Event-Driven

Toshiba announces meh-to-weak earnings and surprisingly conservative revenue guidance for next year given better order books and backlog and much higher USD/yen.
The company announced a slightly higher March 2022 dividend (giving money to past shareholders) and a big special dividend and higher March 2023 dividend.
The Privatisation Proposal Process continues. It may get a result, or not. New director choices will wait. Now we start a quiet period where privatisation news competes with analyst bearishness.

HUGE Wacoal (3591) Buyback – Buyback Structure Unknown But Interesting Possibilities Exist

On Friday, Wacoal Holdings (3591 JP) announced earnings, adoption of IFRS this year (US GAAP til now), dividends, a div hike and higher earnings this year, and a HUGE buyback.
The buyback is for up to 5.5mm share (8.95% of shares) spending up to ¥10bn.
Given the structure of the shareholder base, this opens up interesting possibilities.

Sakata Inx (4633) HUGE Buyback Makes Things Interesting

Sakata Inx Corp (4633 JP) and Toyo Ink Sc Holdings (4634 JP) are finally getting around to unwinding the rest of their cross-holdings from their decision 5yrs ago.
This is highly accretive. +10% on EPS this year on a weighted average basis and +16.8% on a spot basis.
The reason is good governance and capital efficiency. A side effect is it shifts the shareholder structure more in favor of economic investors.

Index Rebalance & ETF Flow Recap: MSCI STD/SC, FTSE AW/AC, EPRA, MVIS, TW50, Mindtree/L&T, AMFI

MSCI announced the changes to the Standard and Small Cap Indexes, along with FIF/NOS changes as part of the May SAIR. Plenty of flows in Asia Pacific.
Announcement of changes to the FTSE AW/AC, HSI INDEX, HSCEI INDEX, HSTECH INDEX and SENSEX INDEX will be made after market close on Friday.
There were inflows into Taiwan, Australia and Hong Kong focused ETFs, while there were redemptions from China and Korea focused ETFs.

Infomedia (IFM AU): TA Associates/Viburnum Funds Proposal

Online auto parts and service provider Infomedia Ltd (IFM AU) has received a non-binding proposal – by way of a Scheme – from TA Associates and Viburnum Funds.
The Offer price is A$1.70/share, a 32.8% premium to last close.
Via a tie-in with Viburnum, TA disclosed a 14.46% interest. IFM said it is also in preliminary discussions with other interested parties.

Hitachi Maxell (6810 JP) – Very Big On-Market Buyback

Maxell Ltd (6810 JP) has been restructuring itself and the cost-cutting and rationalising of sales efforts and regions has led to post-relisting record OP.
But another (non-cash) write-off this past year has led to the third year of net losses in a row.
The company has, however, taken its actual cashflows and turned them into a large buyback

Last Week in Event SPACE: NTT, Link Admin, AGL, Mindtree/Larsen & Toubro, Sihuan Pharma

The NTT (9432 JP) / NTT Data (9613 JP) transaction is a little complicated, but the end goal appears, like before, to push operating control below holdcos on the chain.
Both Link Administration (LNK AU) and Dye & Durham tanked over the unfortunate timing of an ACCC delay and MAC disconnect – before a price recovery to close the week.
MCB says the AGL Energy Ltd (AGL AU) de-merger plan is bad, and now analysts say it is “underwhelming.” Duh. But the alternative? Underwhelming too, but less independent.

Infomedia Receives a A$1.70 Per Share Offer from TA Associates and Viburnum

TA Associates and Viburnum Funds’ non-binding indicative privatisation proposal is A$1.70 per Infomedia Ltd (IFM AU) share in cash, a 32.8% premium to the last close.
The timing of the bid looks opportunistic in the context of the shares hitting a 3-year low on 9 May. Viburnum with a 14.5% stake is the largest shareholder.
The Board notes expressions of interest from other parties. TA and Viburnum’s bid is the catalyst for other bidders to show their hands.

Asia-Pac Weekly Risk Arb Wrap: Mindtree/Larsen, AGL, Link Admin, Link Net, Comany, Infomedia

There are 37 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three news deals this week: Mindtree Ltd (MTCL IN)/ Larsen & Toubro Infotech (LTI IN)‘s merger, Comany Inc (7945 JP) ‘s MBO, Infomedia Ltd (IFM AU)‘s proposal from TA/Viburnum Funds.
Key updates took place for: AGL Energy Ltd (AGL AU), Link Administration Holdings (LNK AU), Virtus Health (VRT AU), Link Net (LINK IJ) & Beijing Enterprises Urban Resources (3718 HK).

Before it’s here, it’s on Smartkarma

May 14

Event-Driven: Tencent, Core Lithium Ltd, Cosmo Energy Holdings, Sihuan Pharmaceutical Hldgs, SK Telecom, Link Administration Holdings, NTT (Nippon Telegraph & Telephone), Swedish Match AB and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MSCI May 2022 Index Rebalance: Flow Due to FIF Changes
MSCI May 2022 Index Rebalance: Small Cap Changes and Flow
Cosmo Oil (5021) Shareholder Return Policy Is Bigger Than It Looks
Sihuan Pharma (460 HK) Denies China Resources Approach
Short-Term Reverse Flow Trading on SK Telecom
Link Risk/Reward Benefits with the Messaging from DND’s Earnings Call
MSCI May 2022 Rebalance: South Korea
NTT (9432) – Salutary Earnings Salutary Buyback, More to Go
Swedish Match Set Alight by Philip Morris

MSCI May 2022 Index Rebalance: Flow Due to FIF Changes

There are quite a lot of stocks that have changes to their Foreign Inclusion Factor (FIF) at the May SAIR since MSCI comprehensively assesses the float for stocks.
The largest passive inflows will be on Tencent, Kuaishou Technology, JD Health, Macquarie Group, Shin Etsu Chemical, Recruit Holdings, Olympus Corp, Naver Corp and Sun Hung Kai Properties.
Changes to FIFs are tougher to forecast and not very widely tracked, so pre-positions are likely to be lower and the stocks with higher ADV to buy/sell should outperform/underperform.

MSCI May 2022 Index Rebalance: Small Cap Changes and Flow

MSCI has announced changes to the Small Cap Index. For Asia Pacific, there are 220 adds and 160 deletes. Most adds are in India, most deletes are in Japan.
Flows are not huge, but there is a big impact on a lot of stocks. Some of the stocks have moved today and there could be more.
There are a lot of stocks that crossover with changes on other indices and there will be same way flow on a lot of stocks over the next few weeks.

Cosmo Oil (5021) Shareholder Return Policy Is Bigger Than It Looks

Cosmo Energy Holdings (5021 JP), subject of a selldown by its major shareholder (discussed here), then a large stake purchase by activist Murakami-san (discussed here) announced earnings and a buyback.
The buyback is large enough to matter to other shareholders.
The shareholder structure is interesting enough that investors need to pay attention to the possibilities.

Sihuan Pharma (460 HK) Denies China Resources Approach

Sihuan Pharmaceutical (460 HK) has shot down rumours that it is under negotiation with potential investors in respect of privatisation.
Reportedly SOE China Resources is in talks with Sihuan Pharma’s chairman in a deal valuing the company at US$3bn or a 114% premium to the current price.
The logic of a privatisation makes sense. I would not be so quick to dismiss the denial. Plus Sihuan Pharma is very cash-rich.

Short-Term Reverse Flow Trading on SK Telecom

Heavy shorts came out in a short trading window. Usually, this is likely to be strategic trading by a few institutional investors, which causes PBS to set up loan transactions.
We should then consider the possibility that short positions betting on MSCI deletion will be sold back to the market by PBS who set up loan transactions after short-covering
SKT is likely to undergo a share price correction due to a short-term overhang, and we need to consider setting up a position aimed at this.

Link Risk/Reward Benefits with the Messaging from DND’s Earnings Call

DND’s 3QFY22 last night continued to suggest DND’s commitment to complete the Link Administration Holdings (LNK AU) acquisition.
DND management’s messaging in the call downplayed the MAC risk of a contract renewal but shifted incrementally more bearish on the ACCC review, in our view.
The risk-reward calculus is now incrementally more positive. The gross spread is wide at 24.4% with the “deal-break” valuation of A$4.18 (-5% below the last close) limiting downside risk.

MSCI May 2022 Rebalance: South Korea

By Douglas Kim

MSCI announced its May 2022 rebalance results today. Hyundai Heavy Industries was the only new addition, which was mostly expected.
Despite continued concerns about SK Telecom being excluded in the next round of MSCI rebalancing, its improving fundamentals and shift to more value stocks are more important factors.
There are 18 additions and 17 deletions for the MSCI Korea small cap index. Among the additions, 6 of them are also potential inclusions in the KOSDAQ150 rebalance in June.

NTT (9432) – Salutary Earnings Salutary Buyback, More to Go

The three Japanese telecoms reported earnings this week. Softbank Corp (9434 JP) was disappointing (and slightly confusing). KDDI Corp (9433 JP) was much of a muchness.
NTT (Nippon Telegraph & Telephone) (9432 JP) looked the best, and announced the largest buyback – ¥400bn or 3%. But it comes from a government sale, not the market.
Nevertheless, the company is doing what it promised and executing on its promise. And despite the “bullishness” in the revenue forecast, earnings forecasts to March 2023 look conservative.

Swedish Match Set Alight by Philip Morris

By Jesus Rodriguez Aguilar

PMI is making a recommended cash offer for the Swedish Match at SEK106/share, valuing it at SEK161.2 billion ($16 billion), 39% premium, 17.5x EV/Fwd EBITDA and 23.1x Fwd P/E.
Swedish Match is strategic for PMI and a valuable asset amidst big tobacco diversification drive. Some shareholders make this point to try to extract a higher price.
As of close of 12 May, gross spread is 3.3%, an interesting 8.7% annualised (assuming settlement by 7 October). The risk of not completing the offer seems low.

Before it’s here, it’s on Smartkarma

May 13

Event-Driven: MR D.I.Y. Group, Link Net, Microstrategy Inc Cl A, Tabcorp Ltd, SK Telecom and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MSCI May 2022 Index Rebalance: In-Line With a Few Surprises
Link Net (LINK IJ): Axiata To Vote On The 26 May. Timeline Intact
MicroStrategy (MSTR US): Money From Nothing Is Worth?
Tabcorp’s Demerger Approved Paving the Way to Unlock Value
MSCI Korea Standard: May SAIR Results

MSCI May 2022 Index Rebalance: In-Line With a Few Surprises

For Asia Pacific, there are 48 adds/76 deletes across markets with the most changes in China and the highest net changes in Japan. We got 94% of the names right.
Surprise names are MR D.I.Y. Group, AU Small Finance Bank, Guangzhou Automobile Group, Yunnan Botanee Bio-Technology, Westports Holdings, Indocement Tunggal Prakarsa, DiDi Global and Yantai Eddie Precision Mac-A.
As expected, there are listing switches for Baidu (BIDU US), Bilibili Inc (BILI US), New Oriental Education (EDU US) and GDS Holdings (ADR) (GDS US).

Link Net (LINK IJ): Axiata To Vote On The 26 May. Timeline Intact

Axiata Group (AXIATA MK) has convened an EGM on the 26 May to vote on its proposed acquisition of Indonesian broadband play Link Net (LINK IJ).
The vote, which for all intent and purposes is a rubber stamp, is one of the SPA conditions to acquire 66.03% of LINK.
Trading at a gross/annualised spread of 7.1%/22.3%. Get involved here.

MicroStrategy (MSTR US): Money From Nothing Is Worth?

MicroStrategy Inc Cl A (MSTR US) is now trading at a ~26% discount to NAV as the bitcoin barbeque continues.
Bitcoin is down ~40% YTD. If it falls another 24%, this will trigger a margin call on one of its loans.
Should bitcoin decline to US$17.5k, MSTR’s crypto bet falls short of its debt obligation; debt that its software ops are not sufficiently profitable enough to service.

Tabcorp’s Demerger Approved Paving the Way to Unlock Value

Tabcorp Ltd (TAH AU)’s demerger to create two standalone companies listed on the ASX, The Lottery Corporation and New Tabcorp, was approved today.
Subject to the scheme approved by the Court, the Lottery Corporation will trade on a deferred settlement basis on 24 May and a normal settlement basis on 2 June.
Peer derating due to the market sell-off results in a lower SoTP valuation of A$5.62 per share, which is still a 13% upside to the last close.

MSCI Korea Standard: May SAIR Results

As expected, we have one addition, which is Hyundai Heavy Industries. But deletions are a bit surprising. The MSCI said that Korea has no deletion this time.
The MSCI decided to keep SK Telecom. However, even before the next IR, the possibility of special deletion due to foreign room exhaustion cannot be excluded.
The number of constituents in this SAIR increased by one more than the last IR, so Seegene and Green Cross got to stay in the Index.

Before it’s here, it’s on Smartkarma

May 12

Event-Driven: Link Administration Holdings, Woodside Petroleum, Ricoh Company Ltd, Chukyo Bank, Beijing Enterprises Urban Resources, SinoPac Holdings, Meritz Fire & Marine Insurance, Link Net, Ichigo Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Now Link Admin Takes A Bath – Time To Buy
Woodside/BHP And the Timing Of The Trade Flows Vs Peers
Link’s Shares Collapse as Worries of Buyer’s Remorse Sets In
Ricoh (7752) Buyback – Big, But Not. But Not Small.
Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin’l Group – Interesting Structure Adds Value
BEW Bumps Effective Stake In BEURG (3718 HK)
FTSE TWSE Taiwan 50 Index Rebalance Preview: Sinopac Holdings Could Replace Momo.com
KOSPI 200 Rebalancing: Shorting Event for Additions
Axiata’s EGM in Relation to the Link Net MTO Set for 26 May
FTSE EPRA Nareit Developed Asia Preview: Two Adds Near the Inclusion Threshold

Now Link Admin Takes A Bath – Time To Buy

Link Administration Holdings (LNK AU) cratered this morning ahead of a pause in trading.
Link said it is unaware of the reason for the decline; however, the unfortunate timing of the ACCC delay and the MAC disconnect between Offeror and Target are not helping.
Break price fair value has emerged. Separately, Link is coming up “cheap” versus its holding in PEXA Group (PXA AU).

Woodside/BHP And the Timing Of The Trade Flows Vs Peers

BHP Group Ltd (BHP AU) and Woodside Petroleum (WPL AU) announced a merger of BHP Petroleum with Woodside late last year, to be implemented in Q2 2022
The vote is in a week, and BHP is expected to trade ex- WPL share spinoff on 24 May 2022, with delivery a week later.
The trade so far has worked well, and there has been a slight additive flow pattern in the last several days. It is worth thinking closely about timing.

Link’s Shares Collapse as Worries of Buyer’s Remorse Sets In

Link Administration Holdings (LNK AU) claims to be not aware of any reason for today’s -15% share collapse. The market seems nervy that DND will exhibit buyer’s remorse.
The scheme consideration is now 2.6x DND’s market cap. The ACCC delayed review and the contract renewal MAC clause could be DND’s get-out-of-jail-free card for a lower price/walk-away.
Our “deal-break” SoTP valuation suggests a valuation of A$4.24 per share, which is broadly in line with the last close price. The next catalyst is DND’s results tomorrow.

Ricoh (7752) Buyback – Big, But Not. But Not Small.

Ricoh Company Ltd (7752 JP) announced earnings disappointed, but guidance is above forecast as some Q4 business was pushed back.
The company also announced a buyback. The headline at 7.5% of shares out is big. Reality is lower.
This sets up a somewhat complex dynamic of flows in near space and far space, and relative to peers. But we look at it anyway.

Chukyo (8530) + Aichi (8527) Bank to Create Aichi Fin’l Group – Interesting Structure Adds Value

Chukyo Bank (8530 JP) and Aichi Bank (8527 JP) have decided to join forces to become the largest regional lender in the Nagoya area.
This is probably driven by MUFJ’s efforts to rid itself of non-core assets, but in doing so, it is allowing for an accretive structure for minorities.
This ends up being a cheap bank on a slightly complicated pro-forma basis.

BEW Bumps Effective Stake In BEURG (3718 HK)

Beijing Enterprises Water Group (371 HK) (BEW) has effectively increased its stake in Beijing Enterprises Urban Resources (3718 HK) (BEURG) after entering into Acting In Concert agreements (AIC).
Parties to the AICs “irrevocably and unconditionally” undertake to vote in the same manner as BEW in BEURG shareholder meetings.
There was no update on the timing of the MGO, which is expected to open for tendering on the 20 May.

FTSE TWSE Taiwan 50 Index Rebalance Preview: Sinopac Holdings Could Replace Momo.com

The next FTSE TWSE Taiwan 50 Index review will use data from 23 May. The changes will be announced on 3 June and implemented at the close on 17 June.
Momo.Com Inc (8454 TT) is a potential deletion from the index, while SinoPac Holdings (2890 TT) should be included as the highest ranked non-index constituent.
SinoPac Holdings (2890 TT) has over 3.5 days of ADV to buy from passive funds and trades cheaper than its peers. The stock could outperform over the next few weeks.

KOSPI 200 Rebalancing: Shorting Event for Additions

There is a clear correlation between the resumption of short selling and the overvaluation of stock prices, which was actively reflected when short selling resumed.
So, in this rebalancing as well, we need to target those who have seen a significant share price rise recently while looking at the increasing trend of the loan balance.
The stocks to watch are Meritz Fire and Hana Tour as their recent share price has been the most solid. In particular, Hana Tour is conducting a capital increase.

Axiata’s EGM in Relation to the Link Net MTO Set for 26 May

The Axiata Group (AXIATA MK) EGM to approve the ordinary resolution relating to the proposed acquisition of Link Net (LINK IJ) shares and the proposed MTO is on 26 May.
The proposed acquisition is targeted to be complete by 2Q and the subsequent MTO at IDR4,800 per share will complete by 3Q.
At the last close, the gross and annualised spread to the MTO price for a 3Q completion is 7.1% and 11.7%, respectively.

FTSE EPRA Nareit Developed Asia Preview: Two Adds Near the Inclusion Threshold

The next FTSE EPRA Nareit Index review will use data from 23 May. The changes will be announced on 1 June and implemented at the close on 17 June.
Potential inclusions at the review include Frasers Hospitality Trust (FHT SP) and Ichigo Inc (2337 JP), though both are very close to the basis point threshold for inclusion.
Digital Core REIT (DCREIT SP) has still not published an audited annual report in English and is unlikely to be included in the index at the June rebalance.

Before it’s here, it’s on Smartkarma

May 11

Event-Driven: Nintendo Co Ltd, Sony Corp, Link Administration Holdings, Whitehaven Coal, Thai Beverage, AGL Energy Ltd, Poongsan Corp, LG Energy Solution, Comany Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Nintendo (7974) – Earnings Forecasts⬇︎ Stock Split, Buyback, and HOW TO SELL WELL
Another BIG SONY (6758) Buyback, But…
Link Admin (LNK AU): 13 July Scheme Meeting As Dye & Durham Takes A Bath
S&P/ASX Indices: Quiddity Leaderboard for June 2022 Rebalance 2.0
Thai Bev: Holdco Discount Narrows as Thai Bev Prepares to Restart the Beer Unit IPO
MCB May Block the AGL De-Merger, But Think About the Alternative
Link’s Scheme Meeting on 13 July, High Spread Reflects Deal Risk
KOSPI 200 Rebalancing Last-Minute Change to Deletions: Poongsan Pushed Out for CJ CGV
FTSE All-World/All-Cap Index Rebalance Preview: Potential IPO Inclusions in June
Comany (7945) – Another Ridiculously Low-Priced MBO

Nintendo (7974) – Earnings Forecasts⬇︎ Stock Split, Buyback, and HOW TO SELL WELL

Nintendo has announced in-line-ish results for March 2022, and quite disappointing forecasts for March 2023. Mio Kato called it on 30 March as a sell. Excellent timing.
Nintendo has a buyback tomorrow and if you don’t like the guidance, you should DEFINITELY read on below.
But Nintendo also announced something truly extraordinary – a stock split. Everyone pooh-poohs the impact of a stock split but… in this case it is probably not nothing.

Another BIG SONY (6758) Buyback, But…

A release showed up on TDNET last week that Sony Corp (6758 JP) had completed its ¥200bn 25mm share (2.02%) buyback program announced 28 April 2021.
The details showed they had actually bought back 8.2mm shares spending only ¥97bn, despite the shares trading below T-1 Announcement Date Price for four months straight.
Today, with earnings, SONY announced a NEW buyback. ¥200bn, 25mm shares, 2.02%. Same as last year.

Link Admin (LNK AU): 13 July Scheme Meeting As Dye & Durham Takes A Bath

The Supreme Court of New South Wales today approved the convening of a Scheme Meeting for Link Administration Holdings (LNK AU) on the 13 July.
The Explanatory Booklet has been registered with ASIC. The Independent Expert (Deloitte) has concluded that the A$5.50/share Scheme Consideration is fair and reasonable.
Separately, the Offeror, Canada’s Dye & Durham, has seen its shares decline 57% since the release of its 2Q22 results.

S&P/ASX Indices: Quiddity Leaderboard for June 2022 Rebalance 2.0

By Janaghan Jeyakumar, CFA

The S&P/ASX Index family is a widely-tracked group of indices and sub-indices which represent the performance of ASX-listed companies. It rebalances four times a year.
In June 2022, Index rebalance events will take place for the S&P/ASX capitalization-weighted indices including ASX 200, 100, 50, and 20. There is likely to be an intra-quarter change too.
This is a follow-up insight to S&P/ASX Indices: Quiddity Leaderboard for June 2022 Rebalance. with updated expectations for inclusions/changes in the various indices in the next 6 weeks.

Thai Bev: Holdco Discount Narrows as Thai Bev Prepares to Restart the Beer Unit IPO

By Oshadhi Kumarasiri

In a regulatory filing last Thursday, Thai Beverage (THBEV SP) said that it had restarted its Beer Unit IPO at a much lower valuation than before.
Based on the current NAV discount of 13%, we think this is already priced-in Thai Bev’s share price.
Nonetheless, a 13% NAV discount could be too light in our opinion and there could be downside potential to the NAV discount following the completion of the Beer Unit IPO.

MCB May Block the AGL De-Merger, But Think About the Alternative

AGL Energy Ltd (AGL AU) announced a de-merger of its power distribution and power generation segments on 30 March 2021 after a 1H21 results comment saying “conflicting dynamics necessitated a review.”
So for a year, AGL prepared its de-merger and talked about it every quarter. 11.5 months later, MCB/Brookfield put a lowball bid on the table. Then upped it. Both rejected.
MCB says the de-merger plan is bad, and some analysts now say it is “underwhelming.” Duh. Not much has changed in 12mos. But the alternative? Underwhelming too, but less independent.

Link’s Scheme Meeting on 13 July, High Spread Reflects Deal Risk

The Link Administration Holdings (LNK AU) scheme meeting is scheduled for 13 July. The independent expert has concluded that the Dye & Durham (DND) offer is fair and reasonable.
The offer faces significant risks which are ACCC review (findings delayed from the 26 May release date), a contract renewal potentially triggering the MAC clause and an ongoing FCA investigation.
At the last close, the gross spread to the base offer is 10.7%. We would be buyers up to A$5.20 per share (implies 75% deal probability).

KOSPI 200 Rebalancing Last-Minute Change to Deletions: Poongsan Pushed Out for CJ CGV

Poongsan was pushed out of the 110% threshold in the average daily market ranking at the last minute. So, CJ CGV gets to remain in the KOSPI 200.
Additions: F&F (383220 KS), Meritz Fire & Marine (000060 KS), SD Biosensor (137310 KS), Iljin Hysolus (271940 KS), Hanil Cement (300720 KS), K Car (381970 KS), Hana Tour (039130 KS)
Deletions: Nexen Tire (002350 KS), Yungjin Pharmaceutical (003520 KS), Poongsan Corp (103140 KS), Bukwang Pharmaceutical (003000 KS), SK Discovery (006120 KS), S&T Motiv (064960 KS), Cuckoo Holdings (192400 KS)

FTSE All-World/All-Cap Index Rebalance Preview: Potential IPO Inclusions in June

We forecast 8 potential inclusions to the All-World Index and 11 potential inclusions to the All-Cap Index at the FTSE June QIR. Most are high probability inclusions.
LG Energy Solution (373220 KS), Mitratel (MTEL IJ), Adani Wilmar (AWLTD IN), Kakao Pay (377300 KS) and FSN E-Commerce Ventures (Nykaa) (NYKAA IN) are expected to have the largest passive inflows.
Local institutions have been selling LG Energy Solution (373220 KS) and Kakao Pay (377300 KS) over the last few weeks while retail investors have been buyers.

Comany (7945) – Another Ridiculously Low-Priced MBO

Comany Inc (7945 JP)‘s Chairman Tsukamoto is 71. Together with younger Tsukamoto family members he is conducting an MBO to buy out minorities at a 76% premium.
This most likely gets done, and it is tough to trade anyway because it is horribly illiquid.
But it is another example of an MBO done at the wrong price. TOB PER is low. But the entire thing is financed by net receivables. Ex-receivables, EV is zero.

Before it’s here, it’s on Smartkarma

May 10

Event-Driven: NTT (Nippon Telegraph & Telephone), SK Telecom Co Ltd (Adr), ioneer Ltd, AGL Energy Ltd, Mindtree Ltd, Canon Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

NTT and NTT Data Reshuffle the Deckchairs and Everyone “Wins”
Trading Opportunity Coming on SK Telecom ADR Premium
MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Potential Adds & Capping Flows
AGL Energy’s Demerger Booklet Provides an Underwhelming Justification
Mindtree-LTI: Merger Announced to Form India’s 5th Largest IT Services Player
Canon (7751) – Buyback Looks Small But Shareholder Structure Matters

NTT and NTT Data Reshuffle the Deckchairs and Everyone “Wins”

NTT (Nippon Telegraph & Telephone) (9432 JP) and NTT Data Corp (9613 JP) this morning announced a 1pm joint presser. Imaginations ran wild and NTT went up 12+%.
The reality is more subdued (as it should have been for a during-market-hours-presser) and it involves a restructuring of a small NTT subsidiary which happens to own NTT Data shares.
But it is still positive. It is something of a win-win for both parties.

Trading Opportunity Coming on SK Telecom ADR Premium

ADRs are traded at a significant premium when the foreign room for underlying shares is exhausted. This is the pattern that KT showed in 2018.
SKT’s foreign room is currently 1.85%. That is, the burnout rate is 98.15%. Only about 2M shares need to be burned to hit bottom. This is 0.91% of SO.
The shortage of SKT ADRs is likely to intensify, which in turn suggests that the ADR premium may rise further.

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Potential Adds & Capping Flows

Core Lithium Ltd (CXO AU) could be added to the MVIS Global Rare Earth/Strategic Metals Index in June. Lake Resources Nl (LKE AU) is the next highest ranked non-index constituent.
Irrespective of whether there are inclusions, there will be passive selling on ioneer Ltd (INR AU) and Australian Strategic Materials (ASM AU) due to capping changes to the index constituents.
Inclusions to the index jump post announcement. The review cutoff date is 31 May, so weakness in the potential inclusions could be used to pre-position (if they outperform index constituents).

AGL Energy’s Demerger Booklet Provides an Underwhelming Justification

The IFA supported the demerger by stating that “in the absence of a fully priced takeover offer from a third party, the demerger is the most attractive course of action.”
IFA concedes that “it is not possible to form a definitive view” if the demerger will generate higher shareholder returns. The report is light on qualitative analysis.
Mike Cannon-Brookes continues to gain retail support for a NO vote at AGL Energy Ltd (AGL AU)‘s 15 June scheme meeting. Our SoTP points to upside absent a demerger.

Mindtree-LTI: Merger Announced to Form India’s 5th Largest IT Services Player

By Janaghan Jeyakumar, CFA

On 6th May 2022, Larsen & Toubro (LT IN)‘s publicly-listed subsidiaries Mindtree Ltd (MTCL IN) and Larsen & Toubro Infotech (LTI IN) announced plans to merge.
I discussed this situation previously in Mindtree-LTI: A Potential US$20bn+ Indian Tech Merger; Mindtree Could Outperform LTI when the ratio was 0.66, expecting a scrip ratio north of 0.70.
Below is a closer look at the details of the transaction and the outlook for the combined entity.

Canon (7751) – Buyback Looks Small But Shareholder Structure Matters

Canon Inc (7751 JP) on Monday announced a share buyback programme.
It isn’t very big. But it bears consideration because of other things going on.
Shareholder structure is of much more importance than many investors appreciate. Here even more so.

Before it’s here, it’s on Smartkarma

May 09

Event-Driven: Mindtree Ltd, Jindal Steel & Power, Alliance Aviation Services, Bank Of Iwate and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Mindtree & L&T Infotech’s US$18bn Merger: Details and Index Implications
India: Preview of Stock Reclassification for Active Funds
Merger Arb Mondays (9 May) – Alliance Aviation, Ramsay Health, Yashili, VNET, Sezzle, Link
JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips

Mindtree & L&T Infotech’s US$18bn Merger: Details and Index Implications

The Larsen & Toubro Infotech (LTI IN) and Mindtree Ltd (MTCL IN) merger will create a company with revenue of US$3.5bn and a market cap of US$18bn.
The merger ratio is 73 shares of Larsen & Toubro Infotech for 100 shares of Mindtree. The merger is expected to complete in 9-12 months.
There are likely to be some inflows from MSCI and FTSE trackers but the big kicker will be inclusion in the NIFTY Index – but a (smallish) rally is needed.

India: Preview of Stock Reclassification for Active Funds

Two-Thirds of the way through the review period, we see 7 stocks migrating from MidCap to LargeCap, 8 stocks from LargeCap to MidCap, and 1 new listing added to LargeCap.
Post listing, Life Insurance Corp of India (LIC) (1248Z IN) should be added to the LargeCap segment while Delhivery (1058656D IN) should be added to the MidCap segment.
On average, stocks expected to migrate from Mid Cap to Large Cap have outperformed. Stocks expected to migrate from the Large Cap to Mid Cap segment have performed the worst.

Merger Arb Mondays (9 May) – Alliance Aviation, Ramsay Health, Yashili, VNET, Sezzle, Link

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore and the US (Chinese ADRs only).
This week, the highest gross spreads are Dongzheng Automotive Finance (2718 HK), Yashili International Holdings (1230 HK), 21Vianet Group (VNET US), Sezzle Inc (SZL AU), Alliance Aviation Services (AQZ AU).
The lowest gross spreads are Beijing Enterprises Urban Resources (3718 HK), Virtus Health (VRT AU), Uniti Group Ltd (UWL AU), China Logistics Property Holdings (1589 HK), Irongate Group (IAP AU).

JAPAN ACTIVISM: Silchester Goes After Bk of Iwate – Cheaper Than Chips

Silchester has written letters to four Japanese regional banks where they hold large stakes asking for higher dividends and payout ratios. It has proposed a special div AGM agenda item.
Bank Of Iwate (8345 JP) is nearly 40% held by cross-holders and government-affiliated entities, and Real World Float is less than 50%. Winning at the AGM is tough.
The collection of banks is mixed. But this one is cheap. Cheap as chips. Or cheaper.

Before it’s here, it’s on Smartkarma

May 08

Event-Driven: Yashili International Holdings, BHP Group Ltd, SenseTime Group, CJ CGV Co Ltd, Hitachi Transport System and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Yashili (1230 HK)’s Pre-Conditional Offer From Mengniu
Last Week in Event SPACE: Hitachi Transport, Shiga Bank, CP Food, AGL, Woodside/BHP, Yamada Denki
Index Rebalance & ETF Flow Recap: KOSPI200, KQ150, CSI300, STAR50, SET50, China A50, HSCI, SenseTime
Yashili’s HK$1.20 Privatisation Offer from Mengniu
KOSPI 200 Rebalancing: Trade Short Covering Event for Deletions
Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

Yashili (1230 HK)’s Pre-Conditional Offer From Mengniu

Yashili International Holdings (1230 HK) has announced a pre-conditional Offer, by way of a Scheme, from China Mengniu Dairy Co (2319 HK).
The cancellation price of HK$1.20/share, a 31.9% premium to last close, and a 161% premium to the undisturbed price, is in line with the 16 March announcement.
Conditions involve various business disposals and the exit of Danone SA (BN FP)‘s stake in Yashili; yet apart from timing, which is contingent on regulatory approvals, this looks done.

Last Week in Event SPACE: Hitachi Transport, Shiga Bank, CP Food, AGL, Woodside/BHP, Yamada Denki

If Silchester’s activism towards Shiga (8366 JP) & Chugoku (8382 JP) is going to be fought, it is going to be fought in the Japanese media, not in the AGM convocation.
The idea that the AGL Energy Ltd (AGL AU) de-merger could be thwarted is something which could dampen spirits on the stock near-term
Hitachi Transport System (9086 JP) as a risk arb situation is trading wide. It should trade tighter.

Index Rebalance & ETF Flow Recap: KOSPI200, KQ150, CSI300, STAR50, SET50, China A50, HSCI, SenseTime

The review cutoff for the FTSE All-World/All-Cap June QIR is 11 May. The changes to the MSCI indices for the May SAIR will be announced on 13 May Asia time.
The review period for the KOSPI2 INDEX, KOSDAQ 150 Index, Shanghai Shenzhen CSI 300 Index, STAR50 INDEX and the SENSEX INDEX ended last week and there are changes.
ETF inflows were larger than outflows for nearly all Asian markets. The largest inflows were in the Hang Seng H Share Index ETF (2828) and Vanguard Aust Shares Etf (VAS).

Yashili’s HK$1.20 Privatisation Offer from Mengniu

Danone SA (BN FP) will sell to China Mengniu Dairy Co (2319 HK) its 25% Yashili stake for HK$1.20 per share. Post-completion, Mengniu will launch a privatisation offer at HK$1.20.
The privatisation is subject to several pre-conditions, which carry low risk in our view. The key conditions are the headcount test and rejections by <10% of all disinterested shareholders.
The offer for Yashili International Holdings (1230 HK) is attractive. At the last close, the gross spread to the offer is 30.4%. Buy up to HK$1.09 (implies an 85% deal probability).

KOSPI 200 Rebalancing: Trade Short Covering Event for Deletions

Short-Selling is not possible after being deleted from the KOSPI 200. So, active short-covering for deletions is witnessed before and after the rebalancing implementation.
CJ CGV (079160 KS) stands out the most at this point. Its short interest is 4.10% of SO, and the short interest has increased the most over the past month.
The short-covering/price movement started to be observed from the end of the prior month. So, I’d consider building positions from the third week of this month.

Asia-Pac Weekly Risk Arb Wrap: Alliance Aviation, AGL, Virtus, Yashili, Hitachi Transport

There are 37 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal this week: Qantas Airways (QAN AU) has entered into a Scheme to buy smaller airline Alliance Aviation Services (AQZ AU).
Key updates took place for: AGL Energy Ltd (AGL AU), Virtus Health (VRT AU), Suchuang Gas Corp (1430 HK), Yashili International Holdings (1230 HK) & Hitachi Transport System (9086 JP).

Before it’s here, it’s on Smartkarma

May 07

Event-Driven: Delhivery, Yamada Denki, Virtus Health, Hitachi Metals and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Delhivery IPO: Offering Details & Index Inclusion Timeline
Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE
Shareholder Vote On 6 June For Virtus-Backed Offer From CapVest
Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio

Delhivery IPO: Offering Details & Index Inclusion Timeline

Delhivery (1058656D IN) is looking at raising INR 52,350m (US$685m) in its IPO by selling up to 113.3m shares at a range of INR 462-487/share.
At the mid point of the IPO range, Delhivery (1058656D IN) will be valued at INR 344.8bn (US$4.5bn) while the free float market cap will be much lower.
Delhivery (1058656D IN) could get entry to the FTSE All-World Index at the December QIR, while inclusion in the MSCI India Index could take place at the May 2023 SAIR.

Yamada Denki – GINORMOUS Buyback To Dramatically Boost EPS and ROE

Yamada Denki (9831 JP) reported earnings (Revs -7.6% (slight beat), OP -28.6% (slight miss), NP -2.4% (slight miss)), and slightly upbeat forecasts to Mar-2023 (Revs +4.6%, OP +12.5%, NP +2.9%)
They also announced an unchanged dividend at ¥18/share, and a VERY BIG BUYBACK. This is one of the largest, most aggressive, on-market buyback programs I have ever seen.
Previous buybacks have been duds. Yamada Denki is not playing around this time. This time it will be a buy.

Shareholder Vote On 6 June For Virtus-Backed Offer From CapVest

CapVest has a concurrent Scheme for Virtus Health (VRT AU) at $8.15/share and an off-market Takeover bid at $8.10/share (conditional on, among other things, the Scheme not proceeding).
The Transaction Booklet is now out. The Scheme Meeting will be held on the 6 June. If not approved, the Takeover closes on the 5 July – unless extended.
The Virtus Directors unanimously recommend shareholders vote in favour of the Scheme; and accept the CapVest Takeover should the Scheme not be approved.

Hitachi Metals – Nice Rebound Reduces Forward Reward/Risk Ratio

Last week Hitachi Metals (5486 JP) reported decent earnings and strong forecasts against what is probably significantly stale consensus expectations.
“The Consortium is not aware of any significant problems with procedures/responses under the Competition Act and will continue to strive to complete these procedures and responses as early as possible.”
That caused a jump, but that is the same language used in the 30 Nov 2021 release. Yes, I think this gets done, but Reward/Risk is smaller now.

Before it’s here, it’s on Smartkarma

May 06

Event-Driven: Woodside Petroleum, Gree Electric Appliances, Alliance Aviation Services, Korean Air Lines, Rheinmetall AG, Virtus Health, Carvana Co, S IMMO AG and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Woodside / BHP Petroleum Merger – Thinking About Flows (Still a Flowback Sell)
FTSE China A50 Index Rebalance Preview: PetroChina, Gree Out Due to Ground Rule Change
Qantas Enters Scheme With Alliance Aviation
Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk
Qantas Aims to Fully Acquire Alliance Aviation
DAX Index: Quiddity Leaderboard for June 2022 (2.0): Rheinmetall Looks Interesting
CapVest Scheme Meeting on 6 Jun, CapVest Takeover Offer Open 6 May to 5 July
Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners
CPI/S IMMO: Agreement Regarding EGM and Offer

Woodside / BHP Petroleum Merger – Thinking About Flows (Still a Flowback Sell)

The Merger of Woodside Petroleum (WPL AU) with BHP Group Ltd (BHP AU) subsidiary BHP Petroleum sees a vote 19 May and likely Effective Date by 1 June.
BHP would go ex-dividend on 25 May, with the in-specie dividend payment WPL shares delivered on 1 June and tradable one day later.
As discussed in Woodside / BHP Petroleum Merger On Tap; Index Impact Minimal but Flowback May Not Be, major index impact is minimal, but monsters lurk beneath the tranquil surface.

FTSE China A50 Index Rebalance Preview: PetroChina, Gree Out Due to Ground Rule Change

A Ground Rule change to the index universe will result in the deletion of PetroChina (601857 CH) and Gree Electric Appliances (000651 CH) from the FTSE China A50 Index (XIN9I).
Potential inclusions at the June rebalance are Poly Real Estate Group Co., Ltd (600048 CH) and Anhui Conch Cement (600585 CH). China Citic Bank Corp (601998 CH) is close.
Assuming three changes are implemented, one-way turnover at the rebalance is estimated at 3.05% and will result in a one-way trade of CNY 1,484m.

Qantas Enters Scheme With Alliance Aviation

Qantas Airways (QAN AU) has entered into a Scheme to buy smaller airline Alliance Aviation Services (AQZ AU).
Alliance shareholders will receive $4.75 in Qantas shares or a 35% premium to last close. The consideration implies an equity value of A$764.5mn and an enterprise value of A$919.2mn.
The Scheme is subject to shareholder and ACCC approval. The ACCC recently cleared Qantas’19.9% stake in Alliance after a three-year investigation.

Korean Air Will Likely Face an HMM-Like CB Conversion Overhang Risk

Korean Air will request the KDB and the KEXIM for early repayment before the step-up kicks in. Then, the creditors decide conversion using Korean Air’s claim as an excuse.
This is exactly the same as the case of HMM, whose stock price began to face corrections 7-10 trading days before the conversion announcement and peaked on the announcement date.
So, aiming at the possibility of a conversion announcement coming out in the third week of May, I recommend gradually building up short positions starting next week.

Qantas Aims to Fully Acquire Alliance Aviation

Alliance Aviation Services (AQZ AU) entered a SID with Qantas Airways (QAN AU). Shareholders will receive A$4.75 in Qantas shares for each Alliance share, 35.3% premium to 4 May close.
The key risk is approval from the ACCC, which will start a public review. On 5 April, the ACCC closed an investigation into Qantas’ acquisition of its 19.9% Alliance stake.
Alliance Aviation can pay an additional special cash dividend if ACCC approval takes time. The offer is attractive in the context of historical share prices and multiples.

DAX Index: Quiddity Leaderboard for June 2022 (2.0): Rheinmetall Looks Interesting

By Janaghan Jeyakumar, CFA

DAX is a German blue-chip index that tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange.
The DAX Index is reviewed on a quarterly basis in March, June, September, and December.
In this insight, we take a look at the potential constituency changes for the June 2022 review. This is a follow-up insight to DAX Index: Quiddity Leaderboard for June 2022

CapVest Scheme Meeting on 6 Jun, CapVest Takeover Offer Open 6 May to 5 July

The CapVest scheme meeting is scheduled for 6 June and the CapVest takeover offer runs from 6 May to 5 July. The BGH takeover is open and ends 20 May.
The independent expert has concluded that both CapVest and BGH’s proposals are fair and reasonable. Virtus Health (VRT AU) shares currently trade above both proposals.
With BGH unwilling to concede to CapVest, it is likely that BGH increases its 20.02% stake at a higher price than its takeover offer, resulting in a higher offer price.

Solvency Risk Short Candidates: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners

By Eric Fernandez, CFA

This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. It considers interest expense, capex and short term maturities for additional input.
The companies may not be viable given cash flows and capital structures. These shorts tend to have higher betas and can have strong down moves as the crisis is recognized.
This week we flag: Carvana, Life Time Group, Bed Bath & Beyond, Surgery Partners

CPI/S IMMO: Agreement Regarding EGM and Offer

By Jesus Rodriguez Aguilar

CPI, directly and indirectly, owns 42.6% in S Immo and seeks to launch a €23.5 mandatory offer if a 15% voting cap in S IMMO’s by-laws is removed.
CPI has Board support. AGM will take place on 1 June. Although S IMMO trades at a large discount to NAV, interloper risk is low.
Gross spread is 1.3%. Assuming clearances are obtained, and offer settled by 1 August, estimated annual return would be 5.5%. Long SPI AV.

Before it’s here, it’s on Smartkarma