Event-Driven

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

By Douglas Kim

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

By Shifara Samsudeen, ACMA, CGMA

The review period for the LQ45 Index ends on 30 June. The changes should be announced in the last week of July, becoming effective after the close on 31 July.
Potential adds are Adaro Minerals (ADMR IJ), Bumi Resources Minerals (BRMS IJ), Panin Financial (PNLF IJ), Energi Mega Persada (ENRG IJ), Transcoal Pacific (TCPI IJ) and Pertamina Geothermal Energy (PGEO).
Potential deletions are Japfa Comfeed Indonesia (JPFA IJ), Indocement Tunggal Prakarsa (INTP IJ), Timah Persero (TINS IJ), Bank Tabungan Negara Persero (BBTN IJ) and Chandra Asri Petrochemical (TPIA IJ).

Astellas Pharma (4503 JP): New Acquisition to Add Promising Drug Candidate in New Therapeutic Area

By Tina Banerjee

Astellas Pharma (4503 JP) is acquiring the U.S.-based clinical stage biopharmaceutical company IVERIC bio (ISEE US) for ~$5.9B. Iveric Bio focuses on the discovery and development of novel ophthalmology treatments.
Iveric’s lead drug candidate Avacincaptad Pegol for the potential treatment of Geographic Atrophy is under FDA review with PDUFA action date of August 19, 2023.
The acquisition will be funded by a combination of bank loan, issuance of commercial paper totaling ~¥800B, and internal cash. The acquisition is expected to complete by 3Q23 (July–September).

Giant Biogene IPO Lock-Up – US$1.7bn Lockup Release Will Increase Free Float by 14x

By Sumeet Singh

Giant Biogene raised around US$70m in its Hong Kong IPO, after having downsized the deal and priced it at the low-end. Its six-month lockup will expire soon.
GB is a leader in the bioactive ingredient-based professional skin treatment product industry in China.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Astellas Pharma Buys Iveric Bio: Help Offset Upcoming Patent Expiry of XTANDI

Japanese drug maker Astellas Pharma announced on Monday that it has entered into a definitive agreement to acquire 100% of opthalmalogy player Iveric Bio for a total consideration of U$5.9bn.
Astellas Pharma (4503 JP) will pay US$40 per share of IVERIC bio (ISEE US) , 64% premium to the unaffected closing price of US$24.33 per share as of 31st March 2023.
As Astellas’ blockbuster drug XTANDI’s exclusivity is nearing expiry, we think Iveric’s key drug asset ACP should offer some protection over loss of XTANDI’s revenues in the future.

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May 01

Daily Brief Event-Driven: JAPAN ACTIVISM: Silchester and Bank of Kyoto (8369) Redux and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JAPAN ACTIVISM: Silchester and Bank of Kyoto (8369) Redux
Weekly Deals Digest (30 Apr) – AAG, HKBN, Blackmores, Lian Beng, Horizon Construction, Mankind
Merger Arb Mondays (01 May) – HKBN, AAG Energy, United Malt, Blackmores, Origin, Metro Pacific
Deutsche Bank/Numis Corporation: Acquiring Deal Flow

JAPAN ACTIVISM: Silchester and Bank of Kyoto (8369) Redux

Last year, Silchester International Investors wrote a series of letters to Bank of Kyoto management and then asked to put items on the AGM agenda. It lost.
A Bloomberg article last week suggests Silchester will ask for a ¥62 special div and a ¥5bn buyback this year. The Silchester letter is “due” by 30 April.
The Bank has already delivered most of the ask this year (¥3bn in upped div, and ¥5bn in buybacks). Silchester will lose. Expect no Conversion on the Road to Kasumigaseki.

Weekly Deals Digest (30 Apr) – AAG, HKBN, Blackmores, Lian Beng, Horizon Construction, Mankind

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 – Yuexiu Property (123 HK) rights issue and ADICON Holdings Limited (ADI HK), Horizon Construction Development (1887128D HK), Mankind Pharma (6596876Z IN) IPOs.
Event-Driven developments – Blackmores Ltd (BKL AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), HKBN Ltd (1310 HK), Metro Pacific Investments Co (MPI PM), Lian Beng.

Merger Arb Mondays (01 May) – HKBN, AAG Energy, United Malt, Blackmores, Origin, Metro Pacific

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), HKBN Ltd (1310 HK), Origin Energy (ORG AU).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Pushpay Holdings (PPH NZ), Blackmores Ltd (BKL AU).

Deutsche Bank/Numis Corporation: Acquiring Deal Flow

In a back to the 90’s, Deustche seeks to acquire UK corporate stockbroker Numis for a 350p/share package (72% premium, 2.1x P/BVPS, 15.5x on a smoothed-out P/E) via scheme of arrangement.
The deal should bring deal flow to Deutsche Bank’s UK business. Mifid II may spark more consolidation across UK brokers. Readacross: Peel Hunt Ltd/Guernsey (PEEL LN) could become a target.
Irrevocables are 27.2%. There’s no arguing with the premium and the deal should close. Spread is 2.63%/c. 4.93% (gross/annualised, assuming for simplicity all payments at settlement, around 15 November). Long.

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Apr 30

Daily Brief Event-Driven: A Noteworthy Long Short Setup: Ecopro BM & Posco Future M and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

A Noteworthy Long Short Setup: Ecopro BM & Posco Future M
Index Rebalance & ETF Flow Recap: KS200, KQ150, HSI, CSI300/500, STAR50, SSE50, ChiNext, PCOMP, HDFC
Insiders At Seoul City Gas and Daou Data Corp Sell Shares Before the Crash
Last Week in Event SPACE: China Mobile, Fast Retailing, Yuexiu Property, Vinda, Tokyo Gas
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- Sell in May and Go Away?
(Mostly) Asia M&A, April 2023: Arcland Service, Lian Beng, Silk Laser, Breaker Resources, Blackmores
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Blackmores, Metro Pacific, Invocare, AAG Energy, Jiangnan

A Noteworthy Long Short Setup: Ecopro BM & Posco Future M

Currently, the market cap of Ecopro BM surpassed Posco Future M. As a result, Ecopro BM is in a position to replace Posco Future M in the K-New Deal rebalancing.
They are direct peers with a high price cointegration. We should consider using the rebalancing event of this index as an inflection point from a Long Short pair trading perspective.
The likelihood of Ecopro BM being included in the Solactive Lithium Index in October could potentially increase the expected return of taking this Long Short position more preemptively.

Index Rebalance & ETF Flow Recap: KS200, KQ150, HSI, CSI300/500, STAR50, SSE50, ChiNext, PCOMP, HDFC

Friday marked the end of the review cutoff for the MSCI, CSI300, CSI500, STAR50, SSE50, ChiNext and a bunch of other indices for the upcoming rebalances in May and June.
There are no major index events coming up this week as a lot of markets are shut on different days.
There were big inflows to mainland China ETFs during the week, while there was a big redemption from the iShares MSCI ACWI ETF (ACWI US).

Insiders At Seoul City Gas and Daou Data Corp Sell Shares Before the Crash

By Douglas Kim

Key insiders at Seoul City Gas (017390 KS) and Daou Data Corp (032190 KS) sold their shares before the recent crash.
On 28 April, it was reported that Kim Young-Min (Seoul City Gas Chairman) sold 2% of Seoul City Gas on 20 April, resulting in net sales of 45.7 billion won.
These Korean companies are two of the eight stocks related to the CFD derivatives sell-down that have been crashing in the past week.

Last Week in Event SPACE: China Mobile, Fast Retailing, Yuexiu Property, Vinda, Tokyo Gas

It is relatively low-hanging fruit to “further propel the renmimbi’s internationalisation” and for HKEX, it will “cement HK’s position as the premier offshore renmimbi financing center.”
The Conundrum: the more active investors decide they like Fast Retailing (9983 JP), the more there is to sell. That creates interesting opportunities.
Short Yuexiu Property (123 HK) now, or soon. The dynamics of this is that there WILL be selling when the rights come out.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- Sell in May and Go Away?

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

(Mostly) Asia M&A, April 2023: Arcland Service, Lian Beng, Silk Laser, Breaker Resources, Blackmores

For the month of April, 6 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$3bn.
The average premium for the new deals announced (or first discussed) in April was 23%.
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Blackmores, Metro Pacific, Invocare, AAG Energy, Jiangnan

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.
Two new deals were discussed on Smartkarma this past week: Kirin (2503 JP)‘s Offer for Blackmores (BKL AU); First Pacific (142 HK) & Co’s Offer for Metro Pacific (MPI PM).
Key updates took place for Invocare Ltd (IVC AU), AAG Energy Holdings (2686 HK), and Jiangnan (1366 HK)

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Apr 29

Daily Brief Event-Driven: Kansai Paint (4613) Announces Large Sale of Cross-Holdings – Buyback Here We Come and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Kansai Paint (4613) Announces Large Sale of Cross-Holdings – Buyback Here We Come
Essity Mulls Holding In Vinda (3331 HK)
Hokkoku Financial (7381) Earnings Report Delay But HUGE Buyback. Again.
End of Mandatory Lock-Up Periods for 46 Companies in Korea in May 2023
Deutsche Börse/Simcorp: Recommended Offer

Kansai Paint (4613) Announces Large Sale of Cross-Holdings – Buyback Here We Come

Today after the close, Kansai Paint (4613 JP) announced it would sell 3 investment securities in the current quarter and would book a gain of “around ¥30bn.”
As discussed in Kansai Paint (4613 JP) Secondary Offering & Buyback and All the Subsequent Flows, Toyota’s sale of KP shares meant KP could sell Toyota shares. Now they will.
This is a set-up to another buyback, eventually to unwind more in-bound cross-holdings and to raise ROE.

Essity Mulls Holding In Vinda (3331 HK)

Tissue-Maker Vinda International (3331 HK) closed down 6.4% yesterday, recovering from a 13.8% fall intra day.
Vinda said its 1Q23 operating profit declined 85.4% to HK$65mn. Vinda also announced its controlling shareholder Essity (ESSITYB SS) will commence a strategic review of its 51.59% ownership.
A long-term shareholder potentially seeking a possible divestment, shortly after a company announces poor results, is not a great look.

Hokkoku Financial (7381) Earnings Report Delay But HUGE Buyback. Again.

Yesterday Hokkoku Financial Holdings (7381 JP) came out with an odd decision to delay earnings from 28 April to 8 May. Volume traded.
Today, despite not reporting earnings, the Kanazawa-based regional bank announced a BIG buyback with subsequent share cancellation. This was not unexpected. They have an aggressive policy which started last year.
Hokkoku Bank policy introduced last year is special. It has worked. They are pursuing it. Expect more policy action like this as banks report.

End of Mandatory Lock-Up Periods for 46 Companies in Korea in May 2023

By Douglas Kim

We discuss the end of the mandatory lock-up periods for 46 stocks in Korea in May 2023, among which 4 are in KOSPI and 42 are in KOSDAQ.
These 46 stocks on average could be subject to further selling pressures in May and could underperform relative to the market.
Among these 46 stocks, the top 6 market cap stocks include KG Mobility, Dongwon Industries, Hugel, Yunsung F&C, Enchem, and Jeio.

Deutsche Börse/Simcorp: Recommended Offer

Deutsche Börse will offer for DKK 735/share for financial software developer SimCorp, 38.9% premium, 6.5x EV/Fwd Sales (in line with other transactions), and 30.3x EV/Fwd EBIT.
DB offers a full price to grow in data&analytics: my EV/EBIT-based standalone fair value is DKK 629/share, plus (all) synergies taxed and capitalised of DKK 87/share results in DKK 716/share.
That figure is still below the offer price, and although gross spread is 0.48%, I’d be long in case of a possible bid by private equity.

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Apr 28

Daily Brief Event-Driven: The Fast Retailing (9983) Selldown Conundrum – Not Now and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

The Fast Retailing (9983) Selldown Conundrum – Not Now, But Soon… Then For A Long Time
Kirin Looks To Take Blackmores Private
PCOMP Index Rebalance Preview: MPI Tender Offer Opens Up an Index Spot
Metro Pac (MPI PM): Delisting Offer from First Pac & Co
One Unnoticed Addition to KOSDAQ 150: Yunsung F&C Through Special Inclusion
AAG Energy (2686 HK): Adjourned Scheme Meeting Points to a Close Vote
ChiNext/ChiNext50 Index Rebalance Preview: Outperformance Maintained
BIG Fujitsu (6702 JP) Buyback – It’s a Lot, but Not, but Still Big
Kirin’s Bid for Blackmores: Leveraging Regulatory Expertise to Enter China’s Supplement Market
JVC Kenwood (6632) – After Two Banner Years, Earnings to Fall, but Large Buyback For 6mos

The Fast Retailing (9983) Selldown Conundrum – Not Now, But Soon… Then For A Long Time

Fast Retailing (9983 JP) announced Q2 earnings two weeks ago. Revenues were good. OP was good. And the company raised full-year forecasts for Sales, OP, Pre-tax, and Net Profit.
The stock popped sharply. It isn’t “cheap” but it is under-owned, actively. And revenues up 20%yoy is a very good look.
The Conundrum: the more active investors decide they like it, the more there is to sell. That creates interesting opportunities.

Kirin Looks To Take Blackmores Private

Japan’s Kirin Holdings (2503 JP) has proposed taking Aussie vitamin play Blackmores Ltd (BKL AU) private by way of a Scheme at A$95/share.
That’s a 23.7% premium to last close, and represents 23.1x LTM December 2022 EBITDA.
Irrevocables are 18% of shares out. This Scheme requires clearance from ACCC, FIRB – and China’s SAMR.

PCOMP Index Rebalance Preview: MPI Tender Offer Opens Up an Index Spot

Based on data to the close on 27 April, we do not expect any changes to the Philippines Stock Exchange PSEi Index (PCOMP INDEX) at the August rebalance.
However, the Metro Pacific Investments Co (MPI PM) tender offer and voluntary delisting will open up an index spot that will need to be filled.
At the current time, Bloomberry Resorts (BLOOM PM) is the highest ranked non-index constituent and is the most likely replacement.

Metro Pac (MPI PM): Delisting Offer from First Pac & Co

First Pacific Co (142 HK), together with three other entities, are proposing to delist Metro Pacific Investments Co (MPI PM) at PHP 4.63/share, a 22% premium to the 12-month VWAP.
The four bidders hold a combined stake in MPIC of 63.4%. The Offer is conditional on First Pac shareholder approval, a tendering threshold, and an MPIC shareholder vote.
Elsewhere, First Pac continues to trade cheap to its NAV. Nothing new there.

One Unnoticed Addition to KOSDAQ 150: Yunsung F&C Through Special Inclusion

Due to the matched order fraud incident in recent days, there has been a significant change in the KOSDAQ top 50 rankings, presenting a great opportunity for Yunsung F&C.
The estimated size of the passive inflow that it is likely to receive is approximately 0.5-0.8x ADTV for ETFs alone, and 1.2-1.5x when expanded to all passive funds.
We should note that the level of market exposure to inclusion possibility has been significantly low. Therefore, we can expect a significant price impact at the time of the announcement.

AAG Energy (2686 HK): Adjourned Scheme Meeting Points to a Close Vote

The 27 April vote was adjourned as Aag Energy Holdings (2686 HK) Board was notified by “certain beneficial owners indicating that their latest voting instructions were not duly processed.”
The meeting would not be adjourned if the YES vote was going to sail through. A delay helps the offeror as these owners will vote YES and deal fatigue sets in.
Risk-Reward is still unfavourable at the last close. The deal break fair value range is HK$1.37-1.45 per share, with 16.0%-11.0% downside. This compares to the 13.5% upside from the offer.

ChiNext/ChiNext50 Index Rebalance Preview: Outperformance Maintained

With 1 trading day left in the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
Passive trackers are estimated to trade around +/-0.5 days ADV on most of the potential adds/deletes, though there are some deletes that will have over 1 day ADV to sell.
The potential inclusion to one or both indices have outperformed the potential deletes by a huge margin in the last month. We’d be inclined to trim positions.

BIG Fujitsu (6702 JP) Buyback – It’s a Lot, but Not, but Still Big

Fujitsu earnings are out. Forecasts are in, lighter than consensus.
But there is a buyback. Looking at the way last year’s was executed is not that informative but it may be useful.
This one is big enough to matter but not big enough to get excited about until we get confirmation.

Kirin’s Bid for Blackmores: Leveraging Regulatory Expertise to Enter China’s Supplement Market

By Oshadhi Kumarasiri

Kirin Holdings (2503 JP) is eyeing the vitamin game with a proposal to buy Blackmores at AU$95 per share, representing a 23.7% premium over the stock’s most recent closing price.
Blackmores Ltd (BKL AU)‘s expertise in navigating China’s stringent regulations could be the missing piece for Kirin to gain access to the lucrative supplement market in China.
Our main concern is Kirin’s history of unsuccessful overseas business acquisitions, particularly outside of its core beer business.

JVC Kenwood (6632) – After Two Banner Years, Earnings to Fall, but Large Buyback For 6mos

Today, JVC KENWOOD (6632 JP) announced earnings, its forecast for this next year, and the outlines of its new Mid-Term Management Plan.
That plan has the run to 2025 seeing sales rise slightly, Operating margins rising slightly. EBITDA margins at last year’s level or better, and Operating CF like last year.
They also announced a buyback which they hoped would help them boost ROE and PBR to 1.0x as quickly as possible. The TSE pressure is working.

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Apr 27

Daily Brief Event-Driven: HDFC/HDFC Bank Mega Merger: Index Implications as We Near Completion and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

HDFC/HDFC Bank Mega Merger: Index Implications as We Near Completion
Tokyo Gas (9531 JP) Mega Buyback Announced
HSI Market Consultation: Foreign Companies, Industry Groups, HK Companies
STAR50 Index Rebalance Preview: Changes Depend on Minimum Listing History
Blackmores (BKL AU) Signs SID with Kirin Holdings (2503 JP)
Activision Blizzard – An Unsightly Mess
SSE50 Index Rebalance Preview: Five Changes Coming Up in June
Codan (CDA AU): Balancing Defence And Accelerated Preparedness
Quiddity Leaderboard ES50 Sep 23: Vonovia Deletion Seems Likely; US$1.2bn Flow for Wolters Kluwer
EQT/Dechra Pharmaceuticals: Generous Possible Offer

HDFC/HDFC Bank Mega Merger: Index Implications as We Near Completion

Foreign shareholding has dropped in HDFC Limited and increased in HDFC Bank – the net effect is an increase in foreign room to just north of 18%.
The merger is expected to complete in Q2/Q3 when there will be buying from MSCI trackers. There will be adhoc inclusions to the NIFTY, Nifty Next 50 and SENSEX indices.
HDFC Limited (HDFC IN) trades 1.39% below the merger ratio with HDFC Bank (HDFCB IN) and also at a lower price to book.

Tokyo Gas (9531 JP) Mega Buyback Announced

Five days ago, Tokyo Gas (9531 JP) announced a revision to earnings for the year to 31 March 2023. Today they reported results, and announced March 2024 guidance.
The company also announced a buyback programme to spend up to ¥113 billion to repurchase up to 53mm shares (12.2% of TSO). ¥113 billion is a very specific number.
With the price where it is, ¥113bn is “only” 9.6% of shares out but this is very interesting indeed.

HSI Market Consultation: Foreign Companies, Industry Groups, HK Companies

Hang Seng Indexes has started a consultation on the eligibility of Foreign Companies in the Hang Seng Index, a review of the seven Industry Groups and number of HK constituents.
We agree that foreign companies should be added to the index, no change needed to the Industry Groups, and the cap on the number of HK constituents should be removed.
There are a few potential adds due to the removal of the cap on HK companies, while there are potential foreign company additions later this year or in 2024.

STAR50 Index Rebalance Preview: Changes Depend on Minimum Listing History

The review period for the June rebalance ends 28 April. We expect the changes to be announced 26 May with the implementation taking place after the close on 9 June.
Using a 12-month minimum listing history results in no index changes. Using a 6-month minimum listing history results in two changes – we think this is what will be used.
The potential adds have outperformed the potential deletes but both sets of stocks have underperformed the SSE STAR50 (STAR50 INDEX) and the CSI Smallcap 500 Index – Shanghai (SH000905 INDEX).

Blackmores (BKL AU) Signs SID with Kirin Holdings (2503 JP)

Blackmores Ltd (BKL AU) has signed a Scheme Implementation Deed with Kirin Holdings (2503 JP) for the acquisition of 100% of Blackmores by way of a scheme of arrangement.
The A$95/share offer is a 23.7% premium to the last close and is at least a 20% premium to most other VWAPs.
Blackmores Ltd (BKL AU) intends to pay a fully-franked special dividend of A$3.34/share. This will enable eligible shareholders to benefit from franking credits of A$1.43/share.

Activision Blizzard – An Unsightly Mess

By Mio Kato

Last night the CMA chose to block the merger between Microsoft and Activision Blizzard in the UK on the grounds that it would harm competition in cloud gaming.
The merits of that position are highly debatable in our view but that does not mean that the decision is bad for consumers.
It also does not mean that the decision is bad for Microsoft in our view.

SSE50 Index Rebalance Preview: Five Changes Coming Up in June

With 2 trading days left in the review period, we see 7 potential adds/5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
We estimate one-way turnover of 5.58% at the June rebalance leading to a one-way trade of CNY 4.22bn. Index arb balances could increase the impact on the stocks.
The potential adds have outperformed the potential deletes over the last couple of months and have underperformed over the last week.

Codan (CDA AU): Balancing Defence And Accelerated Preparedness

The highly-anticipated Defence Strategic Review, released on the 24 April, clarifies the five key missions for the Australian Defence Force: maritime, land, air, space, and cyber.
One takeaway recommended Defence balance the need for local content against its timely acquisition, suggesting increased off-the-shelf acquisitions. This may favour overseas contractors in place of the domestic industry.
Codan (CDA AU), whose metal detectors and communications technology are used by the military, is one SME whose procurement speed may be scrutinised.

Quiddity Leaderboard ES50 Sep 23: Vonovia Deletion Seems Likely; US$1.2bn Flow for Wolters Kluwer

The EURO STX 50 Index is one of the most highly-tracked indices in mainland Europe and the annual index review takes place in September.
Historically, these Rebalance events have had significant volume and ADV impact and they generally involve large cap names.
In this insight, we take a look the names leading the race to become ADDs/DELs for the upcoming index review in September 2023.

EQT/Dechra Pharmaceuticals: Generous Possible Offer

Dechra is in discussions with EQT and ADIA about a 4,070 cash possible offer (46.6% premium, 22.6x EV/NTM Fwd EBITDA and 32x Fwd P/E). PUSU deadline is 11 May.
With the deal multiple at a slight premium (on both EV/Fwd EBITDA and Fwd P/E) over Zoetis, the market leader in animal health, the offer appears to be reasonably priced.
My base case fair value estimate is 3,568p/share (DCF-based), 12.3% below the offer price. My TP is thus 4,070p. Gross spread is 9.1%, therefore I feel the risk/reward is balanced.

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Apr 26

Daily Brief Event-Driven: Matched Order Fraud in Korea: Reason Behind Eight Stocks Hit Massively and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Matched Order Fraud in Korea: Reason Behind Eight Stocks Hit Massively
AAG (2686 HK): Pros & Cons Ahead Of Scheme Vote
Mankind Pharma: IPO Details & Index Inclusion
KOSDAQ150 Index Rebalance Preview: Adds Starting to Crack (After Huge Outperformance)
Quiddity Leaderboard Singapore’s STI Sep 23: KDCREIT Facing Risk of Deletion
CSI500 Index Rebalance Preview: Potential Changes as Review Period Nears Completion

Matched Order Fraud in Korea: Reason Behind Eight Stocks Hit Massively

The local ghost hedge fund began to excessively invest in credit, which leveraged 2.5 to 3 times when the eight manipulated stocks started to increase rapidly in price.
Then, the Financial Supervisory Service deemed this excessively-leveraged trading behavior as unusual, and news of an investigation into their activities broke out and triggered them to dump the shares.
The key now is identifying in advance the stocks that will experience similar selling patterns. To do so, we need to prioritize selecting stocks with high-margin balances in recent times.

AAG (2686 HK): Pros & Cons Ahead Of Scheme Vote

We’re down to the pointy end of AAG Energy Holdings (2686 HK)‘s Scheme. And at a gross/annualised spread of 15.6%/318%, all is not well.
The uncertainty is not without substance. A derisory Offer, one that is rejected by a proxy advisor; together with a silent, large shareholder no one seems to know.
Shareholders go to the vote this Thursday, the 27th April. Currently trading 5% below the undisturbed price.

Mankind Pharma: IPO Details & Index Inclusion

Mankind Pharma (6596876Z IN) is looking to raise up to US$526m in its IPO by selling 40.06m shares at a price range of INR 1026 to INR 1080 per share.
The company has allocated 12.02m shares to anchor investors at INR 1080/share. That list includes marquee names and the lock-up reduces near-term float.
The IPO opens on 25 April and will close on 27 April. Shares are expected to start trading on 9 May and there are no near-term index inclusions expected.

KOSDAQ150 Index Rebalance Preview: Adds Starting to Crack (After Huge Outperformance)

With 3 trading days left in the review period for the June rebalance, we see 8 potential changes and 2 close adds for the KOSDAQ 150 Index (KOSDQ150 INDEX).
There are two potential transfers from the KOSDAQ Market to KOSPI Market that could lead to more changes in May and/or June.
Nearly all potential deletions are trading near their lows and short interest has been increasing on some of the stocks. That will be covered closer to implementation of the rebalance.

Quiddity Leaderboard Singapore’s STI Sep 23: KDCREIT Facing Risk of Deletion

In this insight, we take a look at the potential index changes for Singapore’s ST index (“STI”) between now and the September 2023 index review.
With roughly 4 more months left for the base date, Sembcorp Marine (SMM SP) seems to be an ADD but it is close to the border.
Since the ranking system used for this index in based on prices as at a single point in time, the rankings could change significantly and our expectations could change too.

CSI500 Index Rebalance Preview: Potential Changes as Review Period Nears Completion

With three trading days left in the review period for the CSI 500 Index (SH000905 INDEX) June rebalance, we forecast 50 changes at the close on 9 June.
There is a big sector skew in the potential changes. We estimate a one-way turnover of 10.77% at the June rebalance resulting in a one-way trade of CNY 6.28bn.
The potential adds have outperformed the potential deletes but there has been a big selloff in the last couple of weeks as the market has headed lower.

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Apr 25

Daily Brief Event-Driven: AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote
KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks
CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete
Quiddity Leaderboard SE600 Jun 23: Three ADDs/DELs Likely
Silver Lake/Software AG: Agreed Offer
Shockwave Medical Inc (SWAV US): Initial Thought on Takeover Talk and Probable Pricing

AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote

Ahead of Aag Energy Holdings (2686 HK)’s vote on 27 April, the gross spread to Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer sits uncomfortably high at 13.5%.
The key risk remains that minorities vote down the scheme. Retail forums are active with mixed views on the offer. Peers have also modestly re-rated, which helps the NO camp.
At the last close, the risk-reward profile is unfavourable as the downside to a scheme fail (-16.0%) is greater than the upside to a scheme pass (+13.5%).

KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.
Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS).
If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.

CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete

With 4 trading days to go the review period, we see 13 potential index changes at the June rebalance that will be implemented at the close on 9 June.
We estimate a one-way turnover of 1.94% at the June rebalance leading to a one-way trade of CNY 5.05bn.
With the review period nearly complete, the gap between the potential adds and deletes could narrow ahead of the announcement of the changes as pre-positions are built.

Quiddity Leaderboard SE600 Jun 23: Three ADDs/DELs Likely

In this insight, we take a look at the names leading the race to become ADDs/DELs for the STX Europe 600 and EUROSTX Indices for the March 2023 Rebalance.
There is roughly one more month left to the base date. At present, I see around 3 ADDs/DELs in the June 2023 review.
Separately, STX Europe 600 members Credit Suisse (CSGN SW) and Vantage Towers (VTWR GR) could possibly get deleted in the next few months triggering intra-review index changes.

Silver Lake/Software AG: Agreed Offer

Silver Lake has announced its intention to launch a cash offer to delist Software AG at €30/share (53% premium, 12.7x EV/NTM EBITDA, 20.5x Fwd P/E), targeting 37% of the float.
The Board is suportive and Silver Lake does not seek a domination agreement. The offer price will not be adjusted by the next dividend (€0.05, ex-date 19 May).
My fair value estimate (EV/EBITDA based) is €26.54/share, the offer price seems adequate. The offer targets 37.6% of the float, feasible. Gross spread (incl. divi) is 0.97%, not terribly exciting.

Shockwave Medical Inc (SWAV US): Initial Thought on Takeover Talk and Probable Pricing

By Tina Banerjee

Shockwave Medical Inc (SWAV US) is reportedly drawing takeover interest from Boston Scientific. Shockwave can potentially be one of Boston Scientific’s largest ever acquisitions. Probable pricing still offers upside potential.
Shockwave has an addressable market opportunity of $8.5 billion. The company has guided for 2023 revenue of $660–680 million, which represents 35–39% YoY growth.
Addition of Shockwave will bolster Boston Scientific’s cardiovascular portfolio. No official announcement has been made by any of the companies. There is no certainty they will lead to a deal.

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Apr 24

Daily Brief Event-Driven: Another Reason To Like China Mobile (941 HK) and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Another Reason To Like China Mobile (941 HK)
Yuexiu Property (123 HK) Rights Offering
Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch
Merger Arb Mondays (24 Apr) – AAG Energy, Jiangnan, HKBN, Healius, Lian Beng, Toyo
Weekly Deals Digest (23 Apr) – HKBN, Jiangnan, Lian Beng, Yuexiu Property, ZJLD, Mankind, Adicon
Jiangnan (1366 HK): 15th May Court Meeting. IFA Says Fair

Another Reason To Like China Mobile (941 HK)

In March, the HK Secretary for Financial Services announced a waiver of stamp duty on dual counter trading market making. In November, the Govt of HK gazetted a bill.
HKEX launched plans in December. 9 large HK names announced in March they’d apply (Tencent, Kuaishou, Geely, BOC, Anta, AIA, China Resources Beer, Bidu, HKEX). Six more in April.
All the announcements are similar. But one on 21 April caught my eye because it is a big H/A with strong southbound support. That’s China Mobile (941 HK).

Yuexiu Property (123 HK) Rights Offering

On Thursday morning, Yuexiu Property (123 HK) halted trading in its shares and then later in the day announced a rights offering. Shares fell hard but gained back a little.
The rights offering lowers BVPS by about 11.3% so the current price is “about right” for the fundamentals if the price the day before the news was right.
There are, however, flow dynamics which are of interest. There almost always are.

Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch

Two pairs of constituent changes marked in squares in INTERNET and GAME may offer meaningful trading opportunities: Seojin System IN / Ahnlab OUT and Com2us IN / Doubleugames OUT.
Along with TIGER ETF, stealth index funds follow these indices. So, constituent changes in INTERNET and GAME create a flow impact of 0.3~0.6x DTV, even not in the Top 3.
Also, INTERNET and GAME have less passive flow impact degradation risk due to momentum trading flows compared to BATTERY and BIO.

Merger Arb Mondays (24 Apr) – AAG Energy, Jiangnan, HKBN, Healius, Lian Beng, Toyo

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), Aag Energy Holdings (2686 HK), United Malt Group Ltd (UMG AU), Origin Energy (ORG AU), Toshiba Corp (6502 JP).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), Golden Energy & Resources (GER SP), HKBN Ltd (1310 HK), Mincor Resources NL (MCR AU).

Weekly Deals Digest (23 Apr) – HKBN, Jiangnan, Lian Beng, Yuexiu Property, ZJLD, Mankind, Adicon

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 – Yuexiu Property (123 HK) rights issue and ADICON Holdings Limited (ADI HK), ZJLD Group (ZJLD HK), Mankind Pharma (6596876Z IN) IPOs.
Event-Driven developments – HKBN Ltd (1310 HK), Jiangnan (1366 HK), Essential Metals (ESS AU), Healius (HLS AU), Lian Beng (LBG SP), Oishi Group PCL (OISHI TB).

Jiangnan (1366 HK): 15th May Court Meeting. IFA Says Fair