Event-Driven

The transaction completes on 28 February and the distribution in-specie of 49% new Sembcorp Marine (SMM SP) shares will be credited to Keppel Corp (KEP SP)‘s shareholders on 1 March.
While the potential index inclusions are likely to support new SMM shares, there is likely to be greater short-term downward pressure from the overhang created by the distribution in-specie.
New SMM trades at a premium P/NAV multiple of 1.81x vs peers. However, New SMM’s order book of S$18.1 billion implies an undemanding EV/order book of 0.60x vs historical ranges.

SET50 Index Rebalance Preview: Changes from Now to June

Srisawad Power 1979 (SAWAD TB) is likely to join the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) in early March following the DTAC/TRUE merger.
Then there should be one change in June with Thai Life Insurance (TLI TB) replacing Jaymart PCL (JMART TB) in the index.
There is one stock close to failing the liquidity test and that could lead to another change with a few stocks vying for index inclusion.

Merger Arb Mondays (20 Feb) – AAG Energy, Yashili, Toyo, Nitro, Origin Energy, Newcrest, O2Micro

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 – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Origin Energy (ORG AU), 111 Inc (YI US), Golden Energy & Resources (GER SP), Genesis Minerals (GMD AU).
Lowest spreads – Boustead Projects (BOCJ SP), Ihara Science (5999 JP), Nitro Software Ltd (NTO AU), Tyro Payments (TYR AU), Essential Metals (ESS AU), Warrego Energy (WGO AU).

NIFTY Mar 23 Rebal: Quiddity Flow Expectations

By Janaghan Jeyakumar, CFA

The March 2023 Rebalance results for the NIFTY broad market Indices were announced after the close on Friday 17th February 2023.
In my previous insights, I highlighted Pidilite Industries (PIDI IN) as a potential ADD for NIFTY 50 but it will not be added in March 2023. There are no changes.
However, for NIFTY 100 (& NIFTY Next 50), 4/5 Expected ADDs and 5/5 Expected DELs were predicted correctly.

Weekly Deals Digest (19 Feb) – Fujitec, Toyo, AAG Energy, Yashili, Newcrest, Keppel, Pertamina

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 – Pertamina Geothermal (0125738D IJ) raised US$597 million by pricing the IPO at the low end of the price range of IDR875-880 per share.
Event-Driven developments – Fujitec Co Ltd (6406 JP), Toyo Construction (1890 JP), Keppel Corp (KEP SP), Aag Energy Holdings (2686 HK), Newcrest Mining (NCM AU), Origin Energy (ORG AU).

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Feb 19

Daily Brief Event-Driven: Sembcorp Marine (SMM SP): Keppel O&M Takeover Completion Next Week = OOF! and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Sembcorp Marine (SMM SP): Keppel O&M Takeover Completion Next Week = OOF!
AAG Energy (2686 HK): Xinjiang Xintai’s Light but Final HK$1.85 Offer
Index Rebalance & ETF Flow Recap: S&P/ASX, KOSPI, NIFTYJR, Kakao Pay, HK Electric, Adani Group
AAG Energy (2686 HK): Xinjiang Xintai ‘s Underwhelming Scheme Offer
Keppel Goes Ex- SMM Spinoff This Week – NEWKEP Is Still A Buy
Last Week in Event SPACE: S.M.Entertainment, Adani Group, Star Entertainment, Dai Nippon, Citizen
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Toshiba, Jingnan, Newcrest, Yashili, Sembcorp, O2Micro, AAG

Sembcorp Marine (SMM SP): Keppel O&M Takeover Completion Next Week = OOF!

This insight comes as one-half of a pair. The problem: I cannot label one insight as a pair trade, and there are different dynamics at play.
This insight discusses the dynamics of Sembcorp Marine (SMM SP) as the takeover of Keppel O&M nears. The deal goes effective 28 February after last week’s SMM shareholder approval.
That will mean overhang. Lots of active overhang. There WILL be some index upweights, but index treatment remains nebulous, and one has to expect a lot more net index outflow.

AAG Energy (2686 HK): Xinjiang Xintai’s Light but Final HK$1.85 Offer

Aag Energy Holdings (2686 HK) disclosed a pre-conditional privatisation offer from Xinjiang Xintai Natural Gas (603393 CH) at HK$1.85 per share, a 10.1% premium to the undisturbed price.
The pre-condition is Xinjiang Xintai shareholder approval. Key condition is approval by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection). The price is final but light.
The total privatisation cost is HK$2,704 million vs AAG’s net cash of HK$2,270 million. The offeror is betting that minorities will not be able to launch a concerted NO vote.

Index Rebalance & ETF Flow Recap: S&P/ASX, KOSPI, NIFTYJR, Kakao Pay, HK Electric, Adani Group

The announcement of the changes to the FTSE GEIS was made on Friday post market close. Friday was also the cutoff for the March review of the S&P/ASX indices.
Monday is the review cutoff for some indices, while Friday is the announcement of the changes to the Hang Seng family of indices and the SSE STAR50 (STAR50 INDEX).
There were big outflows from the IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) for yet another week taking YTD outflows to nearly US$3bn.

AAG Energy (2686 HK): Xinjiang Xintai ‘s Underwhelming Scheme Offer

On the 14 May 2018, coalbed methane producer AAG Energy Holdings (2686 HK) announced a partial offer (50.5%) from Xinjiang Xintai Natural Gas (603393 CH) at HK$1.75/share.
Xinjiang Xintai has returned to the pit with a $1.85/share Offer by way of a Scheme. The Cancellation Price will NOT be increased.
This is hardly a knockout price, at a 10.1% premium to undisturbed; and just a 2.2% premium over the highest closing price of HK$1.81/share in the past year.

Keppel Goes Ex- SMM Spinoff This Week – NEWKEP Is Still A Buy

This insight comes as one-half of a pair. The problem: I cannot label one insight as a pair trade, and there are different dynamics at play.
This insight discusses the dynamics of Keppel Corp (KEP SP) as the SMM takeover of Keppel O&M nears. The deal goes effective 28 February but KEP trades ex- on 23 February.
While not as egregiously mis-priced as SCI vs SMM in autumn 2021, NEW KEPPEL appears under-priced here.

Last Week in Event SPACE: S.M.Entertainment, Adani Group, Star Entertainment, Dai Nippon, Citizen

S.M.Entertainment Co (041510 KS) is trading through the partial offer terms as HYBE (352820 KS) and Kakao Corp (035720 KS) jostle for control.
The political noise around the Adani Group situation will continue to be significant. Part of India believes this is a hatchet job against PM Modi and the BJP.
Star Entertainment Group (SGR AU) is an extraordinarily toxic company. But just how much negative news is already baked into the share price?

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades

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-Pac Weekly Risk Arb Wrap: Toshiba, Jingnan, Newcrest, Yashili, Sembcorp, O2Micro, AAG

There are 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal
Onr new deals was discussed on Smartkarma this past week – AAG Energy (2686 HK)‘s Scheme. Jiangnan (1366 HK) also suspended pursuant to Hong Kong’s Code on Takeovers and Mergers.
Key updates took place for: Toshiba Corp (6502 JP), Newcrest Mining (NCM AU), Yashili International Holdings (1230 HK), Sembcorp Marine (SMM SP), and O2Micro International (OIIM US).

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Feb 18

Daily Brief Event-Driven: Adani Group – MSCI’s Special Treatment Gets More Special and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Adani Group – MSCI’s Special Treatment Gets More Special, and Partially Delayed, and Possibly Worse
Index Corporate Actions for Hanwha Solutions Split: Passive Flow Size & Schedule
Jiangnan Group (1366 HK): Powering Up
Mori Trust Sogo REIT (8961) Small Index Upweight on 27 Feb
NIFTY NEXT50 / NIFTY100 Index Rebalance: 5 Changes + Capping = Big Turnover
Jiangnan Group (1366 HK): Is the Chairman/CEO Reattempting Privatisation?
SARIA/Devro: Increased and Final

Adani Group – MSCI’s Special Treatment Gets More Special, and Partially Delayed, and Possibly Worse

On 8 February, MSCI announced special treatment for the Adani names in its indices, discussed in Adani Group – MSCI Will Treat Very Adani Funds as a Very Special Case.
Late on 15 February they came out with a revision of their implementation – which was problematic because some stocks had gone limit down many days in a row.
The stocks responded. But it clearly isn’t an easy implementation, and it clearly isn’t over.

Index Corporate Actions for Hanwha Solutions Split: Passive Flow Size & Schedule

Hanwha Solutions received shareholder approval for its proposed demerger on February 13. The demerger will split Hanwha Solutions into two separate entities: Hanwha Galleria and Hanwha Solutions.
Hanwha Solutions will experience a passive outflow of 0.92x ADTV at the closing price on February 24 for KOSPI 200. A similar passive inflow will occur on March 31.
MSCI Standard will deliver an outflow of 0.43x ADTV at the close on March 31 as the weight of Hanwha Solutions, an existing constituent, will be reduced.

Jiangnan Group (1366 HK): Powering Up

Jiangnan (1366 HK), a manufacturer of wires and cables for power transmission and distribution systems, was suspended yesterday at lunchtime pursuant to Hong Kong’s Code on Takeovers and Mergers.
But not before the share price gained 63% on clear news leakage.
Chu Hui, the chairman, CEO, and major shareholder, mulled taking the private six years ago.

Mori Trust Sogo REIT (8961) Small Index Upweight on 27 Feb

Mori Trust Sogo Reit (8961 JP) and Mori Trust Hotel Reit (3478 JP) will merge at the end of this month.
They pay divs, there is a unit split, then NEWCO.
If you are in the biz and you care, there is a small index thing to do.

NIFTY NEXT50 / NIFTY100 Index Rebalance: 5 Changes + Capping = Big Turnover

ABB India Ltd (ABB IN), Adani Wilmar (AWLTD IN), Canara Bank (CBK IN), Page Industries (PAG IN) and Varun Beverages Ltd (VBL IN) will be added to the index.
Bandhan Bank Ltd (BANDHAN IN), Biocon Ltd (BIOS IN), Gland Pharma Ltd (GLAND IN), Mphasis Ltd (MPHL IN) and Paytm (PAYTM IN) will be deleted from the index.
Given the large drop in the stock prices of the Adani Group companies, capping changes will result in buying on all non-F&O stocks in the index.

Jiangnan Group (1366 HK): Is the Chairman/CEO Reattempting Privatisation?

Jiangnan (1366 HK) entered a trading halt pending the release of an announcement under the Hong Kong Code on Takeovers and Mergers on 16 February.
It is likely that Mr Chu Hui (Chairman and CEO), the largest shareholder representing 34.99% of outstanding shares is reattempting to privatise Jiangnan.
The 83.9% share price run prior to the trading halt suggests that the offeror is very close to finalising a formal proposal at a hefty premium to the undisturbed price.

SARIA/Devro: Increased and Final

By Jesus Rodriguez Aguilar

Shareholders have gently pressed. SARIA has upped by 4.4% (“increased and final”) its cash offer for casings manufacturer Devro to 320p+10p interim, which represents 10x EV/Fwd EBITDA and 17.1x Fwd P/E.
The increased consideration puts the offer almost in line with market leader Viscofan’s multiples (10.2x EV/Fwd EBITDA). The initial offer was already generous, even more so now.
The deal should complete. Spread (gross/annualised) is 1.06%/2.65%, assuming settlement by 14 July (settlement will happen the same day as the second permitted dividend payment).

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Feb 17

Daily Brief Event-Driven: Thinking About the Ito-En (2593 JP) MSCI Index Exclusion Event and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Thinking About the Ito-En (2593 JP) MSCI Index Exclusion Event
Samsung C&T Shareholder Return: Directly Related to Lee Family’s Inheritax Tax Issue
O2Micro Wraps Up. GSMG Capitulates
Adways (2489 JP) – Really, Really Big News for a SmallCap
SciClone Pharma (6600 HK): Inexpensive Ahead Of New Therapies Rolling Out
Trend Micro (4704 JP) – Value Act’s Activism Starts To Show, But It’s Still Small Potatoes
Keppel (KEP SP): Keppel O&M/Sembcorp Marine Transaction Moves Towards Completion
Toyo Construction (1890 JP): The Board Uses the Smokescreen of a Special Committee
EQD | TSMC (TSM US): Revisiting the Call Ratio and Vol Pair Trade with AAPL US
EQT/Va-Q-Tec: Deal Will Complete

Thinking About the Ito-En (2593 JP) MSCI Index Exclusion Event

Ito En Ltd (2593 JP) is a slightly strange stock in the grand scheme of things.
It is expensive for its growth, and the shareholder register is such that it is subject to the whims and vagaries of forces over which investors may have no control.
This time, it is MSCI. Stock prices go up, stocks go in the indices. Stock prices fall, they come out. It’s coming out this month. So who buys?

Samsung C&T Shareholder Return: Directly Related to Lee Family’s Inheritax Tax Issue

The target volume is 24,718,099 ordinary shares (13.2%) and 159,835 preferred shares (9.8%). That is, C&T will cancel all of its treasury shares in the next five years.
C&T’s decision to cancel treasury shares clearly indicates that the family’s fundraising strategy is focused on stake sales rather than dividend increases.
The number of shares inherited will be the volume Lee Seo-hyun will sell in the short term as this is within the range that minimizes the tax liability through LIFO.

O2Micro Wraps Up. GSMG Capitulates

At the EGM held on January 31, O2Micro International (OIIM US)’s shareholders approved the Merger Agreement. Completion was subject to satisfying certain conditions, which appeared rudimentary.
An equity corporate action notice released yesterday (15 February) indicates the last day of trading will be the 24 February, with an effective date of 27 Feb.
O2Micro is currently at a 2.7% gross spread. At the other end of the spectrum, Glory Star New Media (GSMG US) is at a staggering 79% spread, despite shareholder approval.

Adways (2489 JP) – Really, Really Big News for a SmallCap

Adways Inc (2489 JP) is an ad agency, ad platform, marketing platform, and a variety of sub-platforms serving certain mobile, PC, marketing, and app development niches.
They released earnings last Friday, but today released other – follow-on information.
Included was a buyback – up to 5.7mm shares (13.57% of shares out) for up to ¥2bn (9% of mktcap) – over the next 5.5 months. Seems big. Look closer.

SciClone Pharma (6600 HK): Inexpensive Ahead Of New Therapies Rolling Out

Shareholders have given SciClone Pharmaceuticals (6600 HK)‘s buyback the go-ahead which will result in the major shareholder holding (upward of) 31.63%, and the freedom to creep.
As such, a concentrated shareholder register, primarily comprising entities that privatised SciClone in 2017, gets even more concentrated.
Trading inexpensively ahead of the launch of a new (and approved) drug, SciClone is worth a second look.

Trend Micro (4704 JP) – Value Act’s Activism Starts To Show, But It’s Still Small Potatoes

Trend Micro Inc (4704 JP) is an interesting, but odd little company in an interesting odd little niche. They make cybersecurity products and are good at it.
Last summer, well-known activist Value Act Capital showed up on the tape in August with an 8.7% position.
What had been good dividend payout ratios are now cemented. Now there is a big buyback to return cash. Look for more. And as always, details matter.

Keppel (KEP SP): Keppel O&M/Sembcorp Marine Transaction Moves Towards Completion

Sembcorp Marine (SMM SP) shareholders voted overwhelmingly for the merger between Keppel O&M and Sembcorp Marine. The transaction is expected to close by 28 February.
The divestment of Keppel O&M will further move Keppel Corp (KEP SP) towards a more asset-light and recurring earnings model, providing a helpful tailwind to hit its 15% ROE target.
Pre-Dividend in specie distribution, our Keppel SoTP valuation based on Sembcorp Marine’s reference issue price (S$0.122) and last close (S$0.136) is S$8.49 and S$8.72 per share, respectively.

Toyo Construction (1890 JP): The Board Uses the Smokescreen of a Special Committee

Toyo Construction (1890 JP) will set up a special committee to evaluate YFO’s JPY1,100 offer. The Board will decide “after respecting the content of the decision of the special committee.”
YFO rightly points out the special committee is a ruse and is an attempt by the Board to demonstrate ‘a fair process’ for the predictable decision to reject its proposal.
The Board’s anxious move shows that protracted conflict is shifting in favour of YFO. At the last close, the gross spread to the tender offer is 10.3%.

EQD | TSMC (TSM US): Revisiting the Call Ratio and Vol Pair Trade with AAPL US

We published last November about buying upside via selling call ratios and also about a vol pair trade idea versus AAPL US.
Buffet has surprisingly exited the bulk of his stake in the chip maker causing concern that the value investor no longer sees value
We update on the position and consider what to do next

EQT/Va-Q-Tec: Deal Will Complete

By Jesus Rodriguez Aguilar

The offer price is attractive for shareholders, even more so following an enthusiastic recommendation from the Board and a profit warning during the acceptance period.
The main hurdle was always the acceptance rate, but at 62.46% on the last count, it is just shy of the minimum threshold condition of 62.5%.
Some shareholders may feel tempted to explore the benefits of a domination agreement (as in participating in future synergies, with liquidity risk). Spread (gross/annualised) is 1.73%/6.11%. Long and tender.

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Feb 16

Daily Brief Event-Driven: The MatsuKiyoCocokara (3088) February Flow Show and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

The MatsuKiyoCocokara (3088) February Flow Show
Adaro Energy (ADRO IJ) Buyback – A Decent Chunk of 1 Year ADV
HK Electric Investments (2638 HK): MSCI Deletion Could Mark a Bottom
S&P/ASX Index Rebalance Preview: Review Period (Nearly) Complete
Who Wants SM Entertainment More? Kim Bum-Soo (Kakao) Or Bang Si-Hyuk (Hybe)?
Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes
Star Entertainment (SGR AU): Entertaining Known Unknowns
EQD | KOSPI2 Index: Reloading on Upside Calls

The MatsuKiyoCocokara (3088) February Flow Show

MatsukiyoCocokara (3088 JP) has run up quite well in the past year, rising strongly and outperforming Peers significantly. It has been the avatar of Inbound Rebound hopes and dreams.
Over that time, forward EPS expectations have also improved, but not as much as price. MatsukiyoCocokara used to be cheap to peers on forward PER. Now it is not.
28 Feb sees an MSCI inclusion trade to swing 7% of shares from active to passive. Understanding where those come from is key.

Adaro Energy (ADRO IJ) Buyback – A Decent Chunk of 1 Year ADV

Yesterday, Indonesia’s second largest coal mining business Adaro Energy (ADRO IJ) announced a buyback. This follows another buyback which ended in December 2022.
The Sep21-Dec22 buyback bought back 1bn shares, but did not spend all the money allocated to the buyback. This new one might buy back a similar quantity.
Looking at Real World Float is the right frame of reference. And the stock was at a recent low vs a Peer Basket.

HK Electric Investments (2638 HK): MSCI Deletion Could Mark a Bottom

HK Electric Investments (2638 HK) will be deleted from the MSCI Hong Kong Index at the close on 28 February. This was largely expected.
We estimate passive MSCI trackers will need to sell 172.3m shares (US$111m; 19.1 days of ADV to trade). That is a lot. But there are pre-positions on the stock.
HK Electric Investments (2638 HK) has underperformed its peers and now trades at a lower price to book. There could be outperformance post the MSCI deletion.

S&P/ASX Index Rebalance Preview: Review Period (Nearly) Complete

We currently see 1 change for the ASX20 Index, 2 changes for the ASX100 Index, 4 changes for the ASX200 Index, 10 adds/7 deletes for the ASX300 Index in March.
On average, the potential adds to each of the indices have outperformed the potential deletes with the largest outperformance for the ASX300 Index.
Shorts have continued to increase positions on the potential deletes while covering their positions on the potential adds. We expect there are large pre-positions on some of the stocks now.

Who Wants SM Entertainment More? Kim Bum-Soo (Kakao) Or Bang Si-Hyuk (Hybe)?

It has been reported that Kakao has hired local brokerage firms to discuss the details of another tender offer of SM Entertainment shares (at more than 130,000 won).
We believe that this has been the key reason why SM Entertainment’s shares rose an additional 5% on 15 February.
We believe that eventually Kakao Group will win the M&A fight for SM Entertainment and shares of SM could rise further in the coming weeks.

Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes

By Oshadhi Kumarasiri

Japan Tobacco (2914 JP)’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.
2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.
But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in Torii Pharmaceutical (4551 JP).

Star Entertainment (SGR AU): Entertaining Known Unknowns

Star Entertainment Group (SGR AU) scored an own goal by failing to provide an update on the balance sheet in the update on 13 February. The results are next week.
There is a whirlwind of uncertainty surrounding potential fines and Star is in desperate need to recapitalise its balance sheet to avoid breaching covenants.
Our leverage scenarios suggest an equity raise of A$250-500 million is required. Despite the share price fall, we would steer clear until the details of its equity raise are disclosed.

EQD | KOSPI2 Index: Reloading on Upside Calls

KOSPI2 Index trading off the highs but supported by the 200-dma
Implied vols are trading cheap offering a good entry point
Options continue to be priced cheaply and we look at simple upside plays

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Feb 15

Daily Brief Event-Driven: Toshiba – As Bad As It Gets? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba – As Bad As It Gets?
KOSPI Size Indices – Potential Changes in March
Link REIT US$2.4bn Rights Issue – Mistimed but Yield at the Rights Price Might Be the Saving Grace
K-Pop Battle: HYBE’s Tender Offer For S.M. Entertainment:
Long Short Idea: Ecopro Co Ltd & Iljin Materials on March 9 with K-New Deal Rebalancing
Kirin’s Holdco Discount Could Keep Unwinding After The Price Hikes Announcement
Both C&T & SDS Are Still on the Table for Block Deals by Lee Seo-Hyun, Here’s Why
Idemitsu (5019) – A Big Miss and A Big Buyback
Potential Inclusions & Exclusions in KOSPI 200 Rebalance in May 2023
Ecopro Co: A Likely Inclusion in MSCI Korea May Rebalance

Toshiba – As Bad As It Gets?

By Mio Kato

Toshiba results looked rather poor at the headline on account of additional one-off costs leading to a guidance downgrade to ¥95bn in OP.
Despite that, we see some small positive signs across the various industrial segments.
On balance, however, the downgrade and tight lips on the JIP bid leave little to be positive about in the near term.

KOSPI Size Indices – Potential Changes in March

The review period for the March rebalance of the KOSPI Size Indices ends 28 February. The results will be announced early March and implemented at the close on 9 March.
We see 5 migrations between MidCap and LargeCap, 8 migrations from SmallCap to MidCap, 3 new adds to MidCap, and 11 migrations from MidCap to SmallCap.
Stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

Link REIT US$2.4bn Rights Issue – Mistimed but Yield at the Rights Price Might Be the Saving Grace

By Sumeet Singh

Link REIT (823 HK) (LREIT) aims to undertake a 1 for 5 rights issue at a subscription price of HK$44.20/unit, to raise around US$2.4bn.
After announcing a S$2.2bn acquisition in late Dec 2022, the company explicitly mentioned that it didn’t need to raise any new capital. Thus, the rights issue marks an abrupt turnaround.
In this note, we talk about the right issue, its previous acquisition and the overall implications.

K-Pop Battle: HYBE’s Tender Offer For S.M. Entertainment:

In a move to counter Lee Soo-man’s influence, S.M.Entertainment Co (041510 KS) intends to issue new shares (9.05% on a fully diluted basis) to Kakao Corp (035720 KS).
Lee, with 18.4% in SM, responded by selling 14.8% to SM’s rival HYBE (352820 KS). HYBE concurrently announced a tender offer for an additional 25%, at ₩120,000/share, a 22% premium.
Kakao and SM are less than impressed. But these developments are a power grab for the pioneer of K-pop.

Long Short Idea: Ecopro Co Ltd & Iljin Materials on March 9 with K-New Deal Rebalancing

One constituent change is expected in the BATTERY index rebalancing as Ecopro Co Ltd surpassed Iljin Materials based on the average daily market cap during the review period.
Ecopro Co Ltd is a pure holding company, so it may not be subject to inclusion. However, KRX recognizes related sales from unlisted subsidiaries as sales from the holding company.
The actual passive impact of the rebalancing day will likely be 0.15x or more for both. This level can enable a long-short setup for these from a day trading perspective.

Kirin’s Holdco Discount Could Keep Unwinding After The Price Hikes Announcement

By Oshadhi Kumarasiri

A trade idea involving Kirin Holdings (2503 JP) from a Holdco perspective, which we suggested last year outperformed Topix by more than 30% in the first 9 months of 2022.
Since November 2022, Kirin has underperformed Topix by 18% (driven by input cost inflation) to push the Holdco discount yet again to an attractive level.
The price hike announcement yesterday could change the cost inflation narrative and help Kirin to keep on unwinding the Holdco discount.

Both C&T & SDS Are Still on the Table for Block Deals by Lee Seo-Hyun, Here’s Why

The family devoted all their efforts to maintaining 33.4% of voting shares in Samsung C&T, a level that can block a special resolution at the general shareholders’ meeting.
The most likely scenario being speculated by the market at this point is to touch both Samsung C&T and Samsung SDS. However, the C&T stake sale is to be minimized.
The possibility currently circulating in the local market is that she has 0.40% (Hana Sec) and 0.62% (Hana Bank), which currently have the highest interest burden, on the table.

Idemitsu (5019) – A Big Miss and A Big Buyback

On 14 February 2023, Idemitsu Kosan (5019 JP) reported Q3 results. They were less impressive than one would have hoped.
Lower USDJPY and lower Dubai crude prices mean a JPY 90bn hit to inventory marks, but the rest of the petro business made almost no money in the quarter.
However, the company announced a large buyback. THAT is worth looking at.

Potential Inclusions & Exclusions in KOSPI 200 Rebalance in May 2023

We discuss potential inclusions and exclusions of the upcoming KOSPI 200 rebalance in May 2023. With regards to the upcoming KOSPI 200 rebalance, we like the following long-short trading strategy.
We would short a basket of potential exclusions from KOSPI 200 rebalance which would include the bottom 5% of KOSPI 200 index (10 stocks).
We would go long a basket of potential inclusions in KOSPI 200 rebalance which include four stocks including Dentium, Jeju Air, Samyang Foods, and DGB Financial.

Ecopro Co: A Likely Inclusion in MSCI Korea May Rebalance

Ecopro Co Ltd (086520 KS) is one of the likely inclusions in the MSCI Korea rebalance in May 2023.
Many investors have pushed up share price of Ecopro Co, already factoring in that this stock will be included in the next round of MSCI Korea index rebalancing.
Our NAV analysis of Ecopro Co suggests an implied NAV per share of 207,087 won, representing a 5% upside from the current price.

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Feb 14

Daily Brief Event-Driven: Canon ADR Cancellation – There May Be A Trade To Do and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Canon ADR Cancellation – There May Be A Trade To Do
Absolutely GINORMOUS Citizen Watch (7762 JP) Buyback
Yashili (1230 HK): Pre-Condition Finally to Be Satisfied?
Huitongda Lock-Up – US$1.1bn Pre-IPO Lock-Up Expiry. China-Based Funds at Least 40% Up
Fujitec (6406 JP): Oasis’ Activism Comes to a Head of the 24 February EGM
Osstem Implant: Founder Choi Changes CB Sale Terms to MBK-Unison & KCGI Agrees to Sell Its Shares
Hong Kong CEO & Director Dealings (13 Feb): Koolearn, China Gas, MOG, Hua Yin, China Environmental
Concordia/Rothschild & Co: Back to the Origins
Quiddity Leaderboard for DAX Mar 23: Linde DEL Triggers US$2.7bn Reverse Funding Flows
EQD | SPX Index : CPI Data Is Set to Raise Inflation Fears Again.Use Daily Options to Play the Event

Canon ADR Cancellation – There May Be A Trade To Do

Last week (on 10 February), Canon Inc (7751 JP) announced it intended to delist its ADRs from the NYSE.
Canon is the third Japanese company to do so in two months, after Eisai Co Ltd (4523 JP) announced in December and Olympus Corp (7733 JP) in January.
No related investment opportunity but there may be a trade to do.

Absolutely GINORMOUS Citizen Watch (7762 JP) Buyback

Today, Citizen Watch (7762 JP) reported Q3 earnings, and a BIG buyback.
It is a VERY BIG BUYBACK at up to 75mm shares (25.61% of shares out), with an allocation of up to ¥40bn (which is ~22.1% at last price).
The buyback is to be executed over the next year. Buyback structure (undisclosed) matters and shareholder structure matters too. There is a big short. This could get really interesting.

Yashili (1230 HK): Pre-Condition Finally to Be Satisfied?

Yashili International Holdings (1230 HK) latest monthly update notes that Dumex Key Condition 2 is satisfied paving the way towards completing the Dumex China Disposal.
The completion of the remaining pre-condition, the 25% Yashili acquisition, depends on the completion of the Dumex China Disposal, which now looks imminent.
We think the pre-condition will be satisfied by the end of February and the scheme document will be despatched by early April. At the last close, the spread is 6.2%.

Huitongda Lock-Up – US$1.1bn Pre-IPO Lock-Up Expiry. China-Based Funds at Least 40% Up

By Clarence Chu

Huitongda (9878 HK) was listed on 18th Feb 2023, when it raised US$285m in its HK IPO. Its one-year lockup will expire on 17th February 2023.
Huitongda (HTD) is a commerce and service platform serving businesses in the lower-tier retail markets of China.
Coming up for one-year lockup expiry are HTD’s pre-IPO investors. With the exception of Alibaba and SOE backers, the bulk of HTD’s pre-IPO investors are still currently in the money.

Fujitec (6406 JP): Oasis’ Activism Comes to a Head of the 24 February EGM

Oasis proposals to restructure the Fujitec Co Ltd (6406 JP) Board which will be voted on at the 24 February EGM have got independent proxy advisor, ISS, support.
An Oasis win would renew enthusiasm that Fujitec can close the performance gap with peers, resulting in a catalyst for the rerating of the shares.
An Oasis loss is not disastrous as Oasis could come back or Fujitec would likely offer a premium to buyout Oasis. Fujitec is also cheap on a cash-adjusted P/E basis.

Osstem Implant: Founder Choi Changes CB Sale Terms to MBK-Unison & KCGI Agrees to Sell Its Shares

Due to the enormous controversy regarding Chairman Choi Gyu-Ok’s children exchange CB call options for BWs, the Choi family has decided to change and simplify this transaction structure.
Previously, MBK-Unison decided to acquire the call option on CB that Chairman Choi gave to his children. Under revised contract, MBK-Unison agreed to acquire the convertible bond itself.
We believe MBK-Unison consortium is getting a relative bargain in this deal and the valuation of Osstem Implant remain attractive (EV/EBITDA of 6.4x and P/E of 11.7x in 2024).

Hong Kong CEO & Director Dealings (13 Feb): Koolearn, China Gas, MOG, Hua Yin, China Environmental

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
Stocks mentioned include Koolearn (1797 HK), China Gas Holdings (384 HK), MOG Holdings (1942 HK), Hua Yin International Holdings (989 HK), China Environmental Technology (646 HK).

Concordia/Rothschild & Co: Back to the Origins

By Jesus Rodriguez Aguilar

Concordia (38.9% stake) points out that none of Rothschild’s businesses require a high amount of capital thus a listing brings more troubles than advantages (the enlarged family concert owns 54.5%).
Lo and behold, a possible €48/share cash offer, partly financed with Rothschild’s cash holdings (via dividend and extraordinary dividend) is the solution, arguably cheap for a high-quality firm.
My conservative Fwd P/E-based SOTP valuation is €53.9/share. There’s some margin to improve the offer. Spread is 2.3%/5.6% (gross/annualised). I would be long the shares.

Quiddity Leaderboard for DAX Mar 23: Linde DEL Triggers US$2.7bn Reverse Funding Flows

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
In the March 2023 review, I do not see any changes for the DAX index although a couple names are close to the border.
As it stands, I currently expect two more changes between MDAX and SDAX and one more ADD/DEL for the SDAX index based on the latest available data.

EQD | SPX Index : CPI Data Is Set to Raise Inflation Fears Again.Use Daily Options to Play the Event

January CPI is due on Tuesday 14th and the market is expecting the biggest rise since October
The SPX has rallied over 7% since December but the Yield Curve has been moving higher and the equity rhetoric is turning negative
We look at a short-term trading opportunity in the options market to play the print

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Feb 13

Daily Brief Event-Driven: Dai Nippon Printing (7912) – Activism Results Going Forward Are Complicated and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Dai Nippon Printing (7912) – Activism Results Going Forward Are Complicated
Kakao Pay (377300 KS): MSCI Inclusion (Finally!)
HYBE’s Tender Offer of SM Entertainment: Closing the Price Gap
MSCI Korea: Names to Trade for Feb IR & Names to Watch for May IR
Merger Arb Mondays (13 Feb) – Newcrest, Nitro, Norwest, Boustead, Toyo, Ihara, Iwasaki Electric

Dai Nippon Printing (7912) – Activism Results Going Forward Are Complicated

A little over two weeks ago, western media outlets reported “sources familiar with the matter” said Elliott Management had built a “significant” stake in Dai Nippon Printing (7912 JP).
DNP has been a “value name” for years. And years. Lots of cash, lots of real estate, and lots of cross-holdings. DNP had a plan to sell crossholdings, slowly.
DNP had planned a March 9 presentation of its new MTMP. Elliott, reportedly with a little less than 5%, wanted faster. A few weeks later, DNP has responded with faster.

Kakao Pay (377300 KS): MSCI Inclusion (Finally!)

MSCI will add Kakao Pay (377300 KS) to the MSCI Korea Index at the February QCIR. There are 7 trading days to implementation on 28 February.
Local institutions and foreign investors have been sellers in the last couple of weeks and retail investors have been buying to mop up the selling.
Cumulative excess volume indicates a fair amount of pre-positioning and we’d look to sell ahead of the passive MSCI buying.

HYBE’s Tender Offer of SM Entertainment: Closing the Price Gap

We believe that there is a very high probability of a successful tender offer of 25% stake in SM Entertainment by HYBE.
There is a 4.6% gap between the tender offer price and current price. There is a strong probability of this gap being closed in the next several weeks.
There could also be an on-going interest by Kakao to try to take over the controlling interest in SM Entertainment but HYBE is not likely to give up control easily.

MSCI Korea: Names to Trade for Feb IR & Names to Watch for May IR

POSCO Holdings and Kumho Petro Chemical are expected to experience a level of passive outflow worthy of our attention in Feb QCIR.
Newly emerging ones for May OCIR are Ecopro Co Ltd and Amorepacific Group. Ecopro’s inclusion is almost certain, and AmoreG isn’t too far off the borderline.
Hanwha Aerospace also settled in the inclusion zone, whereas Posco International has moved somewhat away from the borderline. Lastly, there is S.M. Entertainment, which also deserves our attention.

Merger Arb Mondays (13 Feb) – Newcrest, Nitro, Norwest, Boustead, Toyo, Ihara, Iwasaki Electric

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 – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Origin Energy (ORG AU), 111 Inc (YI US), Golden Energy & Resources (GER SP), Toyo Construction (1890 JP).
Lowest spreads – Tyro Payments (TYR AU), Boustead Projects (BOCJ SP), Essential Metals (ESS AU), Nitro Software Ltd (NTO AU), Ihara Science (5999 JP), Nissin Electric (6641 JP).

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Feb 12

Daily Brief Event-Driven: Sabana Industrial REIT – Offer Goes Live and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Sabana Industrial REIT – Offer Goes Live, Worth A Look
MSCI Korea Index Rebalance: Kakao Pay Included
KOSPI Size Index Migration: Names to Trade as We Are 30D Towards Effective
Index Rebalance & ETF Flow Recap: MSCI, CSI500, XIN9I, DTAC/TRUE, Newcrest, Adani, Korea Spinoffs
JGC (1963 JP) – A ToSTNeT Buyback Is NOT a ToSTNeT Buyback and Adjusted EV Vs Adjusted EBITDA Is OK.
Weekly Deals Digest (12 Feb) – Pertamina Geothermal, Toshiba, Newcrest, Nitro, Boustead, Sabana
Last Week in SPACE: Adani Group, Hongkong Land, Toshiba, Haw Par, Renault/Nissan
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Newmont/Newcrest, StanChart, Boustead Proj., Ihara, Iwasaki
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades

Sabana Industrial REIT – Offer Goes Live, Worth A Look

The Sabana Industrial REIT (SSREIT SP) 2022H2 dividend went ex- on 6 February 2023, setting the Offer to be lowered. The Offer by Volare was lowered. Docs out Friday night.
The S$0.465 Offer, adjusted for dividends (to be paid 27 March (cash or DRP units)), is now S$0.4504 per unit. The first close is 10 March 2023.
Sabana has underperformed a basket of slightly higher beta peers by 1+% since the day before the announcement. Watch pro-ration risk.

MSCI Korea Index Rebalance: Kakao Pay Included

MSCI announced its MSCI Korea index rebalance on 10 February. Kakao Pay (377300 KS) was the only company to be included in the MSCI Korea index.
There were also nine Korean companies included in MSCI Small Cap index including Osstem Implant, DearU, and ISC Co.
Hanwha Aerospace (012450 KS) and Ecopro Co Ltd (086520 KS) are higher probability potential candidates for inclusion in MSCI Korea Index rebalance in May.

KOSPI Size Index Migration: Names to Trade as We Are 30D Towards Effective

Amorepacific Group is more likely to remain in LargeCap due to its share price surge earlier this year. Instead, Hyundai Autoever will likely face a large→mid migration.
Of Small→Mid migrants. Sebang and Kum Yang deserve attention, as they will rank high in the Mid due to the rapid market cap growth over the past six months.
YTD performance seems to have a higher correlation with individual sector performance than causality with this event. So, there is still a circumstantial probability that justifies the trade.

Index Rebalance & ETF Flow Recap: MSCI, CSI500, XIN9I, DTAC/TRUE, Newcrest, Adani, Korea Spinoffs

MSCI announced the changes to the GIMI on Friday as part of the February QCIR. MSCI also announced a review of the free float of the Adani Group companies.
FTSE will announce the changes to the All-World and All-Cap indices after the close of trading on Friday, 17 February. The same day is the S&P/ASX review cutoff for March.
Yet another weekly outflow for the IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) taking the YTD outflow to over US$2.5bn.

JGC (1963 JP) – A ToSTNeT Buyback Is NOT a ToSTNeT Buyback and Adjusted EV Vs Adjusted EBITDA Is OK.

Engineering & Construction firm Jgc Corp (1963 JP) on Friday announced 9M results. Full-Year forecasts were revised, with revenue lowered, but OP, RP, and NP unchanged.
The company then also announced a ToSTNeT-3 buyback of up to 4.77% of shares out for ¥20bn to be executed Monday 13 February pre-open. But details matter.
Four Important Takeaways: 1) sometimes a ToSTNeT-3 buyback is not a ToSTNeT-3 buyback, 2) that can be a good sign, and 3) sometimes Adjusted EV vs Adjusted EBITDA is OK.

Weekly Deals Digest (12 Feb) – Pertamina Geothermal, Toshiba, Newcrest, Nitro, Boustead, Sabana

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 – Pertamina Geothermal (0125738D IJ) guides to the low end of the IDR875-880 price range and Hesai Group (HSAI US) has a good debut.
Event-Driven developments – Newcrest Mining (NCM AU), Nitro Software Ltd (NTO AU), Toshiba Corp (6502 JP), Ihara Science (5999 JP), Boustead Projects (BOCJ SP), Sabana Industrial REIT (SSREIT SP).

Last Week in SPACE: Adani Group, Hongkong Land, Toshiba, Haw Par, Renault/Nissan

The MSCI revised the Adani Group weighting after reviewing FF. Adani Enterprises (ADE IN)affected. Adani Green (ADANIGR IN), Adani Power (ADANI IN), and Adani Ports (ADSEZ IN) not affected.
Hongkong Land (HKL SP) is dirt cheap at 0.3x P/B. It is a China re-opening play. Plus the company is buying back shares.
The Nikkei didn’t write an article on Toshiba (6502 JP) when everyone else did. They waited another day, with what appears to be a zinger on price at “about ¥2trln“.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Newmont/Newcrest, StanChart, Boustead Proj., Ihara, Iwasaki

There are 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Five new deal was discussed on Smartkarma this past week: Newmont/Newcrest; First Abu Dhabi Bank/Standard Chartered, Boustead Projects (BOCJ SP); Ihara Science (5999 JP), and Iwasaki Electric (6924 JP).
Key updates took place for: Nitro Software Ltd (NTO AU), Toshiba Corp (6502 JP), and Halcyon Agri (HACL SP).

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades

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

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Feb 11

Daily Brief Event-Driven: Standard Chartered: Has FAB Gone Cold Or Just Cooling Off? and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Standard Chartered: Has FAB Gone Cold Or Just Cooling Off?
Dai Nippon Printing – Activism On Easy Street
Big Link REIT (823 HK) Rights Offering
Sabana REIT (SSREIT SP): Volare’s Partial Offer Is Open

Standard Chartered: Has FAB Gone Cold Or Just Cooling Off?

Back on the 5 January, First Abu Dhabi Bank (FAB DH) said it had considered a bid for Standard Chartered (STAN LN/2888 HK), but was no longer evaluating an Offer.
Such a statement kickstarts a six-month cooling-off period whereby FAB is restricted from reloading. This means all deal work must cease. Unless another bidder emerges or STAN’s board approves.
In a curious development, STAN’s shares popped ~11% yesterday, on no apparent news.

Dai Nippon Printing – Activism On Easy Street

By Mio Kato

Dai Nippon Printing’s announcement that it would double its RoE target in its next MTP was a pleasant surprise.
Together with saucy hints that future buybacks could be the biggest in its history this has propelled the stock to a post-2007 high.
We think Elliott has found an easy win here and consider this likely to end as a standout success for activism in Japan.

Big Link REIT (823 HK) Rights Offering

After being halted this morning before the start of trade, post-close, Link REIT (823 HK) announced a fully-underwritten Rights Offering.
The Rights Offering intends to raise HK$18.8bn issuing 1 Right for every 5 Shares held, at a subscription price of HK$44.20, a 26% discount to TERP.
This will take an already under-levered REIT and add more capital to it. And there is going to be selling pressure at some point.

Sabana REIT (SSREIT SP): Volare’s Partial Offer Is Open