Event-Driven

Today, after the close, ASX-listed Allkem Ltd (AKE AU) (formerly known as Orocobre, which merged with Galaxy Resources in 2021) announced it would merge with Livent (LTHM US).
At US$10bn, this “merger-of-equals” NEWCO (pro-forma US$1.9bn revenue, US$1.2bn EBITDA), with NYSE primary listing and foreign entity listing on the ASX, would be a global lithium player. Deal closing end-2023.
The doc (243 pages) and presentation (42p) are worth reading. There are interesting index effects, and there may be “Lithium Risk” in this deal for arbs, but it looks good.

Allkem (AKE AU) & Livent (LTHM US) In a Merger of Equals: Index Implications

Allkem Ltd (AKE AU) and Livent (LTHM US) are combining in an all-stock merger of equals to create a global lithium chemicals producer.
Allkem Ltd (AKE AU) shareholders will receive 1 NewCo share for each Allkem share held while Livent (LTHM US) shareholders will receive 2.406 NewCo shares for each Livent share held.
The merger will have implications for the stocks in the MSCI, S&P/ASX, thematic, and other global indices at the time of implementation.

HDFC/HDFCB Merger: Impact on Bank Nifty

The HDFC Bank (HDFCB IN) / HDFC Limited (HDFC IN) merger will result in capping and funding changes on the Nifty Bank Index (NSEBANK INDEX) constituents.
We estimate one-way turnover of around 8.4% resulting in a one-way trade of INR 21,865m (US$266m) at the time of merger implementation.
The impact in terms of ADV is less than 1x on all stocks, but the impact in terms of delivery volume is higher than 1x on a few stocks.

MitCorp (8058 JP) Earnings and Buyback – Shareholder Structure Matters

Mitsubishi Corp (8058 JP) yesterday announced earnings, forecast for FY23, higher dividend guidance, and a buyback. The headline number is 6% of shares and ¥300bn (which is nearer 4% now).
¥200bn of that ¥300bn is actually FY2022 “Additional Return” tacked onto a ¥100bn buyback for this year (FY23).
As is often the case, Shareholder Structure Matters. Because Berkshire Hathaway owns a large chunk of stock (7.4% according to interviews), that carves out a fair chunk not for sale.

TOPIX Inclusions: Who Is Ready (May 2023)

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
CELSYS (3663 JP) (formerly known as “Artspark”) is a name we have been Bullish on in the last few months as it was a high-probability TOPIX Inclusion candidate.
In the last couple of trading days, the stock has popped more than 30%. In this insight, we take a closer look at this situation.

Allkem (AKE AU): Merger of Equals with Livent (LTHM US)

Allkem Ltd (AKE AU) and Livent (LTHM US) announced a merger of equals. AKE shareholders receive 1 NewCo share per AKE share, LTHM shareholders get 2.406 NewCo shares per LTHM share.
The transaction is expected to close by the end of calendar year 2023 subject to shareholder (AKM and LTHM) and regulatory approvals.
The merger is sensible as NewCo will have scale, synergies and capital efficiency. AKE shareholders benefit from an attractive merger ratio and potential rerating from a US listing.

ZUIKO (6279 JP) Move to TSE Prime and TOPIX – Again, Shareholder Structure Matters

Diaper-Making machine maker Zuiko Corp (6279 JP) late last year introduced a shareholder benefit coupon program, and the stock has flown. Earnings improved from the trough too.
Now that the market cap is high enough, the company has applied to, and is now approved, to join TSE Prime, which means a TOPIX inclusion at end-June 2023.
With 30 days of 6mo ADV, and much more of longer average ADV, this looks like a win, but there are…. considerations. Shareholder structure matters. Yet again.

Overlooked Aspects of KG Mobility’s Passive Flow Trading Opportunities: KOSPI 200 & KRX Auto

KG Mobility belongs to the Consumer Discretionary sector, and if we consider its market cap on April 28th, it comfortably qualifies for inclusion in KOSPI 200 in the upcoming review.
Although the KOSPI 200 eligibility rules do not explicitly prohibit a stock based on such short trading periods, there is a chance that KRX might exercise its discretionary provision (6.1.2).
There is another significant event approaching us. As per current market cap levels, there is a high chance of KG Mobility being included in the KRX Auto Index in September.

Rocket Software (Bain) Ups the Game

Bain goes mildly hostile, with a €34/share indicative offer (20.5x EV/Fwd EBIT on IBES consensus), above 11.1x last-10y average. Further, if it fully succeeded, it’d raise to €36/share (21.6x).
Software AG dislikes the improved indicative offer. The situation reminds of the battle for Caverion Corp (CAV1V FH), now being played, in which precisely Bain has been the unexpected loser.
At this point, it seems Silver Lake will have to raise its offer again. I raise my TP to €34. Long (possible upside to Bain’s €36/share, 6.1% gross).

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May 10

Daily Brief Event-Driven: Toshiba – Kioxia Could Be A Break Risk and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba – Kioxia Could Be A Break Risk
Toshiba (6502 JP): Tender Offer Risk/Reward
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent
BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
Where Are We Now Regarding New Dividend Distribution Procedure in Korea?
Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share
Seven & I: Investor Activism Update
KOSPI Size Indices – Potential Changes in September

Toshiba – Kioxia Could Be A Break Risk

By Mio Kato

We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.

Toshiba (6502 JP): Tender Offer Risk/Reward

Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.

JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?

Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.

Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent

Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.

BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost

Last year, fintech-wannabe Marui Group (8252 JP) announced a large buyback as part of its ¥100bn distribution to shareholders in its MTMP, then increased the size
They repurchased ¥26bn of shares. Today they announced the return of ¥50bn this year including a ¥40bn buyback. And having arrived at their optimal balance sheet structure, a new policy.
That’s 10% of market cap and 11.6% of shares. And again a delayed start. And as always, shareholder structure matters. In this case a lot.

KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.

Where Are We Now Regarding New Dividend Distribution Procedure in Korea?

646 listed companies (28.5%) in Korea have modified their articles of incorporation this March to prioritize determining the dividend amount before setting the dividend record date.
New practices will arise involving the use of single-stock futures for arbitrage trading through baskets among major high-dividend companies whose dates of the dividend records overlap.
It will be crucial to keep track of the dividend record dates with precision. In this connection, KLCA and KOSDAQCA will create a website monitoring this information.

Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share

Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.
The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.

Seven & I: Investor Activism Update

By Oshadhi Kumarasiri

The relationship between Value Act and Seven & I Holdings (3382 JP) has become toxic due to Value Act’s opportunistic behaviour after the passing of the Seven & I founder.
Seven & I and Value Act have been exchanging letters more frequently, with recent ones taking on an angry tone, especially from Seven & I’s side.
Value Act’s attempt to block the reappointment of experienced directors could cause long-term value disruption, especially if their goal is to pressure a spinoff of the convenience store business.

KOSPI Size Indices – Potential Changes in September

The review period for the September rebalance of the KOSPI Size Indices will run from 1 June to 31 August. The changes will be implemented at the close 7 September.
We see 6 migrations from MidCap to LargeCap, 56 migrations from LargeCap to MidCap, 2 new adds to MidCap, and 11 migrations from SmallCap to MidCap.
Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

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May 09

Daily Brief Event-Driven: AAG Energy (2686 HK): Curiouser and Curiouser and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

AAG Energy (2686 HK): Curiouser and Curiouser
MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes
FXI Rebalance Preview: Three Potential Changes in June
Hailan Holdings (2278 HK): Voluntary Conditional Offer with a Skinny Premium
Quiddity Leaderboard ASX Jun 23: Two ASX 200 Changes Likely, Including Ventia Surprise
Will Woori Financial Group Acquire Samsung Securities?
Aeon Will Own Japan’s Two Largest Supermarket Groups with Inageya Purchase
Sweetened Offer and Bain Interloping
Global Health (Medanta) Lockup – Good Name but Seems Fairly Valued

AAG Energy (2686 HK): Curiouser and Curiouser

AAG Energy Holdings (2686 HK) is one of those periodic (and rare) takeover situations that will likely be remembered for what went wrong rather than what went right.
A low-balled Offer (proxy advisors agree); perfunctory IFA analysis; a large, and silent, shareholder; and the postponement of the Scheme vote due to voting instructions not being “duly processed”.
A new Court Meeting has been confirmed for the 2 June. And now we have some odd CCASS movements which raise further questions.

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes

The review period for the June rebalance ends on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
There could be 4 or 5 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the universe and could result in up to 3 deletions.
If all changes go through as expected, estimated one-way turnover at the rebalance will be 15.1% resulting in a one-way trade of US$99m.

FXI Rebalance Preview: Three Potential Changes in June

As of 8 May, we see three potential changes to the iShares China Large-Cap (FXI) (FXI US) at the June rebalance. This is mainly driven by the inclusions.
There is over 1 day of ADV to trade on all stocks with the largest impact on BeiGene Ltd (6160 HK) at nearly 4 days of ADV.
Short interest has been increasing on the potential adds as they have run up a lot in the last few months.

Hailan Holdings (2278 HK): Voluntary Conditional Offer with a Skinny Premium

Hailan Holdings (2278 HK) disclosed a voluntary conditional offer from its controlling shareholder at HK$3.36 per share, a 5.0% premium to the undisturbed price.
The offer is conditional on a 90% minimum acceptance condition which requires a minority acceptance rate of 60.0%. The offeror/concert parties own 75.0% of shares.
The offeror aims to exercise compulsory acquisition rights (requires 90% minority acceptance rate) which suggests a bump is possible. The offer price has not been declared final.

Quiddity Leaderboard ASX Jun 23: Two ASX 200 Changes Likely, Including Ventia Surprise

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 2023 Rebalance.
Ventia (VNT AU) has appeared as a “surprise” potential addition to the ASX 200 index in June 2023 after recent block sales by top shareholders.
Including Ventia, we currently expect two ADDs and two DELs for the ASX 200 index in June 2023.

Will Woori Financial Group Acquire Samsung Securities?

The new head of Woori Financial Group (316140 KS) Chairman Lim Jong-Ryong recently revealed his willingness to acquire a major/mid-scale securities company.
Among these potential acquisition candidates, Samsung Securities is considered to be the most likely securities companies that could be purchased by Woori Financial Group.
In the long term (next 2-3 years), there is a good probability that Woori Financial Group could acquire Samsung Securities, which is not a core business of the Samsung Group.

Aeon Will Own Japan’s Two Largest Supermarket Groups with Inageya Purchase

By Michael Causton

Last year saw the consolidation of several supermarket chains in Shikoku and Chugoku by Aeon, creating Japan’s largest supermarket group.
Now, Aeon has now announced that it will expand its existing stake in Inageya, rolling the company into USMH and creating another, even larger food operation and Japan’s biggest yet.
Aeon is looking for dominance in Tokyo and may seek more acquisitions but rivals are unlikely to give it a free hand nor say no to acquisitions of their own.

Sweetened Offer and Bain Interloping

Bain has a 10.01% stake (likely acquired <€32/share) and could play nasty: its stake is enough to block a squeeze-out, and if it launches a €34/share offer, it will be hostile.
Meanwhile, Silver Lake (5% recently acquired+25.1% from the foundation) has sweetened to €32/share (19.4x EV/Fwd EBIT, well above 11.1x last-10y average). The Board could change sides (as recently with Caverion).
The shares trade 3.5% above Silver Lake’s, but at a discount of 2.5% to Bain’s possible offer. The market believes Bain will bid. I raise my TP to €32.

Global Health (Medanta) Lockup – Good Name but Seems Fairly Valued

By Ethan Aw

Global Health (Medanta) (MEDANTA IN) raised around US$268m in its India IPO. The stock was listed on 16th Nov 2022, its six-month lockup will expire on 11th May 2023.
Global Health (GH) is a hospital network that operates under the Medanta brand. The firm currently has five hospitals in operation and one more planned for development.
In this note, we will talk about the lock-up dynamics and updates since our last note.

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May 08

Daily Brief Event-Driven: JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
Yuanta/P-Shares Taiwan Dividend+ ETF Preview: Two Weeks to Cutoff
AAG Energy (2686 HK): New Scheme Vote Date, Different Result?
Kum Yang: Shorting Entry Timing on the Inevitable Block Deals
Merger Arb Mondays (08 May) – Toshiba, AAG, Lian Beng, Penguin, Golden Energy, Estia
Quiddity Leaderboard TWSE Div+ Jun 23: New Potential Index Changes and Flow Expectations Update
JAPAN FLOW: Foreign Investor Inflows May Increase
Skyworth (751 HK): Thoughts On Proration
Liontrust/GAM: Rescue All-Share Agreed Offer

JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings

Japanese companies are buying back more stock than ever before, and recent moves by the TSE and METI are effectively pushing for more.
The new goal is to lift PBR and ROE. The easiest way to lift ROE is reduce E. Low-PBR Cos with excess assets and cross-holdings (outbound and inbound) are targets.
In this insight I look at several possible rankings for potential large buyback targets.

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September

There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.

Yuanta/P-Shares Taiwan Dividend+ ETF Preview: Two Weeks to Cutoff

With two weeks left to the cutoff, there could be 5 changes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in June.
Apart from the adds/deletes, there will also be capping and funding flows that will lead to an estimated one-way turnover of 13.5% and a one-way trade of US$886m.
There are 9 stocks with at least 5 days ADV to trade from passive trackers and another 12 stocks that have at least 1 day ADV to trade.

AAG Energy (2686 HK): New Scheme Vote Date, Different Result?

Aag Energy Holdings (2686 HK)’s disclosed a revised timetable to vote on Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer. The new scheme meeting is set for 2 June.
Our analysis suggests that in the best case, Xinjiang Xintai would need to further swing NO votes representing 6.52%-8.34% of outstanding shares to YES to get the scheme approved.
AAG’s case is unprecedented. The risk-reward remains unattractive as the upside to a scheme pass (13.5% upside) is equal to the downside to a scheme fail (average 13.5% downside).

Kum Yang: Shorting Entry Timing on the Inevitable Block Deals

Kum Yang IR director Park once mentioned that the block deals to sell the 2M treasury shares would likely occur in late May or early June.
There has been speculation in the market that the timing of the block deal may be postponed until after its inclusion in the KOSPI 200, allowing for short selling.
Considering the immediate funding needs faced by the company, setting an aggressive approach to shorting from shortly after its inclusion in the KOSPI 200 would be reasonable regarding entry timing.

Merger Arb Mondays (08 May) – Toshiba, AAG, Lian Beng, Penguin, Golden Energy, Estia

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads 111 Inc (YI US), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK),Origin Energy (ORG AU), Metro Pacific Investments Co (MPI PM).
Lowest spreads Liontown Resources (LTR AU), Healius (HLS AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service (3085 JP).

Quiddity Leaderboard TWSE Div+ Jun 23: New Potential Index Changes and Flow Expectations Update

There have been some changes to my expectations for the TWSE Div+ index June 2023 index changes and capping flows.
I currently see 5 ADDs/DELs. Some of these names are different from the ones I specified in my previous insight.
In this insight, we take a look at my latest flow expectations.

JAPAN FLOW: Foreign Investor Inflows May Increase

For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to one relatively simple indicator.
The policy backdrop points to greater corporate buying, greater foreign flow, greater selling by individuals and trust banks. The current timing probably matches.

Skyworth (751 HK): Thoughts On Proration

Back on the 23 December, Skyworth Group (751 HK) announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.
On the 28 March, terms were bumped to $5.00/share. Independent shareholders approved the whitewash waiver on the 5 May.
The Offer closes on the 18 May. The minimum proration is 7.8%. Expect the final proration to be higher.

Liontrust/GAM: Rescue All-Share Agreed Offer

Liontrust is offering 0.0589 of its own shares per share of fallen angel GAM (which had CHF132 billion AuM by end 2020 vs CHF 23.3 billion now).
Although the GAM brand arguably retains some value, Liontrust is being somehow genereous, in my view. My fair value estimate (multiples based) is CHF 0.58/share.
Gross spread is +16.4%. I wouldn’t get involved right now, because spread is positive, there is risk of a legal challenge and next results are likely to be ugly.

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May 07

Daily Brief Event-Driven: A Long Short Trading Event Likely to Have a High Hit Rate: HPSP & TCK and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

A Long Short Trading Event Likely to Have a High Hit Rate: HPSP & TCK
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- Peak Rates?
Last Week in Event SPACE: Toshiba, Asian Defence Contractors, Arclands Corp/Services, Bank of Kyoto
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Liontown, AAG Energy, Penguin, Lian Beng, Golden Energy

A Long Short Trading Event Likely to Have a High Hit Rate: HPSP & TCK

The Korean local sector ETF with the fastest growing AUM is TIGER Fn Semiconductor Top 10 ETF, whose AUM has increased more than twice over the past two months.
HPSP (403870 KS) will replace Tokai Carbon Korea (064760 KS) by a comfortable margin in the upcoming review in October.
From a day trading perspective, this presents a significant Long-Short opportunity. Considering the relatively sizeable passive impact size, setting an entry point more aggressively may not be a bad idea.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- Peak Rates?

By Simon Harris

Weekly summary of vol changes and moves across Global Markets
Analysing ATM volatility and skew changes over the last 5 days
We suggest a few trades to take advantage of the implied vol surfaces

Last Week in Event SPACE: Toshiba, Asian Defence Contractors, Arclands Corp/Services, Bank of Kyoto

Toshiba Corp (6502 JP) is ultimately quite skippable. While ¥4,620 seems like “the wrong price” over a 5-year period, it is not clear that is the wrong price now.
Global military touches a new high. South Korean defence contractors, such as Hyundai Rotem Company (064350 KS), are big beneficiaries.
Historically, the “event” which helps Murakami-san get out – with respect to Arclands Corporation (9842 JP)/Arcland Service (3085 JP) – is not one which is suitable for “normal” investors.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Liontown, AAG Energy, Penguin, Lian Beng, Golden Energy

There are 39- mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal was discussed on Smartkarma this past week: the unconditional Offer for Penguin International (PBS SP) from its Chairman and Dymon Group.
Key updates took place for Liontown Resources (LTR AU), AAG Energy Holdings (2686 HK), Lian Beng (LBG SP), and Golden Energy & Resources (GER SP).

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May 06

Daily Brief Event-Driven: Penguin International (PBS SP): Chairman & Dymon Return To the Well and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Penguin International (PBS SP): Chairman & Dymon Return To the Well
Insiders Sell at Ecopro BM

Penguin International (PBS SP): Chairman & Dymon Return To the Well

On the 21st January 2021, Singapore-based builder and operator of aluminum high-speed boats Penguin International (PBS SP) announced a Voluntary Conditional Offer from its Chairman and Dymon Group at S$.65/share.
In Penguin International (PBS SP): Friendly Privatization Deal Might Need A BumpJanaghan Jeyakumar expected a bump in terms. No to be, and the Offeror held 80.05% at the close.
The Offeror, via a new vehicle, has returned to the fold with a S$0.82/share Offer Price. The Offer is unconditional. This is done.

Insiders Sell at Ecopro BM

It was recently reported that Choi Mun-Ho (CEO of Ecopro BM) sold 2,000 shares of Ecopro BM Co Ltd (247540 KS) at 254,000 won per share.
It was also recently announced that Eroom T&C, the family company of Lee Dong-Chae, the chairman of Ecopro Group, also sold shares of Ecopro BM.
Recent selling of Ecopro BM shares by CEO Choi Mun-Ho and Ecopro affiliate Eroom T&C are negative signs on the Ecopro BM. Lofty valuations are also negative on Ecopro BM.

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May 05

Daily Brief Event-Driven: Toshiba (6502) – Thinking About the Arb and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba (6502) – Thinking About the Arb
Penguin International (PBS SP): Dymon Asia & Co Return with an S$0.82 Unconditional Offer
Ventia (VNT AU) – Placement Could Lead to ASX200 Inclusion in June
Oishi Group: Shareholders Back ThaiBev’s Offer
Chairman Kim Ik-Rae of Daou Kiwoom Group Resigns & Says Sorry – But Is This Enough?
Providence/Hyve: Scheme Approval

Toshiba (6502) – Thinking About the Arb

Toshiba is trading at a 12-13% annualised return on the arb when using the expected Tender Offer Start Date proposed in the Takeover Announcement on 23 March 2023.
On Day 1-2 post-announcement, Toshiba traded at an 11-13% annualised spread. Since the announcement, a 12-name Peer Basket is up 11+% meaning Toshiba back end risk has shrunk.
Forward consensus EPS ratios have fallen, in part due to the shift forward one fiscal year by comps. We’ll see where those lie in a week when earnings come.

Penguin International (PBS SP): Dymon Asia & Co Return with an S$0.82 Unconditional Offer

Penguin International (PBS SP) has disclosed a voluntary unconditional offer from Dymon Asia, Executive Chairman and Managing Director at S$0.82 per share, a 15.5% premium to the undisturbed price.
The offer price is attractive, represents an 8-year share price high, and is shy of the 10-year high of S$0.825. It is also 26.2% higher than the 2021 offer.
The offeror aims to privatise Penguin. Hitting the 90% compulsory acquisition threshold implies a minority acceptance rate of around 44%, which is eminently achievable due to an attractive offer.

Ventia (VNT AU) – Placement Could Lead to ASX200 Inclusion in June

Ventia (VNT AU) completed an A$300m placement overnight with Apollo and CIMIC Group Ltd (CIM AU) selling around 14% of the shares outstanding at a small discount to the close.
The placement will significantly increase Ventia (VNT AU)‘s float and make the stock a high probability inclusion to the S&P/ASX 200 (AS51 INDEX) at the June rebalance.
We now expect two changes to the S&P/ASX 200 (AS51 INDEX) in June and the impact on the stocks is over 5.5 days of ADV to trade.

Oishi Group: Shareholders Back ThaiBev’s Offer

Back on the 10th March, Thai Beverage (THBEV SP) launched a Delisting Offer for 79.66%-held Oishi Group (OISHI TB), at THB 59/share, a 26.9% premium to last close.
This two-step Offer required a shareholder vote followed by a tendering process. Yesterday (the 3rd May), Oishi shareholders approved the Delisting Offer.
The tendering period may kick off around this time next month, with an expected payment late August.

Chairman Kim Ik-Rae of Daou Kiwoom Group Resigns & Says Sorry – But Is This Enough?

After the market close today, Kim Ik-Rae (Chairman of the Daou Kiwoom Group) announced his resignation of the Chairman position.
Chairman Kim mentioned he has not done anything legally wrong. He will donate the entire amount (60.5 billion won) which was gained from selling 1.4 million shares of Daou Data.
We believe that Kiwoom Securities’ share price could fall additional 10-30% in the next several weeks/months. This could be offset by a large share buyback & cancellation by the company.

Providence/Hyve: Scheme Approval

Another British company taken over by private equity. On 25 April, Providence sweetened its offer to 121p/share, a 12% increase (22.1x trailing EBITDA; 13.1 EV/Fwd NTM EBITDA).
On 3 May, all of the resolutions were passed at both Court Meeting and General Meeting. The Scheme Court Hearing is scheduled for 18 May. Settlement should happen on/before 2 June.
Although there isn’t enough liquidity for large tickets, at 120.4p the spread is 0.5%/6.6% (gross/annualised).

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May 04

Daily Brief Event-Driven: KRX Plans to List Single-Stock Futures of All KS200 & KQ150 Constituents and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

KRX Plans to List Single-Stock Futures of All KS200 & KQ150 Constituents
Asian Defence Contractors: Up In Arms
KRX New Deal Index Rebalance Preview: Potential & Close Changes in September
Lian Beng (LBG SP): Ong Family’s Final, Unconditional and Derisory S$0.68 Offer
Oishi Group (OISHI TB): Shareholders Approve the THB59.00 Delisting Offer
Lian Beng: The Family Bumps. Still <50% of NAV

KRX Plans to List Single-Stock Futures of All KS200 & KQ150 Constituents

According to Chosun, KRX plans to list the single-stock futures of all constituents of KOSPI 200 and KOSDAQ 150 within 2-3 years.
This information comes from a KRX official, who directly confirmed it. As Chosun is the most well-established news outlet in Korea, the credibility of this article is quite high.
We should consider screening those with a high proportion of short-selling positions and devising a positioning strategy in conjunction with the new listing event of single stock futures in July.

Asian Defence Contractors: Up In Arms

According to the Stockholm International Peace Research Institute (SIPRI), total global military expenditure increased by 3.7% in real terms in 2022, to reach a new high of $2,240bn.
A number of European states significantly increased their military spending following Russia’s invasion of Ukraine. Elsewhere, Japan’s 2022 military spending accounts for 1.1% of GDP, the highest level since 1960.
South Korea had four companies inside the world’s top 100 arms manufacturers in 2021. These conglomerates are expected to move up the ranking in 2022.

KRX New Deal Index Rebalance Preview: Potential & Close Changes in September

The review period for the September rebalance ends on 31 July, the changes will be announced towards end August and implemented at the close of trading on 7 September.
There are potential changes to some of the indices and then there are close changes that will result in big flows if they eventuate.
The March rebalance saw some funky moves on the stocks that had big flows and we could see more of that at the September rebalance.

Lian Beng (LBG SP): Ong Family’s Final, Unconditional and Derisory S$0.68 Offer

Lian Beng (LBG SP)/LBG disclosed a revised final voluntary unconditional offer from the Ong family at S$0.68 per share, a 9.7% premium to the previous offer of S$0.62 per share.
The final offer price remains unattractive in comparison to peer multiples and precedent transactions. The offer is open and closes on 26 May.
The Ong Family aims to privatise LBG. Hitting the 90% compulsory acquisition threshold implies a minority acceptance rate of around 64%, which could prove to be a challenge.

Oishi Group (OISHI TB): Shareholders Approve the THB59.00 Delisting Offer

Oishi Group PCL (OISHI TB)’s shareholders overwhelmingly approved Thai Beverage (THBEV SP)’s delisting tender offer of THB59.00 per share. The approval was expected as ThaiBev was allowed to vote.
The offer is attractive compared to historical share prices, multiples and the IFA’s fair value of THB53.48-56.42 per share.
The delisting now requires SET approval. At the last close and for an end of July completion, the gross and annualised spread is 2.2% and 9.4%, respectively.

Lian Beng: The Family Bumps. Still <50% of NAV

On the 11th April, construction firm Lian Beng (LBG SP) announced an Offer from the controlling Ong family of S$0.62/share, a 59.7% discount to the November 2022 NAV of S$1.538/share.
After media articles judged the Offer price as being too low – it is – the Ongs have now bumped the Offer Price 9.7% to S$0.68/share and declared terms final.
It’s still the wrong price. Yet Lian Beng is illiquid, And the revised price is a lifetime high.

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May 03

Daily Brief Event-Driven: Quiddity Jun23 HSTECH Flow Expectations Update: SHORT AAC Vs LONG Lenovo Might Be Interesting and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Quiddity Jun23 HSTECH Flow Expectations Update: SHORT AAC Vs LONG Lenovo Might Be Interesting
Quiddity HSCEI Jun 23 Flow Expectations Update: Two Expected Changes, US$608mn One-Way Flow
AAG Energy (2686 HK): AGM Results Suggest a Scheme Fail Was Inevitable
JAPAN ACTIVISM: Murakami-San Goes Substantial on Arcland SHD (3085) Ahead of Merger Vote Record Date
Liontown: Counter-Bid All But Baked In
Golden Energy (GER SP): Two Conditions Satisfied, Now for the Hard Part
NIFTY100 Index Rebalance Preview: Double/Triple Whammy for Some Stocks
SET50 Index Rebalance Preview: Two Changes – One High Probability; One Has Possibilities
Sell AAG (2686 HK). A Revised Scheme Will Fail
Selected European HoldCos and DLC: April’23 Report

Quiddity Jun23 HSTECH Flow Expectations Update: SHORT AAC Vs LONG Lenovo Might Be Interesting

In my previous insight in Mid-March 2023, we had a look at the potential index changes and the resultant capping flows for the HSTECH Index in June 2023.
Since then, our flow expectations have changed with changes in prices and/or float and total share counts.
Here are our latest flow expectations based on the current prices.

Quiddity HSCEI Jun 23 Flow Expectations Update: Two Expected Changes, US$608mn One-Way Flow

In my previous insight in Mid-March 2023, we had a look at the potential index changes and the resultant capping flows for the HSCEI Index in June 2023.
Since then, our flow expectations have changed with changes in prices and/or float and total share counts.
Here are our latest flow expectations based on the current prices.

AAG Energy (2686 HK): AGM Results Suggest a Scheme Fail Was Inevitable

Aag Energy Holdings (2686 HK)’s latest AGM results show a strong dissent from minorities. The number of NO votes per resolution varied from 590.9-652.5 million or 17.40%-19.22% of outstanding shares.
The AGM voting shows that Xinjiang Xintai Natural Gas (603393 CH) will struggle to pass the scheme even if the record date is changed and some NO votes are invalidated.
The risk-reward profile remains unfavourable as the downside to a scheme fail (12.1% to 17.0% downside) is greater than the upside to a scheme pass (+12.1% to HK$1.85 offer).

JAPAN ACTIVISM: Murakami-San Goes Substantial on Arcland SHD (3085) Ahead of Merger Vote Record Date

Today, City index Eleventh, the corporate entity often used by noted activist Yoshiaki Murakami, announced (EDINET filing) they owned 1.756mm shares or 5.31% of Arcland Service (3085 JP)
In mid-April, Arclands Corporation (9842 JP) announced it would merge with 55%-owned restaurant subsidiary Arclands SHD. Murakami-owned 5+% of Arclands at the time. Then it sold 9842 and bought 3085.
This looks like a confusing set of moves. It is not as confusing when you think about it. He is setting up something for later.

Liontown: Counter-Bid All But Baked In

On the 28 March, lithium play Liontown Resources (LTR AU) rejected Albemarle Corp (ALB US)‘s third proposal of $2.50/share, citing the revised terms as opportunistic.
Since, that date, it’s been “crickets.” Preliminary due diligence was not provided to Albemarle. Liontown responded to media speculation today saying it has received no new takeover proposals.
Yet behind the scenes, an interested party has been building a stake, paying up to $2.75/share, 1.5% above the last close.

Golden Energy (GER SP): Two Conditions Satisfied, Now for the Hard Part

Dian Swastatika Sentosa (DSSA IJ)/DSS shareholders have approved the sale of DSS’ 77.49% stake in Golden Energy & Resources (GER SP) to the Widjaja family.
No objection has also been received from the OJK and IDX. The make-for-break condition is the GEAR shareholder approval of the distribution resolution, which DSS will abstain from voting on.
Minorities and SIAS rightly claim that the revised offer remains light. A bump to the offer, particularly to the delisting offer price is S$0.181, is required for a done deal.

NIFTY100 Index Rebalance Preview: Double/Triple Whammy for Some Stocks

Halfway through the review period, we see 5 potential changes for the Nifty Next 50 Index (NIFTYJR INDEX)/ Nifty 100 Index (NSE100 INDEX) at the September rebalance.
All the potential adds are expected to migrate from MidCap to LargeCap at the AMFI June reclassification, while we expect two of the potential deletes to move the other way.
Of the potential deletes, one is a high probability deletion from the MSCI India Index at the May QCIR while there is another that is a lower probability deletion.

SET50 Index Rebalance Preview: Two Changes – One High Probability; One Has Possibilities

Two thirds of the way through the review period, we forecast two changes for the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) at the June rebalance.
Thai Life Insurance (TLI TB) and WHA Corp Pcl (WHA TB) could replace Jaymart PCL (JMART TB) and Ngern Tid Lor (TIDLOR TB).
JMT Network Services (JMT TB) is a very close delete on market cap, while Intouch Holdings (INTUCH TB) is a close delete on liquidity. Multiple possibilities here.

Sell AAG (2686 HK). A Revised Scheme Will Fail

In unprecedented fashion, AAG Energy Holdings (2686 HK)‘s board adjourned the Court Meeting on the 27 April due to some voting instructions not being duly processed.
That reasoning had a whiff of nonsense. And just under a week later, there has been no update. Perhaps this is moot though.
At yesterday’s AGM, disinterested shareholders turned up in record numbers to vote against stock-standard resolutions. If a similar turnout were present at the Court Meeting, the Scheme would have failed.

Selected European HoldCos and DLC: April’23 Report

Discounts to NAV of covered holdcos have generally tightened during April. Discounts to NAV: C.F.Alba, 51.3%; GBL, 32.3%; Heineken Holding, 16.4%; Industrivärden C, 7.7%; Investor B, 9.5%; Porsche Automobile Holding, 49.7%.
The spread of Rio Tinto DLC tightened to 16.8%. Rio Tinto is a candidate for an Australian top hat structure.
Recommended trades: Heineken Holding, Investor AB (long Investor B/short main holdings) and Rio DLC.

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May 02

Daily Brief Event-Driven: MSCI May 2023 QCIR Preview: Potential Changes as Review Period Ends and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MSCI May 2023 QCIR Preview: Potential Changes as Review Period Ends
Contenders for MSCI Korea Inclusion in 2H 2023
LQ45 Index Rebalance Preview (July): Identifying Potential Changes
Astellas Pharma (4503 JP): New Acquisition to Add Promising Drug Candidate in New Therapeutic Area
Giant Biogene IPO Lock-Up – US$1.7bn Lockup Release Will Increase Free Float by 14x
Astellas Pharma Buys Iveric Bio: Help Offset Upcoming Patent Expiry of XTANDI

MSCI May 2023 QCIR Preview: Potential Changes as Review Period Ends

The review period for the price cutoff for the MSCI May Quarterly Comprehensive Index Review (QCIR) ended 28 April. MSCI should select a day from week one.
The most changes are expected in China and there are a couple of stocks that could trigger the Extreme Price Increase thresholds.
Some stocks appear on the list of potential changes on certain days during the review period and their addition/deletion will depend on the day that MSCI chooses for computation.

Contenders for MSCI Korea Inclusion in 2H 2023

We have provided a list of 10 stocks that could be included in the MSCI Korea index in 2H 2023.
Among these 10 companies, the top five companies with the highest free float based market cap have greater probabilities of becoming included in the index, in our view.
The five companies include Jyp Entertainment (035900 KS), Hyundai Rotem Company (064350 KS), DB Hitek Co., Ltd. (000990 KS), Cs Wind Corp (112610 KS), and LS Corp (006260 KS).

LQ45 Index Rebalance Preview (July): Identifying Potential Changes