Most Read

As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
Though we don’t know what the future holds, Pasona now is the wrong price for its future.

STAR50 Index Rebalance Preview: Big Impact Expected on the Changes

With the review period complete, we expect one change for the STAR50 INDEX in December if the index committee continues to use a 6-month minimum listing history.
With net inflows to mainland China ETFs over the last few months, passive trackers will need to trade between 9-25 days of ADV on the potential add and delete.
SMIC (688981 CH) will be capped and there will be reverse funding flows on the index constituents. One-way turnover is estimated at 1.8% resulting in a one-way trade of CNY2,580m.

Hina/IBC’s Non-Binding Proposal For VNET

Chinese Internet data center services provider 21Vianet Group (VNET US) has recently received a non-binding proposal letter from the Hina Group and Shanghai’s Industrial Bank Co.
The indicative Offer price is US$8.00/ADS, or ~US$1.3333 per ordinary share.
The Offer Price is utterly underwhelming. A successful outcome will more than likely find its way to the Cayman Court.

New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban

There is a prevailing sentiment in the local market that short selling by market makers (MM) and liquidity providers (LP) will effectively be prohibited very shortly.
The widening of the futures basis extends the influence of futures on the spot market prices. This is precisely where trading opportunities that we should be keenly observing may arise.
It also leads to a significant widening of ETF tracking errors due to the direct sell-off of underlying shares. We must capitalize on extreme spreads in ETFs.

Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies

Asahi Group Holdings (2502 JP) today announced a collection of 10 shareholders (mostly financial institutions) would sell a total of 33.48mm shares (6.6% of shares out) in Asahi Group.
This will become more of a thing going forward. Cross-holders “want” to unwind. And in many cases, the cross-held want to buy back stock (reduce E, raise ROE).
This deal is “good” in that it clears out a lot of the bank cross-holders in one fell swoop. But there are more crossholders behind.

Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key

Nine shareholders are looking to sell 33.48m shares of Asahi Group Holdings (2502 JP). That is US$1.28bn, 24x ADV and 6.6% of shares outstanding.
Given the recent run up in the stock, there could be downside over the next couple of weeks ahead of the pricing date.
There will be buying from global trackers but nothing from TOPIX trackers, so not a lot of stock will be mopped up. Passive buying before settlement could create a squeeze.

Key Points We Should Know Regarding the Current Status of EOFlow

It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.

US Fed. Rtir’mt Thrift Board Changes Intl Benchmark, Excludes HK, US$1.6bn HK to Sell, $20bn 1-Way

The Federal Retirement Thrift Investment Board which manages the four major funds in the Thrift Savings Plan for US federal government employees will change benchmark for its International Fund
This was announced on 14 November. The transition will take place “in 2024.” It entails moving from MSCI EAFE to MSCI All Country World ex-USA ex-China ex-HongKong Investable Market Index.
The explanation: double the countries, lots more stocks, BUT CHINA! This means selling ~US$1.6bn of HK stocks but US$20bn of one-way flow in total (lots of Japan/UK/Europe to sell)

Alibaba: Our Take on 2QFY24

By Oshadhi Kumarasiri

While Alibaba (ADR) (BABA US)‘s 2Q24 revenue and OP closely matched consensus expectations, the company experienced a significant sell-off, resulting in shares plummeting by over 9% yesterday.
Yesterday’s weak performance may be linked to a 10% pre-earnings price surge, anticipating robust results. The postponement of the Cloud Spin-off could also have contributed to the decline.
We maintain a bearish stance on Alibaba Group Holding (9988 HK) as we identify other fundamental and structural downside catalysts might become increasingly important and price-sensitive as time progresses.

Asahi Group (2502 JP): US$1.3bn Secondary Placement

Asahi Group Holdings (2502 JP) announced a pure secondary offering of 33.5 million or 6.61% of outstanding shares. At the last close, the placement was worth JPY194 billion (US$1.3 billion).
Notwithstanding Asahi’s explanation, the selling shareholders’ motivation for exiting their shareholding is likely to capitalise on the strong share price performance – Asahi shares are up 45% YTD.
Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 28 November and 1 December (likely 28 November).

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Nov 17

Most Read: HKEX, Pasona Group, Korea Stock Exchange KOSPI 200, Eoflow , Asahi Group Holdings, Alibaba Group Holding , Steadfast and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out
Pasona: The Wrong Price
New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban
EOFlow Craters. Medtronic Stays Mum
Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies
Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns
Alibaba (9988 HK): 2Q24, Higher Margin Means Smooth Reorganization, Buy
Steadfast Group Placement – While Accretion Here Is Limited, Past Deals Have Done Well
Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key
Key Points We Should Know Regarding the Current Status of EOFlow

FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out

The FRTIB has decided to switch its benchmark for the International Stock Index Investment Fund from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index.
With around US$68bn invested in the I Fund, this will set off churn among the constituent stocks in 2024. One-way trade is around US$28bn with DM outflows and EM inflows.
The benchmark shift could be done over a 4 month period with higher trading during periods where liquidity opportunities arise.

Pasona: The Wrong Price

As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
Though we don’t know what the future holds, Pasona now is the wrong price for its future.

New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban

There is a prevailing sentiment in the local market that short selling by market makers (MM) and liquidity providers (LP) will effectively be prohibited very shortly.
The widening of the futures basis extends the influence of futures on the spot market prices. This is precisely where trading opportunities that we should be keenly observing may arise.
It also leads to a significant widening of ETF tracking errors due to the direct sell-off of underlying shares. We must capitalize on extreme spreads in ETFs.

EOFlow Craters. Medtronic Stays Mum

Five weeks after shares were suspended, EOFlow (294090 KS) shares resumed trading this morning, the 16 November. Wording is sparse on the resumption.
One small consolation was that EOFlow may benefit from the temporary ban on short selling. Irrespective, shares have declined ~27% at the open, as I type.
Elsewhere, Medtronic Plc (MDT US) provides no guidance. The only other news of note are the various court filings in the District Court of Massachusetts.

Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies

Asahi Group Holdings (2502 JP) today announced a collection of 10 shareholders (mostly financial institutions) would sell a total of 33.48mm shares (6.6% of shares out) in Asahi Group.
This will become more of a thing going forward. Cross-holders “want” to unwind. And in many cases, the cross-held want to buy back stock (reduce E, raise ROE).
This deal is “good” in that it clears out a lot of the bank cross-holders in one fell swoop. But there are more crossholders behind.

Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns

A group of shareholders are looking to raise US$1.3bn (JPY197.8bn) by selling their respective stakes in Asahi Group Holdings (2502 JP) via an extended secondary follow-on.
The deal would represent 23 days of Asahi’s three month ADV. Its latest extended large primary deal has done very well.
While the deal isn’t particularly well flagged, it is an extended one allowing the market to price in the impact of the share sale.

Alibaba (9988 HK): 2Q24, Higher Margin Means Smooth Reorganization, Buy

By Ming Lu

Alibaba’s operating margin rose to 15% in 2Q24 versus 12% in 2Q23.
Every expense as percentage of total revenue decreased and EBITDA of every business line increased.
We believe the reorganization is going smoothly and the stock has an upside of 82%. Buy.

Steadfast Group Placement – While Accretion Here Is Limited, Past Deals Have Done Well

Steadfast (SDF AU) is looking to raise around A$280m (US$180m) to fund the acquisition of Sure Insurance, and provide headroom for potentially additional acquisitions over the year.
SDF has undertaken a number of capital raises in the past to similarly fund its active acquisition strategy. Overall, the firm’s past deal record has been strong.
In this note, we will talk about the acquisition and run the deal through our ECM framework.

Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key

Nine shareholders are looking to sell 33.48m shares of Asahi Group Holdings (2502 JP). That is US$1.28bn, 24x ADV and 6.6% of shares outstanding.
Given the recent run up in the stock, there could be downside over the next couple of weeks ahead of the pricing date.
There will be buying from global trackers but nothing from TOPIX trackers, so not a lot of stock will be mopped up. Passive buying before settlement could create a squeeze.

Key Points We Should Know Regarding the Current Status of EOFlow

It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.

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Nov 16

Most Read: Benefit One Inc, Mitsubishi UFJ Financial (MUFG), Eoflow , HKEX, DCM Holdings, Pasona Group, Atlantic Lithium , AIA Group Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics
I Like Big Bank Buybacks And I Cannot Lie
Benefit One (2412 JP): M3’s Partial Tender Offer
EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part
FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out
Aeon/DCM/Keiyo Deal Changes on DCM TOB for Keiyo – Watch for Market Impact
StubWorld: Pasona’s Expanding Cash Pile
Eoflow: Outlook After Trading Resumes on 16 November
Atlantic Lithium (A11 AU) Knocks Back Major Shareholder’s Offer. Again
US Fed. Rtir’mt Thrift Board Changes Intl Benchmark, Excludes HK, US$1.6bn HK to Sell, $20bn 1-Way

Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics

Today after the close with Benefit One Inc (2412 JP) reporting earnings, M3 Inc (2413 JP) announced a Partial Tender Offer to buy 81.21-83.31mm shares of Benefit One at ¥1600/share.
That cleans out Pasona, which owns 81.21mm shares. Or does it… Shareholder structure dynamics and the problems they cause later bear some detailed examination.
This one is going to be a fun special sit.

I Like Big Bank Buybacks And I Cannot Lie

Today, Sumitomo Mitsui Financial Group (8316 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) reported H1 earnings. Mizuho Financial Group (8411 JP) reported yesterday.
Mizuho raised full-year NP guidance by ~5%, passing the Street. SMFG raised its FY NP guidance 12.2%, also beating the Street. MUFG didn’t raise guidance but H1 saw 71% progress.
Today, SMFG raised its div, and both SMFG (¥150bn) and MUFG (¥400bn) announced buybacks. Cross-holding unwind progress is waaay lower than we’d like, but capital stronger as a result.

Benefit One (2412 JP): M3’s Partial Tender Offer

Benefit One Inc (2412 JP) announced a partial tender offer from M3 Inc (2413 JP) at JPY1,600 per share, a 40.0% premium to the undisturbed price.
The transaction facilitates Pasona Group (2168 JP)‘s exit. The offer is for a minimum of 81.2 million shares (51.16% ownership ratio) and a maximum of 87.3 million shares (55.00%).
Irrevocables from Pasona represent a 51.16% ownership ratio, satisfying the minimum acceptance condition. The offer is light vs. historical multiples and share prices.

EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part

The KRX has completed its review and excluded Eoflow (294090 KS) from the substantive review for listing eligibility. Therefore, trading will resume tomorrow, 16 November.
The shares should rise on trading resumption as Medtronic’s tender remains in play, KRX’s review supported Eoflow’s business continuity and the short-selling ban-driven market rally.
Deal break risks remain significant. Medtronic Plc (MDT US)’s long-dated closing date and lack of Eoflow integration job postings suggest it remains concerned about near-term unfavourable court rulings.

FRTIB Switches Benchmarks: +EM/-DM; US$56bn Trade as Asia EM Benefits & HK Loses Out

The FRTIB has decided to switch its benchmark for the International Stock Index Investment Fund from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index.
With around US$68bn invested in the I Fund, this will set off churn among the constituent stocks in 2024. One-way trade is around US$28bn with DM outflows and EM inflows.
The benchmark shift could be done over a 4 month period with higher trading during periods where liquidity opportunities arise.

Aeon/DCM/Keiyo Deal Changes on DCM TOB for Keiyo – Watch for Market Impact

DCM Holdings (3050 JP) and Keiyo Co Ltd (8168 JP) and Aeon Co Ltd (8267 JP) signed capital and business tie-up agreements 30+yrs ago. Recently, DCM bought Keiyo.
Aeon got some money from this and has decided to put that money back into DCM shares.
That changes both the current dynamics and future shareholder structure. And that leads to interesting questions about the outcome.

StubWorld: Pasona’s Expanding Cash Pile

A double dose of StubWorld this week as Pasona Group (2168 JP) finally takes the hint to sell (if not exit altogether) its holding in Benefit One Inc (2412 JP).
Preceding my comments on Pasona/Benefit One are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Eoflow: Outlook After Trading Resumes on 16 November

On 15 November, the Korea Exchange announced that Eoflow (294090 KS) will start trading again on 16 November.
The fact that KRX has allowed Eoflow to trade again will be viewed positively by many investors. Plus, the recent temporary ban on short selling should also positively impact Eoflow.
We believe a higher probability event is for Medtronic to complete a tender offer of Eoflow sometime in 2Q 2024 at about 26,000 won.

Atlantic Lithium (A11 AU) Knocks Back Major Shareholder’s Offer. Again

Livent (LTHM US)‘s CEO recently said, regarding its merger with Allkem Ltd (AKE AU), that while falling lithium prices put pressure on marginal producers, the sector’s fundamental outlook remains strong.
And so, another week goes by, and another lithium Offer Down Under unfolds.
African-Focused lithium play Atlantic Lithium (A11 AU) announced this morning it has twice rejected Offers from South African-based Assore International, its major shareholder. Shares spiked 43% on the news.

US Fed. Rtir’mt Thrift Board Changes Intl Benchmark, Excludes HK, US$1.6bn HK to Sell, $20bn 1-Way

The Federal Retirement Thrift Investment Board which manages the four major funds in the Thrift Savings Plan for US federal government employees will change benchmark for its International Fund
This was announced on 14 November. The transition will take place “in 2024.” It entails moving from MSCI EAFE to MSCI All Country World ex-USA ex-China ex-HongKong Investable Market Index.
The explanation: double the countries, lots more stocks, BUT CHINA! This means selling ~US$1.6bn of HK stocks but US$20bn of one-way flow in total (lots of Japan/UK/Europe to sell)

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Nov 15

Most Read: Brilliance China Automotive, Benefit One Inc, Zhejiang Expressway Co H, Mitsubishi UFJ Financial (MUFG), Li Auto , Hygon Information Technology C, Hyundai Home Shopping Network, DGB Financial Group, Ajinomoto Co and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Brilliance China (1114 HK): Driving Back Into Passive Portfolios
Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics
Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting
I Like Big Bank Buybacks And I Cannot Lie
Quiddity Leaderboard for Hang Seng Index Dec 23: High Conviction Names Have Decent Momentum Vs HSI
CSI300 Index Rebalance Preview: 13 Potential Changes in December
KOSPI200 Rebalance in December 2023 Highlighted by Locals
Step-By-Step Guide to Spot Companies Postponing Dividend Base Date to April in Korea
Benefit One (2412 JP): M3’s Partial Tender Offer
Ajinomoto Placement – Share Buyback Should Aid Group Selling

Brilliance China (1114 HK): Driving Back Into Passive Portfolios

Brilliance China Automotive (1114 HK) was deleted from local and global indices following its prolonged trading suspension from April 2021 to September 2022.
Following the resumption of trading, Brilliance China Automotive (1114 HK) was added to the HSCI in March and subsequently to Southbound Stock Connect.
The stock should be bought by global passive trackers over the next few months and there should be substantial passive inflows.

Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics

Today after the close with Benefit One Inc (2412 JP) reporting earnings, M3 Inc (2413 JP) announced a Partial Tender Offer to buy 81.21-83.31mm shares of Benefit One at ¥1600/share.
That cleans out Pasona, which owns 81.21mm shares. Or does it… Shareholder structure dynamics and the problems they cause later bear some detailed examination.
This one is going to be a fun special sit.

Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting

Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there.
The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

I Like Big Bank Buybacks And I Cannot Lie

Today, Sumitomo Mitsui Financial Group (8316 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) reported H1 earnings. Mizuho Financial Group (8411 JP) reported yesterday.
Mizuho raised full-year NP guidance by ~5%, passing the Street. SMFG raised its FY NP guidance 12.2%, also beating the Street. MUFG didn’t raise guidance but H1 saw 71% progress.
Today, SMFG raised its div, and both SMFG (¥150bn) and MUFG (¥400bn) announced buybacks. Cross-holding unwind progress is waaay lower than we’d like, but capital stronger as a result.

Quiddity Leaderboard for Hang Seng Index Dec 23: High Conviction Names Have Decent Momentum Vs HSI

By Janaghan Jeyakumar, CFA

In this insight, we take a look at a group of names with reasonably high likelihood of being involved in index changes for the Hang Seng Index in September 2023.
The index changes for the December 2023 rebalance will be announced in mid-November (17 Nov) and implemented in early-December (with effect from 4 Dec).
Although the Hang Seng index has a highly subjective constituent selection process and index changes are somewhat unpredictable, we will continue sharing our thoughts for each quarterly review.

CSI300 Index Rebalance Preview: 13 Potential Changes in December

With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

KOSPI200 Rebalance in December 2023 Highlighted by Locals

This article discusses the potential inclusions and exclusions of KOSPI200 rebalance inDecember 2023 (especially those that are highlighted by the locals).
Stocks that are expected to be added to the KOSPI200 index include Posco DX, HD Hyundai Electric, Sam-A Aluminum, TCC Steel, and Dentium.
Stocks that are expected to be excluded in the KOSPI200 index Include Zinus, Handsome, Cuckoo Homesys, Taekwang Industrial, and Hyundai Home Shopping.

Step-By-Step Guide to Spot Companies Postponing Dividend Base Date to April in Korea

We can check this on KIND, KRX’s disclosure site. As an example, SK Inc. disclosed this information on July 26, two weeks before the dividend record date, August 10.
We can capture this information in English without the need for Korean. The disclosure title we must hunt is “Decision on Closure of Shareholder’s Registry (including Record Date) for Dividends.”
The critical aspect here is that we need to identify disclosures from companies that still use the year’s last trading day as the dividend base date.

Benefit One (2412 JP): M3’s Partial Tender Offer

Benefit One Inc (2412 JP) announced a partial tender offer from M3 Inc (2413 JP) at JPY1,600 per share, a 40.0% premium to the undisturbed price.
The transaction facilitates Pasona Group (2168 JP)‘s exit. The offer is for a minimum of 81.2 million shares (51.16% ownership ratio) and a maximum of 87.3 million shares (55.00%).
Irrevocables from Pasona represent a 51.16% ownership ratio, satisfying the minimum acceptance condition. The offer is light vs. historical multiples and share prices.

Ajinomoto Placement – Share Buyback Should Aid Group Selling

A group of shareholders are looking to raise US$444m by trimming their respective stakes in Ajinomoto Co (2802 JP) via an extended secondary follow-on.
While the selldown doesn’t seem particularly well flagged, it won’t be a very large one to digest at just eight days of three month ADV.
In a bid to cushion the selldown, Ajinomoto plans to buyback its stock to the tune of 10m shares, which would amount to 80% of the base shares on offer.

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Nov 14

Most Read: GMO Payment Gateway, Hanwha Ocean, Benesse Holdings, Ninebot , WuXi XDC Cayman , Japan Best Rescue System Co, Zhejiang Expressway Co H, Ajinomoto Co, Hygon Information Technology C, Vinda International and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Japan – Increase in Shorts on Some Interesting*** Stocks
Hanwha Ocean: Potential Capital Raise of Nearly 2 Trillion Won
Benesse (9783) MBO – ¥2600/Share Is Up 40+% But It Is Still the Wrong Price
STAR50 Index Rebalance Preview: Big Impact Expected on the Changes
WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines
Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth
Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting
Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback
CSI300 Index Rebalance Preview: 13 Potential Changes in December
Vinda International (3331 HK): Essity’s Stake Attracts More Potential Bidders

Japan – Increase in Shorts on Some Interesting*** Stocks

Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent Inc, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp have underperformed the Nikkei 225 recently.
The underperformance could lead to selling from global passive trackers and liquidity events on some of the stocks at month-end.
There has been an increase in short interest on most stocks over the last week as positioning for the liquidity event ramps up.

Hanwha Ocean: Potential Capital Raise of Nearly 2 Trillion Won

Hanwha Ocean’s share price declined by 5% today, mainly due to local media reports about a potential capital raise of nearly 2 trillion won to 2.5 trillion won.
Although the company has not officially announced a rights offering, we believe the probability of Hanwha Ocean announcing a major rights offering is relatively high in the next 3-6 months.
We estimate this probability range is closer to about 60-70%. The company needs additional capital to improve its highly leveraged balance sheet and to make major investments.

Benesse (9783) MBO – ¥2600/Share Is Up 40+% But It Is Still the Wrong Price

Just before the close Friday, the Nikkei reported Benesse Holdings (9783 JP) would be the subject of an MBO in order to restructure the flagging private shinken-zemi business. And grow.
It turns out it is EQT and the Fukutake family at ¥2600/share – a 2-year high. Wow. It is also a ridiculously cheap price given the assets and money flows.
I expect this may get some people upset as the valuation methodology is dodgy and the artful (hehehe) Balance Sheet has some easter eggs, and spotted pumpkins… or something.

STAR50 Index Rebalance Preview: Big Impact Expected on the Changes

With the review period complete, we expect one change for the STAR50 INDEX in December if the index committee continues to use a 6-month minimum listing history.
With net inflows to mainland China ETFs over the last few months, passive trackers will need to trade between 9-25 days of ADV on the potential add and delete.
SMIC (688981 CH) will be capped and there will be reverse funding flows on the index constituents. One-way turnover is estimated at 1.8% resulting in a one-way trade of CNY2,580m.

WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines

WuXi XDC Cayman (1877628D HK) is looking to raise up to HK$4.07bn (US$521m) in its IPO by selling 197.6m shares at HK$20.6/share, valuing the company at HK$24.67bn (US$3.16bn).
WuXi XDC Cayman (1877628D HK) will not get Fast Entry to any indices but should be added to the HSCI and to Southbound Stock Connect in March.
Inclusion in other indices will take longer with the highest probability of index inclusion starting in September 2024.

Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth

This MBO by MBK is a strong premium because of a low recent price, but it pays a low P/FCF multiple for growth, and no synergies counted.
Yet another MBO where insiders and friends take advantage of structural inferiority of minority shareholders. Something Should Be Done.
What do Minority Shareholders in Japan Say When They Meet Death? “OK, Today it is then.” (with apologies to Game Of Thrones).

Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting

Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there.
The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback

Today after the close, Ajinomoto Co (2802 JP) announced a large secondary offering of 14.3mm shares (2.75% of shs out). At last price that is ¥82bn.
At the same time, they announced a 10mm share (1.92%) ¥40bn buyback to be conducted from the delivery date of the Offering through 31 March 2024.
Over time, there would be some index upweight as float increases. On a net basis, this is a small deal on a low vol stock with a semiconductor story lurking.

CSI300 Index Rebalance Preview: 13 Potential Changes in December

With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

Vinda International (3331 HK): Essity’s Stake Attracts More Potential Bidders

Bloomberg reported Asia Pulp & Paper is the latest party to have expressed interest in acquiring Essity (ESSITYB SS)’s controlling Vinda International (3331 HK) stake at more than HK$20 per share.
Vinda has three substantial shareholders. We think the most likely structure is a bidder acquiring Essity’s stake, which would trigger a mandatory general offer.
Vinda’s recent update points to improving growth and margins. Peers and historical multiples imply a fair price range of HK$21-26 per share, a 7-32% premium to the last close.

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Nov 13

Most Read: Renesas Electronics, Benesse Holdings, GMO Payment Gateway, Tencent, Hyundai Electric & Energy, Ps Mitsubishi Construction, Softbank Group, Shidax Corp, IJTT Co., Ltd. and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
Benesse (9783) MBO – ¥2600/Share Is Up 40+% But It Is Still the Wrong Price
Japan – Increase in Shorts on Some Interesting*** Stocks
Index Rebalance & ETF Flow Recap: SSE50, Chinext/50, Renesas, Tencent, Amman Mineral
KOSPI 200 December Rebalancing: Rule Change Clarifications & Possible Delay in Price Impact
Taisei Corp (1801) Partial Tender for PS Mitsubishi Construction (1871)
Softbank (9984 JP): WeWork Hangover and Other Challenges
Shidax Corporation (4837 JP): MBO Tender Offer at JPY800
ECM Weekly (12th Nov 2023)-Renesas, Bajaj, Alchip, Hybe, Will, Wuxi, ChaPanda, Chenqi, Cello, Honasa
IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812

Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again

INCJ made a lot of money on Renesas Electronics (6723 JP) over the years and arguably did a great job helping the firm change direction. Now they are out.
Last night they launched a block sale through JPM and Bof A for 130.2317mm shares. They priced the heavily-oversubscribed deal at a discount of 8% or ¥2143/share.
That’s a big discount (so bad broking) for such oversubscription on a clearly-flagged deal but now they are out.

Benesse (9783) MBO – ¥2600/Share Is Up 40+% But It Is Still the Wrong Price

Just before the close Friday, the Nikkei reported Benesse Holdings (9783 JP) would be the subject of an MBO in order to restructure the flagging private shinken-zemi business. And grow.
It turns out it is EQT and the Fukutake family at ¥2600/share – a 2-year high. Wow. It is also a ridiculously cheap price given the assets and money flows.
I expect this may get some people upset as the valuation methodology is dodgy and the artful (hehehe) Balance Sheet has some easter eggs, and spotted pumpkins… or something.

Japan – Increase in Shorts on Some Interesting*** Stocks

Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent Inc, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp have underperformed the Nikkei 225 recently.
The underperformance could lead to selling from global passive trackers and liquidity events on some of the stocks at month-end.
There has been an increase in short interest on most stocks over the last week as positioning for the liquidity event ramps up.

Index Rebalance & ETF Flow Recap: SSE50, Chinext/50, Renesas, Tencent, Amman Mineral

Wednesday will be a busy day as positions are put on and unwound following announcement of the changes to the MSC indices.
Friday will end the review cutoff for the ASX indices and Hang Seng Indexes will announce the December changes for the HSI, HSCEI, HSTECH and HSCI post market close.
Another week of large outflows for China focused ETFs with redemptions across all the major indices.

KOSPI 200 December Rebalancing: Rule Change Clarifications & Possible Delay in Price Impact

Although not explicitly outlined, it appears practical to interpret that we should filter out stocks that have entered a trading suspension among those receiving a WARNING designation.
The dynamics of KOSPI 200 flow trading have become notably tumultuous due to the abrupt short selling ban and additional liquidity halts imposed on market makers in the futures market.
The manifestation of price impact due to passive flows may be significantly delayed. So, we should prepare for this week’s announcement day setup targeting the delayed impact of passive flows.

Taisei Corp (1801) Partial Tender for PS Mitsubishi Construction (1871)

Last week, as Ps Mitsubishi Construction (1871 JP) reported earnings, Taisei Corp (1801 JP) announced a Partial Offer for PS Mitsubishi, buying out Ube Cement & Taiheiyo Cement stakes.
Partial offers have recently traded well before the close, and badly after the result. As we near year-end, this one could trade a bit softer, suggesting a lower back end.
Shareholder Structure, Pro-ration analysis, and back end calculation grids below.

Softbank (9984 JP): WeWork Hangover and Other Challenges

By Victor Galliano

Softbank’s exposure to WeWork continues to haunt it beyond the close of 2QFY23, due to its credit support agreements
Aside from WeWork, we continue to see risks to valuations supporting the NAV; in particular, Arm Holdings and SVF2 which accounted for 45% of group equity value
Softbank shares trade at a 45% discount to the stated NAV yet there is downside risk to Arm’s valuation along with questions over private company valuations at SVF1 and SVF2

Shidax Corporation (4837 JP): MBO Tender Offer at JPY800

Shidax Corp (4837 JP) has recommended an MBO tender offer of JPY800 per share, a 10.3% premium to the undisturbed price (9 November).
After the settlement of the tender offer, Oisix ra daichi (3182 JP) will acquire a 66.0% stake in the offeror by way of third-party allotment at the tender offer price.
Despite the skinny premium, the offer is just shy of the ten-year share price high. The minimum acceptance condition requires a 12.5% minority acceptance rate.

ECM Weekly (12th Nov 2023)-Renesas, Bajaj, Alchip, Hybe, Will, Wuxi, ChaPanda, Chenqi, Cello, Honasa

By Sumeet Singh

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
In the IPO space, WuXi XDC provided some rare rays of hope in Hong Kong, while Honasa Consumer, Cuscal (1229Z AU) and EcoPro Materials did the opposite.
This week was more about placement with two US$1bn+ deals, a cleanup in Renesas Electronics (6723 JP) and a QIP for Bajaj Finance Ltd (BAF IN).

IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812

IJTT Co., Ltd. (7315 JP) has recommended Sparx Group (8739 JP)’s offer of JPY812 per share, an 18.5% and 16.0% premium to the undisturbed (9 November) and last close price, respectively.
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 23.48% ownership ratio.
Despite the modest premium, the offer represents a high five-year share price. The minimum acceptance condition requires a 41.3% minority acceptance rate.

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Nov 12

Most Read: Gs Yuasa Corp, GMO Payment Gateway, Adaro Energy, Tuhu Car , Shriram Finance , Eoptolink Technology , Benesse Holdings, Cybernet Systems Co, Celltrion Inc, Vinx Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Solactive Global Lithium Index Rebalance: 45% Turnover & US$980m Trade
Index Rebalance & ETF Flow Recap: KS200, KQ150, Yuanta Div+, LIT, HSCI, IDX, Japan Positioning
IDX30/LQ45/IDX80 Index Rebalance: Float & Capping Changes on Tuesday
HSCI Index Rebalance Preview: Tuhu Car in the Driver’s Seat; Keep Inc in the Running
Index Rebalance & ETF Flow Recap: NEXT50, SET50, L&F, Onewo, Celltrion, AMFI
ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
Benesse Holdings (9783 JP): EQT Backed Pre-Conditional MBO Tender Offer at JPY2,600
Fujisoft Tender Offer for Listed Sub Cybernet (4312) – This Is Too Cheap
Celltrion (068270 KS): Record High Revenue and Operating Profit in 3Q23 Solidify Merger Stance
Vinx Corp (3784) TOB by Parent Fujisoft (9749) – A Bit Cheap, Impossible To Block

Solactive Global Lithium Index Rebalance: 45% Turnover & US$980m Trade

Solactive has announced the constituent changes for the Global Lithium Index. There are 8 adds and 9 deletes with implementation at the close on 31 October.
Estimated one-way turnover is in excess of 22% and will result in a one-way trade of US$490m. There are 11 stocks with estimated passive flows greater than 1x ADV.
The index is not very widely tracked and there could be big moves in stocks today and over the next few days – especially where there is multiple days ADV.

Index Rebalance & ETF Flow Recap: KS200, KQ150, Yuanta Div+, LIT, HSCI, IDX, Japan Positioning

The coming week has a lot of review periods ending – KOSPI 200, KOSDAQ 150, CSI 300, CSI 500, SSE50, STAR50, ChiNext and SENSEX, among others.
The TOPIX rebalance will be implemented on Monday while the Global X Lithium & Battery Tech ETF (LIT US) and IDX indices will rebalance at the close on Tuesday.
There were outflows from Emerging Market ETFs including iShares Emerging Markets (EEM), iShares Core Emerging Mar (IEMG), Schwab Emerging Markets Equi (SCHE) and IShares Edge Min Vol Emerging Markets ETF (EEMV).

IDX30/LQ45/IDX80 Index Rebalance: Float & Capping Changes on Tuesday

Float and capping changes will require passive trackers to sell Bank Central Asia (BBCA) and Adaro Energy (ADRO) while buying Bank Rakyat Indonesia (BBRI) and GoTo Gojek Tokopedia (GOTO).
There will be passive trading to other stocks too, though the impact and flow is not material on most of the stocks.
Passive trackers will trade at the close on 31 October, so there are only 3 days to implementation of the changes.

HSCI Index Rebalance Preview: Tuhu Car in the Driver’s Seat; Keep Inc in the Running

There were only 14 new listing on the Main Board of the HKEX (388 HK) in the third quarter. Half of the listings were in the last week of September.
Of those stocks, only Tuhu Car (9690 HK) and Keep (3650 HK) have a chance of being added to the HSCI in December and then into Southbound Stock Connect.
Keep Inc (3650 HK) could be added to Stock Connect in early December while Tuhu Car (9690 HK) will have to wait till April for inclusion to the link.

Index Rebalance & ETF Flow Recap: NEXT50, SET50, L&F, Onewo, Celltrion, AMFI

There were a bunch of indices where the review period ended last week. The changes will be announced this month and implemented in December.
Emerald Resources Nl (EMR AU) replaced Invocare Ltd (IVC AU) in the S&P/ASX 200 (AS51 INDEX) at the close on Friday.
There were large outflows from mainland China listed ETFs during the week. Outflows from iShares Emerging Markets (EEM US) continued for another week.

ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround

With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.

Benesse Holdings (9783 JP): EQT Backed Pre-Conditional MBO Tender Offer at JPY2,600

Benesse Holdings (9783 JP) has recommended an EQT-backed pre-conditional MBO offer of JPY2,600 per share, a 45.1% and 36.3% premium to the undisturbed price and last close, respectively.
The pre-conditions primarily relate to Japanese and Chinese approvals, which can be waived. Chinese SAMR approval should be forthcoming as education is not a geopolitical fraught sector.
The offer is long-dated and opens in early February 2024. While not a knockout bid, the offer is fair in the context of Benesse’s muted outlook.

Fujisoft Tender Offer for Listed Sub Cybernet (4312) – This Is Too Cheap

Fuji Soft Inc (9749 JP), as target of activist-ish investor 3D Investment Partners, launched a “Special Committee to Increase Corporate Value” in August 2022. They reported in Nov22 and Feb23.
They also reported in Aug23, mentioning the four listed subs and synergies. Last week, Fujisoft announced it was buying them all out.
Cybernet Systems Co (4312 JP) is one of the two larger ones. It is being done too cheaply. Waaay too cheaply. It would not be impossible to block.

Celltrion (068270 KS): Record High Revenue and Operating Profit in 3Q23 Solidify Merger Stance

By Tina Banerjee

In 3Q23, Celltrion Inc (068270 KS) reported revenue and operating profit of KRW672B (+4% YoY) and KRW268B (+25% YoY), respectively, driven by broad-based growth across biosimilar portfolio and CMO revenue.
Operating profit margin is approaching 40% level, highest level in last two years, driven primarily by sales growth around high margin products. Net profit jumped 33% YoY to KRW221B.
In Oct’23, Celltrion received FDA approval for Zympentra, which is Celltrion’s first product approved as a new drug in the U.S., and is expected to receive patent protection until 2040.

Vinx Corp (3784) TOB by Parent Fujisoft (9749) – A Bit Cheap, Impossible To Block

Fuji Soft Inc (9749 JP), as target of activist-ish investor 3D Investment Partners, launched a “Special Committee to Increase Corporate Value” in August 2022. They reported in Nov22 and Feb23.
They also reported in Aug23, mentioning the four listed subs and synergies. Last week, Fujisoft announced it was buying them all out.
Vinx Corp (3784 JP) is one of the two larger ones. It is being done too cheaply, but it would be nigh impossible to block. A safe deal.

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Nov 11

Most Read: Renesas Electronics, Boustead Plantations, Zeekr, Hollysys Automation Technologies, Eoptolink Technology , Ps Mitsubishi Construction, Allkem Ltd, Shidax Corp, Olympus Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
Boustead Plantations (BPLANT MK): LTAT Emerges as a White Knight
Zeekr IPO Early Look – Possibly US$0 to US$7bn Revenue in Under Three Years
Hollysys: Court Injunction Hearing Is Key
ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
Allkem/Livent Merger: 19th December Shareholder Vote
Shidax (4837) – Nikkei Scoops MBO (Anncmt Post-Close), Family Wants to Buy at ¥800 Which Is Too Low
Olympus (7733) – OP Hit but Additional Buyback; Positive Dynamics but Flow Risks Persist

Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected

INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

Boustead Plantations (BPLANT MK): LTAT Emerges as a White Knight

Boustead Plantations (BPLANT MK) shares have been on a rollercoaster ride. As Kuala Lumpur Kepong (KLK MK) pulls its offer, LTAT has emerged as an unlikely white knight.
LTAT aims to launch a general offer at RM1.55 per share, in line with KLK’s aborted MGO price. The government will backstop LTAT’s funding for the offer.
LTAT is vague on approvals and timing. Regulatory approvals should be a formality as LTAT is the Armed Forces pension fund. At the last close, the gross spread was 10.7%.

Zeekr IPO Early Look – Possibly US$0 to US$7bn Revenue in Under Three Years

By Sumeet Singh

Zeekr, a premium EV brand by Geely, aims to raise around US$1bn (estimated) in its US listing in 1H2023. GS, BofA and MS are said to be running the deal.
Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
In this note, we take an early look at the IPO based on publicly avaiable information.

Hollysys: Court Injunction Hearing Is Key

Talk about your never-ending story. I count at least seven non-binding Offers for Hollysys Automation Technologies (HOLI US) since December 2020, three of which are still on the table.
The latest, at US$26/share, was pitched earlier this week from Ascendent Capital Partners; who along with Changli Wang, Hollysys’ founder, previously made an US$23/share Offer in August 2021.
However, all these Offers are largely moot until we get closure at the court injunction hearing. If that occurs. Separately, I had a solid discussion with Hollysys’ IR.

ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround

With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.

P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer

Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.

Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again

INCJ made a lot of money on Renesas Electronics (6723 JP) over the years and arguably did a great job helping the firm change direction. Now they are out.
Last night they launched a block sale through JPM and Bof A for 130.2317mm shares. They priced the heavily-oversubscribed deal at a discount of 8% or ¥2143/share.
That’s a big discount (so bad broking) for such oversubscription on a clearly-flagged deal but now they are out.

Allkem/Livent Merger: 19th December Shareholder Vote

On the 10th May, Aussie lithium miner Allkem Ltd (AKE AU) inked a $US10bn+ “merger of equals” with Livent (LTHM US), ostensibly forming the world’s fifth largest lithium producer.
Allkem’s Scheme Meeting is the 19 December, with implementation expected on the 4 January. The IE is supportive and Allkem’s board unanimously recommends the transaction.
This looks done. Buy Livent. And get borrow on Livent to be able to short it into the inclusion or in the days following.

Shidax (4837) – Nikkei Scoops MBO (Anncmt Post-Close), Family Wants to Buy at ¥800 Which Is Too Low

13mos ago I wrote about Shidax Corp (4837 JP) which an interesting restructuring past and a refreshing governance outlook going forward in Shidax Outlook May Change – Better Governance Matters.
The stock was up 25% in that period to yesterday. Today, a Nikkei article mid-day suggests the Shida family will launch an MBO. Stock popped. Earnings out after the close.
The article suggests a take-private MBO with Oisix ra daichi (3182 JP) again supporting the deal. 30 minutes ago Shidax responded saying an offer was put forth at ¥800/share.

Olympus (7733) – OP Hit but Additional Buyback; Positive Dynamics but Flow Risks Persist

Yesterday, Olympus Corp (7733 JP) announced Q2 earnings which were trifle light, and announced a sharp downward revision to full-year OP despite higher revs on weaker yen.
OP takes a hit because of expenses related to the shutdown of Veran Medical device sales (announced 6 Sep, “causing” a 2.4% share price fall the next day).
They also announced an ¥80bn buyback. That should be worth 3.0-3.5% of shares out, but overhang exists. The label is the label. The details are inside. They matter.

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Nov 10

Most Read: KOSDAQ 150 Index, Renesas Electronics, Trend Micro Inc, Eoptolink Technology , Ps Mitsubishi Construction, iShares MSCI South Korea ETF, Cybernet Systems Co, WuXi XDC Cayman , Li Auto and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help
Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip
ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
Spotlight on Trading Prospects Arising from ETFs as Short Selling Workarounds in Korea
Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095
Wuxi XDC IPO: Forecasts and Valuation
[Li Auto Inc. (LI US, BUY, TP US$47) Target Price Change]: Li’s MEGA Can Change the MPV Landscape

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.

Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help

By Ethan Aw

INCJ aims to raise around US$1.8bn via a secondary sell-down in Renesas Electronics (6723 JP). This will be a clean-up trade as INCJ has been paring down its stake.
The deal is a slightly large one to digest at 12 days of three month ADV and around 6% of current mcap.
In this note, we will talk about the placement and run the deal through our ECM framework.

Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected

INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip

Trend Micro Inc (4704 JP) has been under pressure to improve capital allocation after Value Act bought in 2022. In February 2023, Trend announced a weak sauce capital return policy.
They promised a 100% payout ratio with 70% div payout ratio. But with huge piles of cash and securities, it wasn’t going to be enough, and shareholder structure ALWAYS matters.
Here it meant Trend Micro was vulnerable to further attack. Today, Trend announced a HUGE capital return with buyback, and a special div and this will excite Nikkei 225 arbs.

ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround

With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.

P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer

Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.

Spotlight on Trading Prospects Arising from ETFs as Short Selling Workarounds in Korea

During the previous period of short-selling restrictions, a pattern was observed in which ETFs were utilized as a workaround for short-selling.
We should anticipate more substantial price impacts this time. Of particular significance is the possibility of utilizing not only the MSCI Korea ETF but also sector ETFs for similar purposes.
This calls for our attention to the possibility that this short-selling workaround could generate a significantly wider range of trading opportunities in the spot market compared to three years ago.

Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095

By Shifara Samsudeen, ACMA, CGMA

Cybernet Systems Co (4312 JP) has recommended Fuji Soft Inc (9749 JP)’s tender offer of JPY1,095 per share, a 31.8% premium to the undisturbed price (8 November).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 12.28% ownership ratio.
The offer price is attractive and marginally below the ten-year share price high. The minimum acceptance condition (lower limit) requires a 26.9% minority acceptance rate, which is doable.

Wuxi XDC IPO: Forecasts and Valuation

Wuxi plans to issue 178.4m shares at an indicative IPO price range of HK$19.9-20.6 per share and will raise net proceeds of US$479m at the midpoint of the IPO price.
The company’s revenues have seen robust growth during the last 3-years driven by growth in ADC outsourcing market while margins have continued to decline.
We have valued WuXi XDC Cayman (1877628D HK) using a DCF valuation which offers price per share of HK$23.44, 15.7% higher than the midpoint of the IPO price of HK$20.25.

[Li Auto Inc. (LI US, BUY, TP US$47) Target Price Change]: Li’s MEGA Can Change the MPV Landscape

By Eric Wen

Two days before Huawei and Chery releasing their Luxeed S7 sedan to rival Model 3, LI unveiled the technical details of its MPV entry MEGA;
We see MEGA taking a meaningful market share from BYD’s Denza D9, GM’s GL8, GAC’s Trumpchi M8, all selling ~10K a month. We raise MEGA’s 2024 shipment to 57K;
We raise LI’s TP from US$40 to US$47 and maintain BUY.

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Nov 09

Most Read: Samsonite, KOSDAQ 150 Index, Hygon Information Technology C, Hollysys Automation Technologies, Alchip Technologies, WuXi XDC Cayman , CMIC Holdings, Melco International Development, Recruit Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Hang Seng Index Rebalance Preview: Foreign Companies Eligible from December
Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
Hollysys: Court Injunction Hearing Is Key
Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline
WuXi XDC IPO: Valuation Insights
CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…
StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results
Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging
5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company

Hang Seng Index Rebalance Preview: Foreign Companies Eligible from December

The move from 80 index constituents to 100 could take most of next year (and possibly even the year after that) to manage turnover and add profitable companies.
Foreign companies will be eligible for inclusion in the index from the December rebalance. That makes Samsonite (1910 HK) a high probability inclusion candidate.
We highlight 8 potential inclusions to the index with passive trading impact varying from 1.6-4.3 days of ADV. There are large shorts on some of the stocks.

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.

SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out

With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.

Hollysys: Court Injunction Hearing Is Key

Talk about your never-ending story. I count at least seven non-binding Offers for Hollysys Automation Technologies (HOLI US) since December 2020, three of which are still on the table.
The latest, at US$26/share, was pitched earlier this week from Ascendent Capital Partners; who along with Changli Wang, Hollysys’ founder, previously made an US$23/share Offer in August 2021.
However, all these Offers are largely moot until we get closure at the court injunction hearing. If that occurs. Separately, I had a solid discussion with Hollysys’ IR.

Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline

Alchip Technologies (3661 TT) is looking to raise around US$375m in its upcoming global deposit receipts (GDRs) offering.
Similar to previous GDR listings, the deal is a very well flagged one, with a drawn out process of regulatory/approval loops the firm has to jump through up till issuance.
Based on its board’s approval to issue up to 4m new shares in its GDR offering, the deal is a relatively small one at just 5.4% of Alchip’s current mcap.

WuXi XDC IPO: Valuation Insights

WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), has launched an HKEx IPO to raise up to US$470 million.
We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
Blue-Chip cornerstones will purchase US$300 million of the offer. Our base-case DCF valuation is HK$22.84 per share, 12.8% above the midpoint of the IPO price range.

CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…

CMIC Holdings (2309 JP) decided to “change its business model” this past spring, transferring control of a consolidated JV and other subs to DNP.
The result changed the accounting, and the business model, capitalising future cashflow and net income in a “hidden” asset which may or may not be in the Financial Advisor’s valuation.
My read is this is being done too cheaply, and the price should be 30-60% higher. But, it would be tough to block this.

StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results

By Shifara Samsudeen, ACMA, CGMA

Digital Garage (4819 JP) is coming up “cheap” versus Kakaku.com Inc (2371 JP); and Melco International Development (200 HK) is trading “rich” to Melco Resorts & Entertainment (MLCO US).
Preceding my comments on DG and Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging

Recruit Holdings (6098 JP) reported 2QFY03/2024 results today. Revenues decreased YoY due to decline in HR Tech revenues, while operating profit for the quarter increased YoY. OP missed consensus marginally.
As we expected, the new pricing model has negatively impacted HR Tech revenues, and the segment’s earnings are forecast to decline further going into the second half.
There is further downside to earnings and the company’s share price has moved up during the last few days, and we are set to nicely gain on the Short side.

5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company