Event-Driven

The review period runs from 18-29 April for the May SAIR, the results will be announced on 13 May (Asia-time) with the changes implemented after the close on 31 May.
Most of the potential changes are in China with few changes spread across the other Asian markets. China loses the most number of index members, followed by Japan.
There are over 4 weeks to the start of the review period and there will be changes over that time as stock prices move around.

JD.com Tencent Div Distribution – The US$10bn Overhang – Passives Might Have to Sell

By Sumeet Singh

On 23rd Dec, Tencent declared a dividend in the form of distribution in specie of 457.326m shares of JD.com, i.e. 1 share of JD.com for every 21 shares of Tencent.
While Tencent went ex-div on 20th Jan 2022, the actual settlement of the distribution is expected to happen on or about 25th Mar 2022.
In this note, we talk about the likely impact of Prosus’ shareholding on passive flows at the time of settlement.

S&P/ASX Indices: March 2022 Rebalance Update and Post-Inclusion Outlook

By Janaghan Jeyakumar, CFA

The March 2022 regular rebalance constituency changes for ASX 300, ASX 200, ASX 50, and ASX 20 were announced on 4th March 2022.
These constituency changes will be implemented at the close of 18th March 2022 (Friday) and will be effective from the open on 21st March 2022 (Monday).
Below is a discussion on the performance of these candidates so far and our expectation for the next few weeks.

Yashili (1230 HK): More Formula Fortune?

Infant formula play Yashili International Holdings (1230 HK) is currently suspended “pursuant to The Hong Kong Code on Takeovers and Mergers“.
Shares closed up 98% yesterday, on clear news leakage, before shares were suspended. China Mengniu Dairy Co (2319 HK) holds 51.04% with Danone SA (BN FP) another 25%.
This trading halt follows the recent successful Offer for Ausnutria Dairy Corp (1717 HK), one of Yashili’s key peers.

WH Group (288 HK) – Now Cheapest in Yonks Outright and Vs Peers

WH Group (288 HK) is two businesses – a US pork processor and a Chinese one – and both businesses are suffering lower margins than they’d like.
But they are doing better than and are cheaper than peers. And still the stock falls. Today, the stock price hit a 6-year low on dramatic underperformance of peers.
The question is what the proper discount would be for people who question its governance credentials. It’s a really big discount now.

Uniti’s A$4.50 Indicative Bid from Morrison & Co

Morrison & Co will offer A$4.50 cash per share, a 42.9% premium to the unaffected price of A$3.15 (on 13 March).
We think that the Morrison offer is attractive in the context of historical multiples and share prices. At last close, the gross spread is 12.2%.
Uniti Group Ltd (UWL AU) flagged in January that it had received takeover approaches from more than one party. Consequently, the Morrison offer could force out other bidders.

Hyundai Heavy Industries: Multi-Phase Trading on Lockup Release & FTSE GEIS Inclusion

Hyundai Heavy Industries will face significant volatility this week. First, on March 17, IPO 6-month lockup will be released. The next day, March 18, rebalancing trading of FTSE GEIS occurs.
If half of the lockup release hits the market, it will be about 3.0x ADTV. At 30%, it is 1.8x ADTV. Then, we should see an inflow of 1.04x ADTV.
The short position exit timing is crucial. Some of the volumes scheduled for release are likely to sell on the 18th or early next week, targeting Friday’s FTSE GEIS event.

Korea Preferred Shares: Suitable Long/Short Pairs at This Point

I first screened those with a sigma below -1.0 on a 20D MA relative to Ords. I then filtered those having underperformed the common shares on a YTD price performance.
As a result, I have the following four preferred shares: Samsung Electronics 1P, Hyundai Motor 1P, Daishin Securities 1P, and Doosan Corp 1P.
As for the pref/ord dividend yield difference, Hyundai Motor 1P’s dividend yield difference has widened considerably compared to the past three years.

Apollo/Pearson: Prospective Offer

Apollo approached educational conglomerate Pearson Plc (PSON LN) regarding a 854.2p prospective offer for 100%, rejected by the Board. Value creation should come from further divesting businesses. PUSU deadline is 8 April.
Cevian, top shareholder, has a 10.24% stake, and bargaining power (it could prevent a delisting). Using DCF, base-case TP is 742p, best case is 834p. Comps-based valuation is 815p.
The market’s gone beyond initial doubts, shares closed at 827.6p on 15 March (3.3% gross spread), betting Apollo will succeed (probably raising the offer). The CDS market already believed it.

Most Shorted Stocks on KOSDAQ 150 in Last 5 Days

Here are the top 30 most shorted stocks on KOSPI 200 over the last five trading days, by short-selling volume as a % of the accumulated trade volume.
I then sorted out those with a short-selling volume exceeding 10% of the accumulated trade volume during these five trading days and a 30-day ADTV of +₩3B.
And another additional condition was an increase in the loan balance during the same period. As a result, six names came up as having a high potential of price decline.

Before it’s here, it’s on Smartkarma

Mar 15

Event-Driven: Mitratel, Western Areas, Virtus Health, LG Energy Solution, Coupang and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE All-World/All-Cap Index Rebalance Preview (June): IPO Inclusions Coming Up
Western Areas: IGO Firm On Pricing As Nickel Soars
Virtus Enters Into Firm Deal With CapVest
Korean Financial Authorities Tighten IPO Requirements for Institutional Investors
Softbank Sells $1.0 Billion Additional Worth of Coupang: Continued Overhang Concerns
CapVest Inches past BGH in a Heated Takeover Battle for Virtus

FTSE All-World/All-Cap Index Rebalance Preview (June): IPO Inclusions Coming Up

We see 20 potential inclusions to the FTSE All-World and All-Cap indices that will be implemented at the close of trading on 17 June. Most are high probability inclusions.
LG Energy Solution (373220 KS), Kakao Pay (377300 KS) and Mitratel (MTEL IJ) are the top 3 stocks with the most passive inflows.
There are a few stocks that will have passive inflows from other index trackers while there are others that have lock-up expiries from now to implementation of the changes.

Western Areas: IGO Firm On Pricing As Nickel Soars

IGO Ltd (IGO AU) said it has no obligation, nor any current intention to increase the consideration for Western Areas (WSA AU) in response to recent short-term events.
The Scheme timetable is, however, expected to face a short delay with implementation in May/June compared to April previously.
Currently trading comfortably through terms, as it has done since shortly after the invasion of Ukraine.

Virtus Enters Into Firm Deal With CapVest

Virtus Health (VRT AU) gives the nod to CapVest as the latter bumps to $8.25/share – less dividends – by way of a Scheme
CapVest will also make a concurrent off-market takeover Offer at $8.10, less dividends. This Offer can be triggered if the first Offer fails, and would only require 50.1% shareholder approval.
Trading one spread below CapVest’s firm Scheme terms. Back in BGH’s court. Again.

Korean Financial Authorities Tighten IPO Requirements for Institutional Investors

On 11 March, Korea Financial Investment Association (KFIA) announced that it will tighten IPO requirements for institutional investors.
This is likely to further dampen the local IPO market in Korea which has been in the doldrums after the biggest-ever IPO in Korea LG Energy Solution two month ago.
As a result of the change in the IPO requirements for institutional investors, this is likely to to negatively impact smaller investment funds without adequate amount of AUM.

Softbank Sells $1.0 Billion Additional Worth of Coupang: Continued Overhang Concerns

On 14 March, it was reported that Softbank’s Vision Fund sold about 1.3 trillion won ($1.04 billion) worth of Coupang (CPNG US) shares on 9 March in a block deal.
The continued selling of Coupang shares by Softbank suggests that Softbank is not confident on the future prospects of the company. We remain negative on Coupang.
Another reason could be because Softbank needs to raise more cash to make up for the losses from its other investments (mainly Chinese tech companies).

CapVest Inches past BGH in a Heated Takeover Battle for Virtus

CapVest’s binding offer is A$8.25 via a scheme or A$8.10 via an off-market takeover. The scheme offer is a 5.8% premium to its previous scheme offer of A$7.80 per share.
Rival bidder BGH lobbed a revised non-binding offer of A$8.10 per share after market close on 10 March. The Board will consider any further improved competing offer.
BGH (19.99% stake) previously stated that it will vote against a CapVest scheme and will not accept any takeover offer. Another round of bidding is a possibility.

Before it’s here, it’s on Smartkarma

Mar 14

Event-Driven: Olam International, KraneShares CSI China Internet ETF, Nhk Spring, Hotel Shilla, Samsung SDI, Razer Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Olam Group: Restructuring to Unlock Value
China ADRs & HFCAA: Pace of Homecoming Listings Should Pick Up & Implications
NHK Spring (5991) – A Cheap Stock With “Hidden Assets” Making It Cheaper
Short Interest Flow Checkup on KOSPI 200 Constituents
KODEX (FnGuide) Battery ETF Rebalancing: Passive Flow Tracking for Two Remaining Days
Merger Arb Mondays – Razer, 51Job, Irongate, Link, Crown Resorts, Guodian

Olam Group: Restructuring to Unlock Value

Olam Group set to replace Olam International (OLAM SP) as the listed company entity on 16 March. It consists of Olam Food Ingredients (ofi), Olam Agri and Olam International (OIL).
The complicated restructuring exercise which was announced in January 2020 is driven by the Board’s intent to unlock long-term shareholder value.
Our SoTP valuation is S$2.36 per share, which is a 34% upside to the last trading price of S$1.76 per share (9 March prior to the suspension of the shares).

China ADRs & HFCAA: Pace of Homecoming Listings Should Pick Up & Implications

China ADRs were sharply lower last week as the SEC started to name companies that were identified under the Holding Foreign Companies Accountable Act (HFCAA).
Then DiDi Global dropped 44% on Friday following reports that the their proposals to prevent data/security leaks did not meet CAC’s requirements and work on the HK listing was halted.
With 2024 not too far away, a lot of the U.S. listed companies will look at listing in Hong Kong in the near future. That will have its own implications.

NHK Spring (5991) – A Cheap Stock With “Hidden Assets” Making It Cheaper

NHK Spring released an announcement mid-week to the effect that they were selling a golf practice facility they owned. The profit on the sale will exceed 10% of Enterprise Value.
In addition, the company has another 25-30+% of Enterprise Value in shareholdings which return far less than the Mid-Term Management Plan target ROE of 8%.
On an Adjusted EV basis (EV less non-operating financial assets), this stock trades at less than 1.5x EBITDA two years out.

Short Interest Flow Checkup on KOSPI 200 Constituents

I sorted out those on KOSPI 200 with a weekly short-selling volume exceeding 10% of last week’s total trade volume and a 30-day ADTV of +₩5B.
I further screened those having an increase in the weekly loan balance. As a result, I filtered 23 KOSPI 200 constituents meeting these conditions.
Among the filtered ones, those whose stock price did not drop last week are screened, meaning that the market’s expectations for further share price declines are high for these names.

KODEX (FnGuide) Battery ETF Rebalancing: Passive Flow Tracking for Two Remaining Days

KODEX battery ETF does rebalancing four times a year from this March. The rebalancing trading is done for 3-trading days from March 14 to 16, presumably equal daily weight.
Due to the low float rate, LG Energy will fall to third place. Samsung SDI should become the top constituent with a 20% cap, followed by SK Innovation at 15%.
The passive impact sizes of the top four stocks are significant, considering they are in the same sector. So, they should make themselves a suitable target for long/short basket trading.

Merger Arb Mondays – Razer, 51Job, Irongate, Link, Crown Resorts, Guodian

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 Razer Inc (1337 HK), 51 Job Inc Adr (JOBS US), Irongate Group (IAP AU), Link Administration Holdings (LNK AU), Crown Resorts (CWN AU)
The lowest gross spreads are CIMIC Group Ltd (CIM AU), Singapore Press Holdings (SPH SP), Australian Pharmaceutical Industries (API AU), Virtus Health (VRT AU), Ausnutria Dairy Corp (1717 HK)

Before it’s here, it’s on Smartkarma

Mar 13

Event-Driven: Evolution Mining, Olam International, Saigon Thuong Tin Commercial, Bumi Resources Minerals Tbk, Lake Resources Nl, AGL Energy Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MVIS Global Junior Gold Miners Index Rebalance: Couple of Adds in Asia
Last Week in Event SPACE: Olam, Bank of Kyoto, AGL Energy, Jardine Matheson, Toshiba
MVIS Vietnam Index Rebalance: Eight Additions & Some Big Float Changes
Index Rebalance & ETF Flow Recap: HSCEI, FTSE JP, STAR50, Sensex, NIO, GDXJ, Vietnam
MVIS Global Rare Earth/Strategic Metals Index Rebalance: Some Large Capping Ouflows in Australia
Asia-Pac Weekly Risk Arb Summary: AGL Energy, Thai Rayon, Dragon Crown

MVIS Global Junior Gold Miners Index Rebalance: Couple of Adds in Asia

Malagasy Minerals (CMM AU) and Bumi Resources Minerals Tbk (BRMS IJ) will be added to the MVIS Global Junior Gold Miners Index at the close on 18 March.
The Vaneck Jr Gold Miners (GDXJ US) ETF tracks the index and has an AUM of US$5.2bn. So there will be an impact on the adds, deletes and other stocks.
There are a few stocks in Australia that will have inflows from the GDXJ US ETF apart from the FTSE All-Cap and S&P/ASX 300 trackers on the same day.

Last Week in Event SPACE: Olam, Bank of Kyoto, AGL Energy, Jardine Matheson, Toshiba

With many cash grain/agri prices touching record highs amid war in Ukraine, boasting an upstream supply is not a bad thing. Yet Olam (OLAM SP) is a tricky beast to analyze.
Bank of Kyoto (8369 JP) would be a screaming buy vs its basket a bit lower. As it is, it’s the same level after the bank changed its payout ratio.
The duo of Brookfield and Atlassian/Australian billionaire Mike Cannon-Brookes has lobbed a higher offer for AGL Energy Ltd (AGL AU) and AGL has rejected it.

MVIS Vietnam Index Rebalance: Eight Additions & Some Big Float Changes

There are 8 additions to the MVIS Vietnam Index at the upcoming rebalance at the close on 18 March. Moderate impact on most of the adds.
There are some stocks that have large float changes; watch Saigon Thuong Tin Commercial (STB VN). Over 1 day of ADV to sell on some stocks due to capping changes.
At the December rebalance, all 5 adds jumped the day post announcement and then stayed in a range till implementation of the changes.

Index Rebalance & ETF Flow Recap: HSCEI, FTSE JP, STAR50, Sensex, NIO, GDXJ, Vietnam

The Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and SSE STAR50 (STAR50 INDEX) rebalances were implemented during the week. NIO Inc (9866 HK) started trading in Hong Kong.
Busy week coming up with the implementation of the KOSDAQ 150 Index, S&P/ASX 200 and the FTSE indices including All-World/All-Cap, China 50, XIN9I INDEX, Taiwan50 and EPRA Nareit.
The changes to the MVIS Global Junior Gold Miners Index and the MVIS Vietnam Index were announced post market close on 11 March and will be implemented on 18 March.

MVIS Global Rare Earth/Strategic Metals Index Rebalance: Some Large Capping Ouflows in Australia

There are no adds/deletes to the MVIS Global Rare Earth/Strategic Metals Index at the March rebalance. However, there are changes to free floats and capping factors.
The largest impacts are on ioneer Ltd (INR AU), AVZ Minerals (AVZ AU), Australian Strategic Materials (ASM AU), Iluka Resources (ILU AU) and Pilbara Minerals (PLS AU).
The non-inclusion of Core Lithium Ltd (CXO AU) and Lake Resources Nl (LKE AU) could lead to a selloff tomorrow. Both stocks are FTSE All-Cap and S&P/ASX300 inclusions on Friday.

Asia-Pac Weekly Risk Arb Summary: AGL Energy, Thai Rayon, Dragon Crown

There are currently 44 – mostly firm – transactions currently being discussed and analysed on Smartkarma
One new deal this week: Surya’s Kiran’s MTO for Thai Rayon Public Co Ltd (TR TB)
Key updates took place for: AGL Energy Ltd (AGL AU) and Dragon Crown Group (935 HK).

Before it’s here, it’s on Smartkarma

Mar 12

Event-Driven: Alibaba Group, Thai Rayon Public Co Ltd, Shinhan Financial, Boskalis Westminster and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

China ADRs Delisting – SEC Sets the Clock Ticking and Sends China ADRs Tripping
Thai Rayon (TR TB): IFA Rejects Surya Kiran’s Offer?
KOSPI/KOSDAQ End-March Dividends: 1Q Fiscal Year-Ending, Interim(Quarterly), & REITs
HAL Holding/Royal Boskalis Westminster: Opportunistic Voluntary Offer

China ADRs Delisting – SEC Sets the Clock Ticking and Sends China ADRs Tripping

By Sumeet Singh

On 8th Mar 2022, Securities Exchange Commission (SEC) added five China ADR names to its provisional list of issuers under the Holding Foreign Companies Accountable Act (HFCAA).
There is nothing new about the list, on 2nd Dec 2021, SEC had issued final amendments to implement the HFCAA which had already spoken about the list and its implications.
In this note, we’ll talk about the latest developments its possible timelines and implications.

Thai Rayon (TR TB): IFA Rejects Surya Kiran’s Offer?

After taking into account the IFA opinion, the directors of textile-play Thai Rayon Public Co Ltd (TR TB) unanimously reject Surya Kiran’s Offer.
Surya Kiran is offering THB 50/share for the 79.33% of shares out in Thai Rayon it does not own. The Offer Price will not be increased.
The Offer is currently open for acceptance and will close on the 25 March.

KOSPI/KOSDAQ End-March Dividends: 1Q Fiscal Year-Ending, Interim(Quarterly), & REITs

We can consider three types of dividend stocks, targeting the March 31 dividend base date: 1. 1Q fiscal year-ending dividends, 2. Interim (quarterly) dividends, 3. REITs regular dividends
The ex-dividend price corrections of fiscal year-ending dividend stocks have been pretty tight recently. In addition, the futures basis has not reached a desirable level either.
So, either outright dividend trading or dividend arb play does not have much trade opening. So, I’d consider setting up a long/short basket trading, by focusing on high DTV ones.

HAL Holding/Royal Boskalis Westminster: Opportunistic Voluntary Offer

On 10 March, HAL Holding announced an intended voluntary public €4.2 billion cash offer of €32.50/share. Coming from a subdued period for the industry, the multiples aren’t too generous: 8.0x EV/22e EBITDA.
A 28% premium coupled with the current volatile market environment means that the offer is most likely to succeed. HAL and associated parties now control 48.9% of the shares.
The median-implied equity value across multiples is €36.36/share, but investors are cashing out now: a vehicle set up by HAL is buying shares in the market at the offer price.

Before it’s here, it’s on Smartkarma

Mar 11

Event-Driven: Toshiba Corp, Jardine Matheson Holdings, Jinko Solar, Hana Tour Service, PropertyGuru , Link Administration Holdings, Hyundai Heavy Industries and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Toshiba – ISS Advises Against Breakup Plan
Jardine Matheson (JM SP): Reloading The Buyback?
STAR50 Index Rebalance Preview (June): Back to the All Important Question
KOSPI 200 Rebalancing Screening: Few Noticeable Changes in the Race
PropertyGuru/Bridgetown 2 SPAC Listing/Merger – Peers Are Down a Lot, as the Deal Nears Completion
Link’s Offer Spread Risk/Reward
KOSPI Lockup Releases & Likelihood of Hitting the Market

Toshiba – ISS Advises Against Breakup Plan

By Mio Kato

This morning Institutional Shareholder Services recommended against both Toshiba’s break up plan and 3D’s alternative proposal.
Both proposals looked uncertain and with ISS coming out against them it now appears more likely that both will be rejected.
That leaves Toshiba in limbo once again and we aren’t convinced the exit will be a privatisation.

Jardine Matheson (JM SP): Reloading The Buyback?

Jardine Matheson Holdings (JM SP)‘s underlying net profit in FY21 was up 39% against 2020, and just 5% shy of 2019’s level.
The latest US$250mn buyback program appears to have been completed.
Shares are down ~5% since the FY21 results. At a ~28% discount to NAV, JMH is inexpensive here.

STAR50 Index Rebalance Preview (June): Back to the All Important Question

There could be 3 or 5 changes to the STAR50 INDEX in June depending on the minimum listing history (6 months or 12 months) used by the index committee.
Jinko Solar (688223 CH) is a high probability inclusion while Shanghai Microport Endovascular MedTech (688016 CH), ArcSoft Corp Ltd (688088 CH) and DBAPP Security Ltd (688023) are high probability deletions.
The March rebalance will be implemented at the close tomorrow. The adds have outperformed the deletes post announcement and there could be a reversal from next week.

KOSPI 200 Rebalancing Screening: Few Noticeable Changes in the Race

KOSPI 200’s June rebalancing review period is six months, from November 1 to April 30. So, we are now over 70% of the review period.
The addition result is similar to the screening results last month. However, one stock was newly screened. Hana Tour Service sits at the filtering borderline within the Consumer Discretionary Sector.
As for deletions, Bukwang Pharmaceutical is screened in the healthcare sector instead of Yungjin Pharmaceutical. S&T Motiv in the Consumer Discretionary Sector is additionally listed as a deletion candidate.

PropertyGuru/Bridgetown 2 SPAC Listing/Merger – Peers Are Down a Lot, as the Deal Nears Completion

By Sumeet Singh

PropertyGuru and Bridgetown 2 announced, on 23rd Jul 2021, that they have entered into a business combination agreement which will see PropertyGuru go public in the US.
Both the companies will hold their respective EGMs next week and aim to complete the listing by 18th Mar 2022.
We have looked at the company’s prior listing attempt, in Australia in 2019, and the current SPAC merger. In this note, we will talk about the recent updates.

Link’s Offer Spread Risk/Reward

Link Administration Holdings (LNK AU)’s 1HFY22 results on 24 February stated that the Dye & Durham/DND’s privatisation scheme remains on track to complete in June/July.
Key hurdles are ACCC clearance and the Woodford investigation. Key catalysts are the scheme booklet (in the coming weeks) and an agreement to sell BCM.
We would be buyers up to A$5.2 per share (implies 70% deal probability). The gross and annualised spread for a 31 July implementation is 8.6% and 23.8%, respectively.

KOSPI Lockup Releases & Likelihood of Hitting the Market

KOSPI has seven lockup release events that are likely to hit the market. And all of them are IPO institutional and ESOP lockups.
Whether these IPO institutional/ESOP lockups will hit the market directly correlates with the return size from the offering price. And most of them are still far above the offering price.
Therefore, it is highly likely that a meaningful share price correction will occur on each release date. This correlation pattern has been more pronounced in recent lockup release events.

Before it’s here, it’s on Smartkarma

Mar 10

Event-Driven: Cosmo Energy Holdings, NIO Inc, Great Wall Motor, Kakao Pay, StarTek, Kumho Petro Chemical, Albioma SA, Stagecoach and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Cosmo Oil (5021 JP) Accelerated Block Offering – Big Discount But… 👀
NIO (9866 HK) Secondary Listing: HSTECH Inclusion in June Likely
HSCEI Index Rebalance Preview (June): Great Wall Motor (2333) Should Replace Hansoh Pharma (3692)
MSCI Korea May Rebalancing Preview
Startek Inc. – SRT US 55% Owner Proposes $5.40 Cash Per Share Squeeze Out
Kumho Petrochem: Share Buyback, Cancellations, & Higher Dividends
KKR/Albioma: Takeover Interest
DWS Gatecrashes NEX Offer for Stagecoach

Cosmo Oil (5021 JP) Accelerated Block Offering – Big Discount But… 👀

Mubadala bought 20.8% of Cosmo Energy Holdings (5021 JP) in 2007 at ¥5,068/share (split-adjusted). A few months later it dipped below that and hasn’t seen that price since.
The sovereign wealth fund sold 5% last year at ¥2,610, and just 7 months later is bailing on the other 15.7% at a 12-17% discount.
Result? Float will rise. Index funds will buy a bit, and active foreign institutional investors will nearly double their holdings.

NIO (9866 HK) Secondary Listing: HSTECH Inclusion in June Likely

NIO Inc (9866 HK) is expected to list on the HKEX (388 HK) tomorrow. Nearly 820m Class A shares are now held on the Hong Kong Share Register.
We do not expect NIO Inc (9866 HK) to get Fast Entry to the HSCEI INDEX and HSTECH INDEX, though inclusion in the HSTECH could take place in June.
NIO Inc (9866 HK) is not likely to get Fast Entry to the HSCI. The stock is not eligible for Southbound Stock Connect as a Secondary Listing.

HSCEI Index Rebalance Preview (June): Great Wall Motor (2333) Should Replace Hansoh Pharma (3692)

Great Wall Motor (2333 HK) could replace Hansoh Pharmaceutical (3692 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the June rebalance. The review period ends 31 March.
Bilibili (9626 HK) is a close add while Sunac China Holdings (1918 HK) is a close delete. Stock prices moves over the next 3 weeks will decide on the changes.
Passive HSCEI Index trackers will need to buy 1.74 days of ADV on Great Wall Motor (2333 HK) and sell over 3 days of ADV on Hansoh Pharmaceutical (3692 HK).

MSCI Korea May Rebalancing Preview

As for additions, only Kakao Pay and Hyundai Heavy pass the screening. Both now satisfy the minimum listing period requirement and comfortably beat both full and float-adjusted market cap hurdles.
Lotte Shopping and Meritz Financial Group are filtered among the deletion candidates. Both fail (or closely) to meet the lower buffer of the float-adjusted market cap, estimated at ₩0.91T.
Hyundai Heavy’ passive impact is expected to be relatively greater than that of Kakao Pay. Lotte Shopping’s impact is estimated to be significantly greater than that of Meritz Financial Group.

Startek Inc. – SRT US 55% Owner Proposes $5.40 Cash Per Share Squeeze Out

By John DeMasi

Singapore-Based private equity firm Capital Square Partners (“CSP”) engineered combination of Aegis Global and “old” Startek in 2018 to create “new” Startek.
Microcap business process outsourcing (“BPO”) company runs outsourced customer contact centers, has improving sales and profitability, and a declining stock price.
On 20December2021, CSP disclosed that it had submitted a “preliminary, non-binding proposal” to acquire all outstanding shares of SRT US not already owned by it for $5.40 per share.

Kumho Petrochem: Share Buyback, Cancellations, & Higher Dividends

After the market close on 8 March, Kumho Petro Chemical (011780 KS) announced major share buyback, dividends, and investment plans.
Kumho Petrochem’s share price has nearly halved since its 52 week highs in May 2021.
The company’s efforts to buyback shares and cancel them (about 3% of outstanding shares) as well as higher dividends are likely to reverse this share price decline.

KKR/Albioma: Takeover Interest

KKR is considering the takeover of recently underperforming renewable energy producer Albioma. The sector is trendy due to low real interest rates, increasing electricity prices and interest from infrastructure funds.
The deal should increase KKR’s exposure in renewable energies across geographies (Albioma has exposure to France, Mauritius, Brazil and others, and accelerate Albioma’s growth.
Awaiting for further news, comparables are trading at a median 14.7x EV/Fwd EBITDA, thus the implied equity value of Albioma would be €62.2/share. Falck was taken at 16.3x EV/Fwd EBITDA.

DWS Gatecrashes NEX Offer for Stagecoach

Stagecoach has agreed to a 105p cash offer from DWS (37% premium, 14.7x EV/Fwd EBIT). The board has withdrawn the prior recommendation for an all-share merger with National Express.
National Express could respond by increasing its offer in line with DWS’s, but that would imply giving away c. 50% of the combined company, which I think unlikely.
The offer is not incredibly generous, but there are risks (soaring fuel prices, inflation, etc.). Gross spread is nil and the offer is likely to close.

Before it’s here, it’s on Smartkarma

Mar 09

Event-Driven: Olam International, Suruga Bank Ltd, AfreecaTV, Japan Post Holdings, Dragon Crown Group, Bed Bath & Beyond and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Olam’s Demerger: The Sum Is Probably Greater Than The Whole
HUGE Suruga Bank (8358 JP) Buyback
Combined Rebalancing Flow Estimations of Three Indexes in Korea on March 10
Japan Post Holdings – Gaming Out a Five Bagger
Dragon Crown (935 HK): Offer Open To Acceptances
ActivistTalk: The Activist Excitement Surrounding Bed, Bath & Beyond Could Be Short-Lived This Time

Olam’s Demerger: The Sum Is Probably Greater Than The Whole

The High Court of Singapore has now sanctioned the proposed restructuring of Olam International (OLAM SP) and the proposed listing of OFI Group.
Entitlement in respect of the Scheme will close on the 11 March. The last day of trading is the 9 March. The listing of OFI is expected in the 2Q22.
With many grain/agri prices touching record highs amid war in Ukraine, boasting an upstream supply is not a bad thing. But the timing of OFI’s listing could work both ways.

HUGE Suruga Bank (8358 JP) Buyback

In 2018, Suruga Bank got itself in trouble, the shares fell 80% or more in a year-plus. In 2019 they took a big hit, and the Okano family sold out.
Nojima Corp (7419 JP) bought the shares -85% from the peak. Now they are selling those shares, plus the ones they already owned. Down nearly 10% from where they bought.
This is an instant 15+% boost to BVPS and 22+% boost to EPS. That’s great. But that may be where greatness stops.

Combined Rebalancing Flow Estimations of Three Indexes in Korea on March 10

Three local indexes in Korea face rebalancing trading on March 10, supposedly at the close.
They are 1. KOSPI 200 Fast Entry for LG Energy Solution, 2. KOSPI Size Index Series biannual rebalancing, and 3. KRX BBIG K-New Deal biannual rebalancing.
There are 18 stocks in total, which have an estimated passive flow of ±0.5x ADTV & an average daily trade value of +₩5.0B.

Japan Post Holdings – Gaming Out a Five Bagger

By Mio Kato

We have articulated why we believe Japan Post Bank and Japan Post Insurance could have 100%+ upside.
We further believe that Japan Post Holdings also offers very significant upside potential.
His comes not just from its subsidiaries’ performance but also improvements in post office profitability and shrinking of the holdco discount.

Dragon Crown (935 HK): Offer Open To Acceptances

The Composite Document detailing the Conditional Voluntary General Offer for liquid chemical storage and handling outfit Dragon Crown Group (935 HK) (DCG) is now out.
The Offer Price is HK$1.28/share. The Offer is conditional on 90% acceptance, with 86.91% in the bag.
This will probably turn unconditional next week. Trading tight to term.

ActivistTalk: The Activist Excitement Surrounding Bed, Bath & Beyond Could Be Short-Lived This Time

By Robert Sassoon

BBBY’s slower than hoped for turnaround has caught the attention of another activist, GameStop (GME US) Chairman Ryan Cohen’s RC Ventures
Cohen is urging BBBY to spin-off its outperforming buy buy BABY business or sell BBBY as is outright in a Go-Private transaction
With the long-term impact of the latest development uncertain, the boost already given to the shares may prove short-lived leaving additional share price strength an even better reason to exit

Before it’s here, it’s on Smartkarma

Mar 08

Event-Driven: Core Lithium Ltd, Tata Consultancy Svcs, Softbank Group, Hanjin KAL Corp, Bank of Kyoto, Beijing Enterprises Clean Energy Grp, Tata Motors Ltd, SK Innovation, IMMOFINANZ AG and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Two Potential Adds; Two Close
Tata Consultancy Services (TCS IN): US$2.4bn Mega Buyback – Letter of Offer Out; TCS Cheap Vs Peers
TOPIX-Nikkei Skew Trade – Updates Factoring in Ukraine
TIGER WISE Tour Leisure ETF Rebalancing Preview
Bank of Kyoto (8369) – A Complicated Risk Model Clarified
BE Clean Energy Back in the Cross Hairs of China Shandong Hi-Speed Financial Group?
SENSEX Index Rebalance Preview (June): Down to the Wire
Preemptive/Appraisal Rights to Parent Company Shareholders in ECO Listing in Korea
CPI/Immofinanz: Additional Acceptance Period, S Immo

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Two Potential Adds; Two Close

Core Lithium Ltd (CXO AU) and Lake Resources Nl (LKE AU) could be added to the MVIS Global Rare Earth/Strategic Metals Index at the upcoming rebalance in March.
Firefinch Ltd (FFX AU) and Sayona Mining (SYA AU) are close adds but unlikely to make the cut for inclusion at the March rebalance.
There will be a modest impact on the potential adds at the rebalance but the impact on some of the other names could be higher due to capping changes.

Tata Consultancy Services (TCS IN): US$2.4bn Mega Buyback – Letter of Offer Out; TCS Cheap Vs Peers

By Janaghan Jeyakumar, CFA

In early February 2022, Indian IT giant Tata Consultancy Svcs (TCS IN) officially announced a INR180bn (~US$2.4bn) Buyback which is one of the largest in Indian stock market history.
Today the company published the Letter of Offer confirming the final details and the expected timeline for this Buyback.
Below is a closer look at these details and their implications for shareholders.

TOPIX-Nikkei Skew Trade – Updates Factoring in Ukraine

By Mio Kato

The Nikkei is now down 9.57% vs. when we first recommended our skew trade (now up 0.40%).
Despite some frustrating idiosyncratic moves which have prevented the skew trade from outperforming more it has mostly held up.
Looking forward, we believe it is worthwhile assessing upside and downside macro risks for the components of the trade.

TIGER WISE Tour Leisure ETF Rebalancing Preview

The TIGER Tour Leisure ETF shows the fastest AUM growth among the local themed ETFs in Korea. It seems clear that this is due to the reopening expectations.
The absolute size of AUM seems small. But the number of components is only 19, and most of them are small caps. So the actual passive impact is not small.
Another noteworthy aspect is that the rebalancing is pretty straightforward. It primarily relies on the float-adjusted market caps. So, the rebalancing estimation visibility is relatively high.

Bank of Kyoto (8369) – A Complicated Risk Model Clarified

Last May I proposed a model for thinking about the appropriate discount of Bank of Kyoto (8369 JP) vs its giant equity portfolio and small operations. It was a sell.
In December, the bank changed its shareholder return ratio, which indicated less value destruction, and tighter appropriate discount. The shares rallied and discount narrowed.
Now the Shares Adjusted for Banking Ops Valuation have seen the discount to After-Tax Equity Portfolio Valuation widen sharply in the past 10 days. So here’s the hedging model.

BE Clean Energy Back in the Cross Hairs of China Shandong Hi-Speed Financial Group?

Beijing Enterprises Clean Energy Grp (1250 HK) and China Shandong Hi-Speed Financial Group (412 HK)/CSFG have simultaneously entered trading halts today. CSFG is likely a suitor for BE Clean Energy.
There is a track record of SOE privatisations of clean energy companies – Huadian Fuxin Energy Corp (816 HK), Huaneng Renewables Corp H (958 HK) and CP Clean Energy
In this note, we look at CSFG’s recent failed attempt at acquiring a 22.78% stake at a price of HK$0.088, along with BE Clean Energy’s trading updates and peer multiples.

SENSEX Index Rebalance Preview (June): Down to the Wire

Tata Motors Ltd (TTMT IN) and Tata Motors DVR (TTMT/A IN) are likely inclusions to the S&P SENSEX INDEX in June while Dr. Reddy’s Laboratories (DRRD IN) could be deleted.
Hindalco Industries (HNDL IN) could be added depending on sector balance while Nestle India (NEST IN) is a close delete on liquidity.
The inclusion of Tata Motors could result in the discount on the DVR line Tata Motors DVR (TTMT/A IN) narrowing versus the common shares Tata Motors Ltd (TTMT IN).

Preemptive/Appraisal Rights to Parent Company Shareholders in ECO Listing in Korea

The KFSC officially unveiled revisions to the guidelines on corporate governance disclosure. The key to these revisions is to regulate the equity carve-out (ECO).
These protection measures may include granting PREEMPTIVE or/and APPRAISAL rights to the parent company shareholders in a post-ECO listing.
There will be high potential for short-term momentum for POSCO, which has already decided ECO, and SK Innovation (SK On), whose post-ECO listing is practically a foregone conclusion.

CPI/Immofinanz: Additional Acceptance Period, S Immo

CPI has revealed a 55.07% stake in Immofinanz. The additional acceptance period will end on 28 May. CPI will likely continue purchasing shares in the market.
CPI now also controls 42.55% of S Immo. A combined CPI/Immofinanz/S Immo would have €24bn assets. Scale and sound capital management may bring handsome profits in the longer term.
Immofinanz’s shares offer 5.1% 23e FFO yield. Gross spread to offer price is 0.6%. The convertible spread is c.2%. My TP is €25.86/share, 12.2% discount to EPRA NTA. Long IIA VA.

Before it’s here, it’s on Smartkarma

Mar 07

Event-Driven: Mcdonald’s Holdings Co Japan, SRE Holdings Corp, Green Cross, AGL Energy Ltd, CJ Logistics, Razer Inc, Bangkok Bank Public and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE Japan: Potential Inclusions Following TSE Restructure
SRE Holdings (2980 JP) Offering – New Higher Growth at New Lower Multiple
Potential Additions & Deletions in MSCI Korea Rebalance in May 2022
Second Brookfield-MCB Bid for AGL Energy Rejected
KOSPI Size Index Series Rebalancing: Official Results & Passive Impacts
Merger Arb Mondays – Razer, Sezzle, Irongate, 51job, Link, Guodian, Crown Resorts
BBL/KBANK: Time for a Bounce

FTSE Japan: Potential Inclusions Following TSE Restructure

Following the TSE restructure on 4 April, FTSE will include stocks that trade on the Prime Market and Standard Market as part of the eligible universe for index inclusion.
We see 4 stocks meeting the requirements for inclusion in the FTSE All-World Index, and another 13 stocks meeting the requirements for inclusion in the FTSE All-Cap Index.
There are stocks that have over 4 days of ADV to buy from passive trackers. Given the inclusions will take place in March 2023, its wait and watch for now.

SRE Holdings (2980 JP) Offering – New Higher Growth at New Lower Multiple

SRE Holdings Corp (2980 JP) last week announced an offering of new shares and a secondary share sale by Z Holdings (4689 JP) of the bulk of its holdings.
The Z Holdings sale coincides with a “new business alliance” between SRE and Yahoo. At first glance, it appears as if both sides have decided to rejig what they do.
SRE has an interesting business model which is quite growthy. It is growthier than it planned and others expected, but the stock has fallen 70% in 3mos. It’s a buy.

Potential Additions & Deletions in MSCI Korea Rebalance in May 2022

In this insight, we discuss the potential inclusions and deletions in the upcoming MSCI rebalance in May 2022. The next MSCI Korea rebalance will be announced on 12 May 2022.
We believe that Hyundai Mipo, Hanwha Aerospace, and Daewoo Shipbuilding could increasingly be viewed as potential additions to MSCI Korea rebalance in May.
Green Cross Corp, Sk Chemicals Co, and Alteogen could increasingly be viewed as potential deletion candidates in the next MSCI Korea rebalance.

Second Brookfield-MCB Bid for AGL Energy Rejected

The duo of Brookfield and Atlassian/Australian billionaire Mike Cannon-Brookes has apparently lobbed a higher offer for AGL Energy Ltd (AGL AU) and AGL has apparently rejected it.
Confirmation from AGL is due tomorrow but given the previous bid was “ridiculously low”, “extremely undervalued” the company, and had “unserious” elements, expect the language to be similar.
Next steps probably mean waiting for the De-Merger Circular due April but possibly May. In the meantime, this probably trades in a range.

KOSPI Size Index Series Rebalancing: Official Results & Passive Impacts

KRX officially announced the rebalancing results of the KOSPI Size Index Series. The effective date is March 11.
Of these, new MidCap entrants are what matter the most. This rebalancing delivers a total of 26 new MidCap entrants.
The three stocks shown below have ADTV of over ₩5B and passive flow x ADTV of 1.0x or higher: CJ Logistics, GS Retail, and Lotte Rental.

Merger Arb Mondays – Razer, Sezzle, Irongate, 51job, Link, Guodian, Crown Resorts

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 Razer Inc (1337 HK), Sezzle Inc (SZL AU), Irongate Group (IAP AU), 51 Job Inc Adr (JOBS US), Link Administration Holdings (LNK AU)
The lowest gross spreads are China Logistics Property Holdings (1589 HK), Virtus Health (VRT AU), CIMIC Group Ltd (CIM AU), Singapore Press Holdings (SPH SP), Australian Pharmaceutical Industries (API AU)

BBL/KBANK: Time for a Bounce

Bangkok Bank Public has underperformed Kasikornbank PCL over the short-term and over the last year as well. The price ratio is now trading at the low end of the recent range.
The number of NVDRs issued on Bangkok Bank Public (BBL TB) have continued to decrease while increasing on Kasikornbank PCL (KBANK TB).
Bangkok Bank Public (BBL TB) trades cheaper than Kasikornbank PCL (KBANK TB) and there could outperform in the short-term.

Before it’s here, it’s on Smartkarma