Douglas Kim

On 17 April, Affinity Equity Partners offered a tender offer of a 30% stake in Lock & Lock at 8,750 won per share.
The tender offer period is from 18 April to 14 May. The number of shares that are included in this tender offer is 13.14 million shares (30.33% of outstanding shares).
Lock & Lock’s share price could trade higher close to the tender offer price of 8,750 won as the date as the end of the tender offer period approaches.

Quiddity Leaderboard ASX Jun 24: A Couple of Intra-Review Changes Likely

In this insight, we take a look at the potential index changes for ASX 200, 100, 50, and 20 in the run-up to the June 2024 index rebal event.
There are up to two intra-review changes possible between now and the June 2024 review which could triggered by the Silver Lake (SLR AU) and Boral (BLD AU) deals.
Separately, I see one ASX 20 change and two ASX 100 changes for the regular rebalance in June 2024.

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Apr 17

Daily Brief Event-Driven: Idemitsu (5019): First SumiChem’s and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Idemitsu (5019): First SumiChem’s, Now JERA’s Stake in Fuji Oil (5017) To Go to 22%. It’s Coming…
Market Chats About What Really Went Down with HPSP This Morning
Hollysys (HOLI US): Keep Calm as Closing Date Slips
Quiddity Leaderboard BSE/SENSEX Jun 24: Jio Financial Addition Creates New Possibilities
Megastudy Education: A Major Shareholder Return Policy in 2024-2026
J&T Global Express IPO Lock-Up Expiry – Tiny Float with 87%+ Stake Lockup Release Worth >US$8.8bn
Prysmian/Encore Wire: Agreed Offer
EQD | Hang Seng Down: Upcoming Bounce May Not Mean Rally Continuation

Idemitsu (5019): First SumiChem’s, Now JERA’s Stake in Fuji Oil (5017) To Go to 22%. It’s Coming…

In the mid-late teens, four refinery groups merged to create two refinery groups – JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.

Market Chats About What Really Went Down with HPSP This Morning

This morning’s HPSP (403870 KS) situation began with Maekyung’s report, indicating Crescendo PE contacted local bankers for the controlling stake sale.
The surge in HPSP’s stock price after Maekyung’s report suggests Crescendo PE’s tacit approval, implying their involvement in the news’s emergence.
Despite the likely confirmed sale of Crescendo PE’s stake, timing remains uncertain due to disclosure rules. Continued monitoring is vital, considering potential market reactions later.

Hollysys (HOLI US): Keep Calm as Closing Date Slips

On 15 April, Hollysys Automation Technologies (HOLI US) issued a 6-K filing stating that Ascendent remains in the process of obtaining regulatory approvals.
The gross spread has widened to 8% as the closing date has slipped from the end of March guidance, and an updated timeline is lacking.
A delay in securing regulatory approvals is not uncommon. However, regulatory approvals should be forthcoming as the transaction involves Chinese entities (including a SASAC entity) acquiring a Chinese-focused company.

Quiddity Leaderboard BSE/SENSEX Jun 24: Jio Financial Addition Creates New Possibilities

In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, and 200 Indices in the June 2024 index rebal event.
Wipro Ltd (WPRO IN)‘s deletion from Sensex is imminent but there are question marks over the top replacement names as this involves some subjectivity.
For BSE 100, Jio Financial Services (JIOFIN IN) is a new potential ADD and that has caused major changes to the index change expectations I had previously.

Megastudy Education: A Major Shareholder Return Policy in 2024-2026

By Douglas Kim

On 16 April, Megastudyedu Co, Ltd. (215200 KS) announced a major shareholder return plan, driving up its share price by 14.2% to 60,400 won.
Driven by this attractive shareholder return plan combined with improving fundamentals, we believe that Megastudy Education’s shares could continue to outperform the market in the next several months.
The total shareholder returns including share buybacks/cancellation and dividends are 60% of the company’s non-consolidated net profit from 2024 to 2026.

J&T Global Express IPO Lock-Up Expiry – Tiny Float with 87%+ Stake Lockup Release Worth >US$8.8bn

By Sumeet Singh

J&T Global Express, a global logistics provider, raised about US$500m in its Hong Kong IPO in Oct 2023. Its pre-IPO investors will be released from its IPO linked lockup soon.
As per Frost & Sullivan (F&S), the firm is the leading express delivery business in Southeast Asia, with a 25.4% market share as per 2023 parcel volume.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

Prysmian/Encore Wire: Agreed Offer

Prysmian SpA (PRY IM) agreed to acquire Encore Wire (WIRE US) for $290/share in cash, 29% premium to 90-day VWAP, implied EV of €4,264 million, 11x EV/NTM EBITDA and 16.9x Fwd P/E.
Encore wire has traded at an average 6.4x EV/EBITDA and 10.6x P/E over the last 5 years. I set my TP at $290. Synergies could be valued at $51/share.
The shares are trading slightly above the offer price. Gross spread is +0.2%. The volume traded since announcement has been very strong. There is room for some sweetening. Long.

EQD | Hang Seng Down: Upcoming Bounce May Not Mean Rally Continuation

By Nico Rosti

The HSI INDEX is currently down for the 2nd week in a row and it is quite oversold on a WEEKLY basis.
A temporary reversal could come as soon as this week or next week, but we don’t think this will mark a restart of the previous rally.
Look at the 16250-16050 area to go LONG, this is the area where the index most likely will print a temporary bottom.

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Apr 16

Daily Brief Event-Driven: Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments
Tietto Minerals (TIE AU): Zhaojin’s Revised and Final Takeover Offer Remains Light
Quiddity Leaderboard NIFTY Sep 24: Multiple Names Eligible for NIFTY 50 Addition
Kokusai Electric IPO Lock-Up – KKR Will Be Tempted by the US$2.7bn Release but Might Have to Wait

Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments

The local market anxiously awaits the family’s ability to pay by early May. Failure could prompt the Tax Service to sell their pledged stocks, including Hanmi Science shares.
Preventing Tax Service from selling Hanmi Science shares requires additional collateral, unlikely due to existing pledges. Rumor suggests mother and daughter may sell shares before May, followed by Tax Service.
Given negotiation uncertainty with KKR, it’s crucial to prepare for potential failure rather than solely relying on success, necessitating a pragmatic approach.

Tietto Minerals (TIE AU): Zhaojin’s Revised and Final Takeover Offer Remains Light

Tietto Minerals Ltd (TIE AU) has disclosed a revised conditional proposal from Zhaojin Mining Industry H (1818 HK) at A$0.68 per share, a 17.2% premium to the previous offer of A$0.58.
The offer is conditional on a 50.1% minimum acceptance condition (which can be waived). The offer is declared best and final.
Despite the bump, the offer is below the IE’s valuation range of A$0.79 to A$0.93 per share. The IE’s valuation range would be around 25% higher at current gold prices.

Quiddity Leaderboard NIFTY Sep 24: Multiple Names Eligible for NIFTY 50 Addition

NIFTY 50 represents the 50 largest stocks listed in the National Stock Exchange (NSE) of India and the NIFTY Next 50 index tracks the next 50 largest names.
In this insight, we take a look at the names leading the race to become ADDs/DELs for the NIFTY 50 and NIFTY Next 50 indices in the September 2024 rebalance.
There could be at least one change for NIFTY 50 and separately, there could be up to five changes for NIFTY Next 50.

Kokusai Electric IPO Lock-Up – KKR Will Be Tempted by the US$2.7bn Release but Might Have to Wait

By Sumeet Singh

KKR raised around US$730m via selling some stake in Kokusai Electric (6525 JP) Japan IPO in Sep 2023. Its remaining stake will be released from its IPO linked lockup soon.
KE main business activities consist of the manufacturing, sales and maintenance service of semiconductor manufacturing equipment.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

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Apr 15

Daily Brief Event-Driven: Pasona (2168 JP) Special Div – Too Small to Matter and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Pasona (2168 JP) Special Div – Too Small to Matter
Merger Arb Mondays (15 Apr) – Azure, Silver Lake, Genex, Boral, China TCM, C&F Logistics, Roland DG
HK Connect SOUTHBOUND Flows (To 12 Apr 2024); Strong Net Buying. New State Council and CSRC Plans
A/H Premium Tracker (To 12 Apr 2024): Liquid AH Premia Still Very Wide, The Right Spreads Behaving
Tietto Minerals (TIE AU): Zhaojin Mining Secures Reg Approvals. Then Bumps
Mainland Connect NORTHBOUND Flows (To 12 Apr 2024): NB A Net Seller; Flows See Semi/Tech Buys
EQD / NSE Volatility Update / 08-Apr-24 to 12-Apr-24

Pasona (2168 JP) Special Div – Too Small to Matter

On Friday, Pasona Group (2168 JP) announced its expected use of funds into the May 2024 results, including a special dividend plan, investment for growth, and “strengthening the operating platform.”
The plan will disappoint. The stock may get hit hard. The truth is somewhere in the middle. This is where active stewardship matters. So get stewarding.
A special div paid over 5yrs should be paid one-shot, now. If the company has plans worth supporting, set KPIs now, ask for money later. Good plans get good money.

Merger Arb Mondays (15 Apr) – Azure, Silver Lake, Genex, Boral, China TCM, C&F Logistics, Roland DG

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: Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), QV Equities Ltd (QVE AU), Silver Lake Resources (SLR AU), Azure Minerals (AZS AU), China TCM.
Lowest spreads: Tietto Minerals Ltd (TIE AU), Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU).

HK Connect SOUTHBOUND Flows (To 12 Apr 2024); Strong Net Buying. New State Council and CSRC Plans

A shares were down on the week, not maintaining the month-end bounce after the long weekend. H-shares were mixed. HSCEI was slightly up.
Net SOUTHBOUND buying was +HK23bn. SOUTHBOUND ended its consecutive post-CNY daily net buy streak on 25 March, then started a new one. No net sell days since.
This week saw a LOT of news. State Council Nine Points. CSRC draft regs and legislative work plan. Ratings agency action. Lots of movement. None of it hugely positive.

A/H Premium Tracker (To 12 Apr 2024): Liquid AH Premia Still Very Wide, The Right Spreads Behaving

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. NORTHBOUND has started selling (but buying semi tech).
Hs rebounded vs As. AH Premia still wide. Fabulous two-week performance by the Quiddity Portfolio (+2.09% over the two weeks) on a delta 3:1 long H/short A

Tietto Minerals (TIE AU): Zhaojin Mining Secures Reg Approvals. Then Bumps

On the 30 October 2023, Chinese gold producer Zhaojin Mining Industry (1818 HK) pitched a non-binding off-market Offer for Aussie-listed West African gold miner Tietto Minerals (TIE AU).
Zhaojin held 7.02% of shares out, and sought 50.1%. Tietto subsequently rejected the A$0.58/share cash proposal. The IE backed out a fair value range of A$0.793-A$0.927/share.
Zhaojin has now announced it has secured all Chinese regulatory approvals; and that Côte d’Ivoire government approval is not required. Plus Zhaojin bumped terms to A$0.68/share – best and final.

Mainland Connect NORTHBOUND Flows (To 12 Apr 2024): NB A Net Seller; Flows See Semi/Tech Buys

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 SELL RMB 11.5bn of A-shares on low-ish volume. A-shares underperformed H-shares quite dramatically, giving back gains from two weeks ago.
This week saw considerable net buying of semiconductor technology names. I expect that to continue.

EQD / NSE Volatility Update / 08-Apr-24 to 12-Apr-24

By Sankalp Singh

Downtrend in IVs stall as market sentiment deteriorates. Vol Regime Model sticks to “High & Down” state.
Consider Equity Tail hedges/ buying OTM puts in current environment. Roll strikes lower if/when equities weaken further.
Skew compression seen in BankNifty options as preference for out-of-money puts wane. Skew selling an unsuitable strategy at current levels.

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Apr 14

Daily Brief Event-Driven: Genex Power (GNX AU): J-Power’s Binding Proposal as Skip’s Intentions Remain Unknown and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Genex Power (GNX AU): J-Power’s Binding Proposal as Skip’s Intentions Remain Unknown
Roland DG (6789) – Brother Still Not Making Friends
Ansarada (AND AU): Scheme Vote on 14 June
(Mostly) Asia-Pac M&A: APM Human Services, Jastec, Genex, JSR Corp, Chilled & Frozen, Lawson
Weekly Deals Digest (14 Apr) – L’Occitane, CGN New Energy, Azure, Genex, C&F Logistics, Riso Kyoiku
Genex (GNX AU) & J-Power (Finally) Firm Terms
Last Week in Event SPACE: Mitsui Fudosan, Melco, Aozora Bank, CGN New Energy

Genex Power (GNX AU): J-Power’s Binding Proposal as Skip’s Intentions Remain Unknown

Genex Power Ltd (GNX AU) has entered a transaction implementation deed with Electric Power Development C (9513 JP) for a scheme (A$0.275) and an off-market takeover offer (A$0.270).
Skip could vote against the scheme due to the low 10% premium to its 2022 offer and Genex’s operational capacity rising by 2.7x by the end of 2024.
The likely scenario is that J-POWER succeeds with its takeover offer. At the last close, the gross spread of the scheme and takeover offer was 3.8% and 1.9%, respectively.

Roland DG (6789) – Brother Still Not Making Friends

Taiyo Pacific’s Tender Offer for Roland DG Corp (6789 JP) was to end Friday, but it was extended 10 days.
Roland DG provided an update regarding the status of the Brother overbid. It did not show as much strategic-mindedness as it might have.
Shares are now trading at a post-overbid high. Strategic missteps up the risk but Brother can pay more.

Ansarada (AND AU): Scheme Vote on 14 June

The Ansarada Group Ltd (AND AU) IE considers Datasite’s A$2.50 scheme offer fair and reasonable. However, the inter-conditional carve-out transaction is NOT fair but reasonable.
ACCC clearance (findings on 6 June) is a prerequisite for FIRB approval (scheme condition). As Datasite has a limited Australian presence, ACCC approval should be forthcoming.
The offer is attractive, with no vocal shareholder opposition. At the last close and for the 1 July payment, the gross/annualised spread was 2.5%/12.2%.

(Mostly) Asia-Pac M&A: APM Human Services, Jastec, Genex, JSR Corp, Chilled & Frozen, Lawson

I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals discussed on Smartkarma this week: Madison Dearborn’s low-balled Offer for APM Human Services (APM AU); and NTT Data Corp (9613 JP)‘s Offer for Jastec (9717 JP).
Key updates took place on: Boral Ltd (BLD AU), Azure Minerals (AZS AU), Genex Power (GNX AU), JSR Corp (4185 JP), Chilled & Frozen Logistics Holdings (9099 JP), & Lawson (2651 JP).

Weekly Deals Digest (14 Apr) – L’Occitane, CGN New Energy, Azure, Genex, C&F Logistics, Riso Kyoiku

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: Kokusai Electric (6525 JP) and J&T Global Express (1519 HK) lock-ups. HD Hyundai Marine Solution (443060 KS), ZEEKR (ZK US)and Sichuan Baicha Baidao Industrial (SCBCBDID CH) IPOs.
Event-Driven developments L’Occitane (973 HK), CGN New Energy Holdings (1811 HK), Azure Minerals (AZS AU), Genex Power Ltd (GNX AU), Riso Kyoiku (4714 JP), Chilled & Frozen Logistics Holdings (9099 JP).

Genex (GNX AU) & J-Power (Finally) Firm Terms

On the 4 March, Genex Power (GNX AU) announced an A$0.275/share NBIO from Electric Power (9513 JP) (J-Power), by way of a Scheme, in tandem with an off-market A$0.27/share Offer.
Due diligence was afforded. Exclusivity was extended twice, before a firm offer was inked at the same terms on the 12th April. The Scheme meeting is expected mid-July; implementation late-July.
And Scott Farquhar’s Skip Enterprises, which holds 19.9% in Genex, and who had previously pitched a A$0.25/share NBIO in 2022? No word. And no irrevocable.

Last Week in Event SPACE: Mitsui Fudosan, Melco, Aozora Bank, CGN New Energy

9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback. Mitsui responds.
Lawrence Ho is buying Melco(200 HK). While it often pays to follows where the family invests, Melco is trading too tight for what is a simple holding company structure.
Avoid being long Aozora Bank Ltd (8304 JP) vs the Banks Index, a portfolio of other cheaper banks, etc. Minimal/negligible upside in following Murakami-san here. And Activism on Banks is difficult.

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Apr 13

Daily Brief Event-Driven: CGN New Energy (1811 HK): Takeover Rumours and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

CGN New Energy (1811 HK): Takeover Rumours
Updated TOPIX Big April Basket Flows; More Big Flows and ¥270bn a Side
EQD | Nikkei 225 What’s Up Next: Up or Down?
Bondalti/Ercros: Board Will Seek a Sweetening

CGN New Energy (1811 HK): Takeover Rumours

Another week, another rumoured (from Bloomberg) takeover. This time it’s for clean energy play CGN New Energy Holdings (1811 HK).
Back in 2020, CGN was subject to a potential privatisation from its SOE-parent – see CGN New Energy: The Latest SOE Clean Energy Play – but it failed to materialise.
A couple of years back, a “valuation system with Chinese characteristics” had the media discussing whether this implied a premium for SOEs and companies aligned with national goals.

Updated TOPIX Big April Basket Flows; More Big Flows and ¥270bn a Side

Several days ago I published a piece showing the data for TOPIX flows for April month-end.
This is an update reflecting new data companies have reported to regulators, one large correction to a data provider’s data, and one Very Large Flow.
I believe that the revised data is more accurate. And there is more flow. With a spreadsheet attached.

EQD | Nikkei 225 What’s Up Next: Up or Down?

By Nico Rosti

The Nikkei 225 Index last week bounced back, after a 2-weeks down pullback.
The index is at a fork in our view: it could go higher from here, but we would like to see a sustained, multi-week rally to be convinced.
If doubt about this potential rally continuation is strong, target the 40500-40800 price area to place SHORT trades against the index.

Bondalti/Ercros: Board Will Seek a Sweetening

Ercros (ECR SM) ‘s advisors will seek an improvement in Bondalti’s €3.6/share offer, which comes amidst a sharp decline in EBITDA compared to 2022, and launched at the bottom of the cycle.
An improved offer price of €4.4/share, a 22% increase, would represent 6x EV/25e EBITDA, 11.3x 25e P/E, and thus could gain support from the Board.
Gross spread is 1.25%. Considering the potential for an improved offer price, I’d be long.

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Apr 12

Daily Brief Event-Driven: JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan
CGN New Energy (1811 HK): Evaluating a Potential Privatisation
StubWorld: Melco Gains As Lawrence Ho Buys
NIFTY Bank Index Rebalance Preview: Canara Bank Still Cheap; Double Deletion for Bandhan?
Boral Backs Seven’s “Enhanced” Offer
Novartis/Morphosys: Start of Offer Period

JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan

9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback.
The stock popped 7% the next day to ¥1302, on the highest volume since the covid crash, hesitated a day, then powered almost 20% higher through the end of March.
Today, Mitsui Fudosan responded with an Amendment to their Plan out to 2030. It has a higher dividend, a share buyback, higher EPS target growth, and higher ROE target. But…

CGN New Energy (1811 HK): Evaluating a Potential Privatisation

Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking CGN New Energy Holdings (1811 HK) private.
CGN New Energy shares have underperformed the median peer’s shares since the announcement of CGN’s previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.
The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.

StubWorld: Melco Gains As Lawrence Ho Buys

Melco International (200 HK) gains as Lawrence Ho increases his position. Melco and 51.1%-held Melco Resorts (MLCO US) are the two worst performing gaming stocks over the past year.
Preceding my comments on Melco 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%.

NIFTY Bank Index Rebalance Preview: Canara Bank Still Cheap; Double Deletion for Bandhan?

Canara Bank (CBK IN) should replace Bandhan Bank Ltd (BANDHAN IN) in the NSE Nifty Bank Index (NSEBANK INDEX) at the September rebalance.
Passive trackers will need to buy nearly 2 days of ADV in Canara Bank (CBK IN) while selling over 1 day of ADV in Bandhan Bank Ltd (BANDHAN IN).
Canara Bank (CBK IN) is one of the best performing banking stocks while Bandhan Bank Ltd (BANDHAN IN) has been the worst performer over the last two years.

Boral Backs Seven’s “Enhanced” Offer

After Boral (BLD AU) rejected Seven Group (SVW AU)‘s cash/scrip Offer, Seven slammed the Independent Expert’s report, calling the Target Statement “unbalanced, selective and risks fundamentally misleading Boral minority shareholders“.
Seven has now waived certain tendering thresholds, increasing the cash terms to A$1.70/share from A$1.50/share. Boral will also pay a fully-franked dividend of A$0.26/share, providing A$0.11/share of franking credits.
The IE now considers the Offer to be reasonable. Boral’s board recommends shareholders to accept. This is done.

Novartis/Morphosys: Start of Offer Period

Novartis published its offer document for MorphoSys AG (MOR GR) (US: MorphoSys AG (MOR US)) following approval by BaFin. The acceptance period has commenced on 11 April, and will expire on 13 May.
I remain confident NVS’ acquisition of MOR closes on track. I maintain my TP at €68/share, $18.25/ADR offer price, as deal will highly likely close in H1, in my view.
As of 11 April, gross spread is 0.82% and the estimated annual return is 7.78%. Long and tender.

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Apr 11

Daily Brief Event-Driven: JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere, But No Sales Yet
Quiddity Leaderboard STAR 50 Jun 24: 3 ADDs/DELs Possible but Should Be Monitored Closely
Chilled & Frozen Logistics (9099 JP): Pass The🍿as the Board Responds to AZ-COM Maruwa (9090 JP)
SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
Bharti Hexacom IPO: Index Inclusion Timeline
Sompo Holdings Cross-Shareholding – At Least US$8bn of Cross-Shareholding to Sell
Quiddity Leaderboard ChiNext & ChiNext 50 Jun 24: Bullish Names Outperform Bearish Names Again

JAPAN ACTIVISM: Murakami’s Aozora Bet Not Going Anywhere, But No Sales Yet

Just under 6 weeks ago, Japanese activist Murakami-san’s company and daughter reported a 5+% stake in Aozora Bank Ltd (8304 JP). They bought after a sharp dip caused CRE-related writedowns.
As is normal, they bought more (now 8.92%) post-5%-filing-trigger, but before the actual first filing. And as is normal these days, the stock popped on the first filing.
Then it fell, and hasn’t recovered much. So far, on a weighted basis, they are up 1% vs TOPIX Banks Index.

Quiddity Leaderboard STAR 50 Jun 24: 3 ADDs/DELs Possible but Should Be Monitored Closely

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 this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the June 2024 index rebal event.
I currently expect three changes resulting in a one-way flow of around US$531mn but there is still room for the expectations to change.

Chilled & Frozen Logistics (9099 JP): Pass The🍿as the Board Responds to AZ-COM Maruwa (9090 JP)

The Chilled & Frozen Logistics Holdings (9099 JP) Board has responded with several questions regarding AZ-Com Maruwa Holdings (9090 JP)’s pre-conditional hostile offer of JPY3,000 per share.
The Board questions the transaction’s schedule, terms and potential synergies. The Board has also used the ruse that due diligence access would justify a higher offer price.
Expect several rounds of Q&A and a delay to the tender start. If shares continue trading through terms ahead of the tender start, AZ-COM Maruwa will likely have to bump.

SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade

With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.

Bharti Hexacom IPO: Index Inclusion Timeline

Telecommunications Consultants India Limited (TCIL) raised US$513m by selling 15% of the shares outstanding in Bharti Hexacom (6597372Z IN). Post the sale, they still hold 15% of the company.
Bharti Hexacom (6597372Z IN) will start trading on 12 April and the grey market indicates the stock will open at INR 664/share, 16.5% higher than the IPO price.
Bharti Hexacom should be added to one smallcap index in August and another smallcap index in December. A move above INR 700/share could result in midcap inclusion in December.

Sompo Holdings Cross-Shareholding – At Least US$8bn of Cross-Shareholding to Sell

By Sumeet Singh

The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
Sompo Holdings (8630 JP) had a stake over US$100m in at least 16 listed Japanese stocks, amounting to a total of around US$6bn.
In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

Quiddity Leaderboard ChiNext & ChiNext 50 Jun 24: Bullish Names Outperform Bearish Names Again

The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
In this insight, we take a look at the names leading the race to become ADDs and DELs in the June 2024 index rebal event.

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Apr 10

Daily Brief Event-Driven: The TOPIX Big April Basket Flows: ¥200bn a Side Including Many Multi-ADV Flows and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

The TOPIX Big April Basket Flows: ¥200bn a Side Including Many Multi-ADV Flows
Quiddity Leaderboard CSI 300/500 Jun 24: SHORTs Down 11% Vs Index Since Mid-Feb; Change the Hedge
S&P/ASX Index Rebalance Preview: Potential Changes from Now to June
KT’s Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow
Quiddity Leaderboard SSE50/180 Jun 24: Past Trades Successful but Time to Unwind Some
China TCM (570.HK) – Latest Updates on Privatization and the Potential Merger with Taiji Group
Itochu Targets Fashion E-Commerce Via Jade Takeover of Magaseek
Industrivärden Q1 2024, NAV Evolution and Discount
EQD | KOSPI 200 WEEKLY Buy-The-Dip Opportunity

The TOPIX Big April Basket Flows: ¥200bn a Side Including Many Multi-ADV Flows

Every year in April there is an interesting phenomenon with TOPIX. It is what Janaghan Jeyakumar, CFA calls “The Big April Basket.” The TSE re-assesses Liquidity Factor Coefficients.
It also does a FFW change, and this year it has Phased Weight Reductions for those slowly leaving TOPIX and PWR re-inclusions for those identified last October as going back.
Janaghan had 18 “High Conviction” LF removals. All were hits. They are upweights. Then there are 34 changes to FFW coefficients.

Quiddity Leaderboard CSI 300/500 Jun 24: SHORTs Down 11% Vs Index Since Mid-Feb; Change the Hedge

CSI 300 represents the 300 largest stocks by marketcap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500. There is subjectivity.
Here we look at potential ADDs/DELs for the CSI 300/500 rebalance in June 2024. With 93% of time passed, I expect 11 changes for CSI300, 50 for CSI 500.
Some names have changed since my last insight, but the long/short trades recommended eight weeks ago gained 11.26% since. We make small changes this time.

S&P/ASX Index Rebalance Preview: Potential Changes from Now to June

With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.

KT’s Foreign Room Below 7.5%, Weight Down-Adjustment Expected in May, Resulting in 3x ADTV Outflow

KT’s foreign ownership declined since January, below 7.5% by last month. If it remains, the adjustment factor halves to 0.25, impacting KT’s Global Index weight.
With the May review screening date estimated for April 17th, swift reversal of foreign inflows seems improbable. Thus, KT’s adjustment factor dropping to 0.25 is likely.
This could lead to an outflow of 1.6M shares, approximately 3x ADTV. Given the prolonged price impact on telcos, exploring a long-short setup with SKT might be prudent.

Quiddity Leaderboard SSE50/180 Jun 24: Past Trades Successful but Time to Unwind Some

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.
In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the June 2024 index rebal event.
According to my estimates, the SSE 50 expected ADDs and DELs could see US$1.7bn index buying and US$828mn index selling respectively (leaving nearly $900mm of funding sales to do).

China TCM (570.HK) – Latest Updates on Privatization and the Potential Merger with Taiji Group

By Xinyao (Criss) Wang

Since “no dividend was proposed for the year ended 31 December 2023”, the privatization is highly likely to succeed. It may not be wise for investors to bet against privatization.
The recent high-level personnel changes in Taiji is “thought-provoking”, which seems to be preparing for the next step of integrating with China TCM. Spin-offs and integrations are expected within Taiji.
We analyzed possible playbook. In this way, CNPGC is able to solve the problem of horizontal competition. China TCM could also relist in A-share to gain higher valuations/better liquidity.

Itochu Targets Fashion E-Commerce Via Jade Takeover of Magaseek

By Michael Causton

Jade Group has acquired Magaseek and will merge the online mall with its own fashion e-commerce platform, Locondo and hopes to create a growing rival to Zozo.
Magaseek was founded by Itochu 20 years ago, and the deal underlines Itochu’s growing influence over Jade as a proxy for its ambitions in fashion e-commerce and distribution.
However, Jade Group has seen little organic growth for its Locondo platform in recent years, and while its acquisitions have added scale, integration has been haphazard.

Industrivärden Q1 2024, NAV Evolution and Discount