This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Nikkei 225 Index Rebalance Preview (Sep 2024): Potential Adds/Deletes, Capping & Funding Changes
- The review period for the Nikkei 225 Index September rebalance ends in three weeks. There could be three changes at the rebalance with sector balance used for the additions.
- Depending on the changes, passive trackers will need to buy between 3-57x ADV (2.4%-24% of real float) on the inclusions and sell between 3.7-8.4x ADV on the deletions.
- Fast Retailing (9983 JP)‘s index weight is currently higher than 10% and that will result in capping in September. Passives will need to sell 6x ADV in the stock.
2. S&P/ASX 100/200 Index Adhoc Rebalance: Potential Replacements for Altium (ALU AU)
- With all regulatory approvals received, the Scheme Meeting for Renesas Electronics (6723 JP)‘ acquisition of Altium Ltd (ALU AU) will take place on 12 July.
- If approved at the Scheme Meeting and at the Second Court Hearing, Altium Ltd (ALU AU) will stop trading from the close on 19 July.
- The replacements for Altium Ltd (ALU AU) in the ASX100/200 indices could be announced late this week with implementation at the close on 19 July.
3. Toyota Group Cross-Holding Structure Primer – Holdings, Unwind Progress, Buyback Policies, Etc
- Last September in the release of its new Mid-Term Management Plan, Toyota Group member Aisin (7259 JP) announced a plan to cut cross-holdings to zero. JTEKT Corp (6473 JP) followed suit.
- It started with a selldown of Denso Corp (6902 JP), then Toyota Industries (6201 JP), now Aisin. Last FY, Toyota Group cos reduced crossholdings by ¥870bn. This year will be more.
- Attached below is a general breakdown of Toyota Group cross-holdings, discussion of cross-holding policies, and analysis of what is next, and what is not.
4. Kokusai Electric (6525 JP): Placement, Buyback & Index Flows
- KKR and KSP Kokusai will offer 52.51m-60.38m shares (US$1.76bn-2bn) of Kokusai Electric (6525 JP) in a secondary offering that will likely be priced on 22 July.
- Kokusai Electric (6525 JP) will also buy back up to JPY 18bn of its shares. At the last close, that is 3.33m shares (1.2x ADV).
- Trackers of one global index will buy stock at the time of settlement of the shares. The (much) bigger buying will come at the end of August.
5. Merger Arb Mondays (08 Jul) – China TCM, L’Occitane, A8 Media, GA Pack, Asia Cement, Hollysys, MMA
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), A8 New Media (800 HK), Greatview Aseptic Packaging (468 HK), Asia Cement China (743 HK).
- Lowest spreads: Fancl Corp (4921 JP), Great Eastern Holdings (GE SP), Chilled & Frozen Logistics Holdings (9099 JP), Tatsuta Electric Wire & Cable (5809 JP), Kfc Holdings Japan (9873 JP).
6. Fast Retailing (9983) – Great (Bte) Earnings Now Out of The Way; Anticipating End-July Capping Data
- Yesterday after the close, Fast Retailing (9983 JP) reported salutary Q3 earnings, and raised its full-year (to August) guidance and its final dividend forecast (by ¥50/share)
- Q3 revenue and profit gained sharply (Rev +13.5%, OP +31.2%) everywhere but Greater China. OPMs were up, especially in Japan. Early summer has been good, despite FX impact.
- New guidance is above consensus, the ADR popped, and with slightly stronger yen on US CPI, that should help. But we approach end-July. Expect lots of pop-sellers.
7. Shanghai Henlius Biotech Update (2696.HK) – The Story Behind Privatization
- Fosun’s preferred arrangement for Henlius is to list the Company in A-shares.Since IPO in A-shares failed and Henlius has begun to generate profits, Fosun finally feels the need for privatization.
- Due to its “flaws”, undervaluation of Henlius in the Hong Kong stock market is difficult to fundamentally change. So, for conservative/cautious investors, Fosun’s one-time acquisition at a 30% premium is attractive.
- The Potential Share Alternative Offer seems a good option, but it is uncertain whether investors are still willing to believe in Fosun’s “good story” – the future re-listing is uncertain.
8. Details of Two Doosan Mergers Involving Enerbility, Robotics, & Bobcat
- The restructuring plan of Doosan Group announced today primarily consists of two merger events aimed at transferring the stake in Doosan Bobcat held by Doosan Enerbility to Doosan Robotics.
- The 50% price cut on Doosan Enerbility’s share price for merging with Doosan Robotics boosts Robotics’ advantage. This resulted in a swap spread opening with Doosan Bobcat.
- Considering an arbitrage strategy in the Doosan Robotics and Doosan Bobcat swap needs caution due to shareholder approval risks, especially with Doosan Enerbility’s low controlling stake potentially complicating the process.
9. Fy23 GPIF Results and Portfolio Changes – Outlook for FY24
- Last year, the GPIF as a whole returned 22.67% in yen terms. As a whole, GPIF outperformed its benchmarks by 0.04% after paying 0.02% in fees and costs.
- GPIF traded ¥30trln of assets – relatively high turnover for a fund which espouses very low turnover – but there’s a reason for that. There were also sharp active/passive moves.
- This year is the last year in the “cycle” of the “old” Policy Allocation Framework. A new one is likely to be introduced this year.
10. Canvest Environmental (1381 HK): Possible Privatisation at HK$4.90
- Grandblue Environment Co A (600323 CH) disclosed a potential pre-conditional privatisation of Canvest Environmental Protection Group (1381 HK) at HK$4.90 per share, a 20.7% premium to the last close price.
- Completing the capital injection from SOE entities into the offeror is a precondition. Grandblue also proposes that the controlling shareholder roll over 7.23% of its effective 44.75% stake.
- While not a knockout bid, the offer is reasonable. Shareholders with blocking stakes should support a binding proposal. Timing is the key risk.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. China TCM (570.HK) Update – Behind The Share Price Plunge and Prospects for Privatization Progress
- The slow progress of privatization is related to recent high-level changes in CNPGC. Decisions on SOE deals with “strategic purpose” require careful considerations, not based on “one leader’s personal preferences”.
- Based on public information, we cannot find convincing reason to prove that CNPGC has changed its mind.There’re rumors that China TCM’s privatization is still considered important project on the agenda.
- China TCM’s has strong fundamentals to support valuation. If there is no announcement, the privatization process is expected to proceed as usual, and we continue to wait for the voting.
2. BIG ¥500bn Honda (7267) Offering Coming?
- Today just before the close, Reuters came out with an article saying Japan’s four major insurers and some financial institutions would offer ¥500bn of shares in a secondary offering.
- That implies about 275-280mm shares (insurers hold ~195mm). In May, Honda announced a ¥300bn buyback with earnings, with nothing done so far.
- The supply/demand dynamics here are key. There are a lot of moving parts over time. Honda is cheaper than it looks but there are moving parts there too.
3. HDFC Bank (HDFCB IN): Foreign Room Crosses 25%; Index Implications & Positioning for US$5bn+ Buying
- Foreign shareholding in HDFC Bank (HDFCB IN) has dropped to 54.83% and that results in foreign room crossing the ‘magical’ 25% mark.
- The increase in foreign room could lead to passive trackers of a global index needing to buy 256m shares (US$5.3bn; 11.5x ADV) at the end of August.
- There will definitely be positioning in the stock but there should still be upside in the stock. The HDFC Bank (ADR) (HDB US) line was up 4.5% overnight.
4. TIP Taiwan Technology Dividend Highlight Index Rebalance: 12 Changes & US$4bn Round-Trip Trade
- There are 12 changes for the TIP Taiwan Technology Dividend Highlight Index in June/July. The Fuh Hwa Taiwan Technology Dividend Highlight ETF (00929 TW) has an AUM of US$7.16bn.
- One-Way turnover is estimated at 35% and that will result in a round-trip trade of TWD 134.7bn (US$4.1bn). There are 8 stocks that could have over 5x ADV to trade.
- The ETF started rebalancing their portfolio on Friday and will continue to trade the stock over the next 7 trading days.
5. JAPAN ACTIVISM: Strategic Capital Target Daido (3205) Now A Murakami Target Too
- Small cap Japanese manufacturer and purveyor of apparel Daidoh Ltd (3205 JP) has consistently been a target for value investors. In late 2022, Strategic Capital went over 5%.
- They have bought more, and as of end-March, they declared 24.85% of TSO (28% of voting rights), but they have 33%. They made proposals for the AGM. They won one.
- Now Murakami-san has bought in, going over 5%. This gets interesting. Together they have 39.4% as of last week, and probably more now. That should get them 50+% next AGM/EGM.
6. HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September
- We see 37 potential adds (including plenty of new listings) and 25 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in September.
- We expect 32 stocks to be added to Southbound Stock Connect following the rebalance while 24 stocks could be deleted from the trading link and become Sell-only.
- There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.
7. ESR Group (1821 HK): Consortium’s Expansion Talks Suggest Progress
- Bloomberg reports that the bidding consortium is in talks to bring in other partners, such as QIA, PIF, and CPP Investment Board, to aid in privatising ESR Group (1821 HK).
- Warburg Pincus and OMERS have blocking stakes for a Cayman scheme. Warburg Pincus is seemingly supportive, and the consortium’s expansion talks suggest confidence in meeting OMERS’ price expectations.
- Our best guess is that an offer is around HK$14.00. ESR’s current valuation is undemanding, with its forward EV/EBITDA multiple at a 40% discount compared to the median peers’ multiple.
8. Shinko Electric (6967) – Break/Gap Risk Early July 2024 Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- Nearly 6mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 16+wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Gross spread is now 4.6% but time is shorter so annualised is 10+% even out to December launch.
9. HSCEI Index Rebalance Preview: Two Changes Likely in September
- SenseTime Group (20 HK) and JD Logistics (2618 HK) are potential deletions while PICC Property & Casualty (2328 HK) and New Oriental Education & Techn (9901 HK) are potential adds.
- Estimated one-way turnover at the rebalance is 1.8% resulting in a one-way trade of HK$950m. Official capping will be based off the close of trading on 3 September.
- There will be 1-2x ADV to buy on the adds and over 2x ADV to sell in JD Logistics. The impact on SenseTime is lower given the recent surge in volume.
10. Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Jul24)
- This month (June) saw 1,673 Corporate Governance Reports filed and 5 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed.
- We created a tool show every report, provide links to every document, and now a new diff file tool. Put in a name, see the difference between the Old/New Reports.
- We hope this took will help. It is designed to be a shelf reference. We update the tool once a month, a couple of weeks ahead of the TSE.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. China Traditional Chinese Medicine (570 HK): Something Is Brewing, but Nobody Knows Quite What
- On no news, China Traditional Chinese Medicine (570 HK) shares declined 12% today. We spoke to several readers to gauge the likely reasons for the fall.
- The speculation is that the fall could be due to forced liquidation, Sinopharm’s new Chairman pulling the offer, the consortium unravelling, SAMR issues and Ping An blocking the deal.
- There is clearly news behind today’s fall, but none of the above rumours seem credible. The risk/reward is attractive as the upside (25% spread) outweighs the downside (18% to undisturbed).
2. TCM (570 HK): Where’s The Floor?
- Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
- Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
- Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.
3. MMG (1208 HK) Rights Trading Dynamics
- The MMG (1208 HK) rights, designed to raise US$1.15bn to pay off loans to the parent for the purchase of a large copper asset, start trading 24 June 2024.
- There is some risk up for grabs, and it is likely to trade according to standard Hong Kong Rights Trading Dynamics. Shorts are down somewhat, but covering should be expected.
- There is path-dependency to the Rights Trading, and while they trade for 7 trading days through Tuesday next, one should expect the volume to trade this week.
4. Tax-Loss Selling In Australia 2024 – Time To Reverse The Trade (7.2-8.6% Rtn in Two Months So Far)
- The original trade was discussed at end-April in Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket then updated here and here.
- That has done OK. The LIQUID basket has delta neutral performance of +8.4% over 2mos; LIQUID+LESSLIQUID +7.2%; If one did a mixed basket (3x L+LL + 1x Illiquids) it’s +8.6%.
- Now it is time to reverse the trade, buying the basket you were short, and running it against index for the next 6-8 weeks.
5. Swire Properties (1972 HK): Potential Passive Selling & Trade Ideas
- The steady selloff in Swire Properties (1972 HK) could result in the stock being deleted from global passive portfolios in the next couple of months.
- Swire Properties (1972 HK) trades marginally cheaper than its similar sized peers on forward PE and price to book value.
- Swire Pacific (A) (19 HK) owns 82% of Swire Properties (1972 HK) and a big drop in the stock price could see them step in.
6. T-Gaia (3738 JP) – Possible Premium Takeout Story
- I kind of hate this, but I also can’t ignore it. Apparently, an expensive media service Reporting on Deals or about the Market for Mergers, had an article today.
- Bloomberg carried a small blurb saying there was “speculation on a tender offer…. according to traders”. The stock is untraded, limit up.
- The most informative comment comes from Japanese stock market portal ‘kabutan‘ which suggests “overseas media” thinks Sumitomo Corp will sell its shares. I look at the possibilities below.
7. Brilliance China (1114 HK): Reversing Out of Passive Portfolios
- Brilliance China Automotive (1114 HK) is up 220% on a total return basis since we first published our insight in August 2023.
- The company paid a special dividend in April this year and will pay a large special dividend of HK$4.3/share going ex-div on 3 July.
- The resultant drop in market cap will result in deletion of the stock from large global passive portfolios at the close on 3 July.
8. Sawai Group (4887) – BIGLY Buyback To “Drastically” Change Capital Structure
- Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
- By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
- The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.
9. Chronic Insider Trading in the Korean Tender Offer Market & Time Positions for Short-Term Targets
- There is a high likelihood of information leaking through the lead securities firm when the tender offer prospectus is provided to branches about three days before the disclosure.
- With the FSS’s stricter stance, tender offer candidates may act swiftly before new regulations, prompting attention to potential surges in tender offers.
- Our approach is clear: identify short-term tender offer candidates, monitor trading volumes for spikes, and use the three-day pre-disclosure surge to time our positions effectively.
10. Midea Real Estate (3990 HK): An In-Specie Distribution to Unlock Value
- On 25 June, Midea Real Estate Holding (3990 HK) disclosed an in-specie distribution of its PD&S business through a scrip or cash (HK$5.90 per share, 57.33% premium to undisturbed price).
- The key condition will be approval of the distribution by at least 75% of disinterested shareholders (<10% of all disinterested shareholders rejection).
- Midea RE will remain listed with an asset-light retained business, which is estimated to be worth HK$1.93. The Group’s estimated value is HK$7.83, a 17.6% upside to the last close.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. JPX Proposes BIG Changes To TOPIX Rules, Affects IPOs More Than Market
- In 2021 the JPX established new Listing Rules, and in April 2022 introduced new market segments (Prime/Standard/Growth) to much fanfare. Today, the TSE basically said those changes were meaningless.
- Today, the TSE announced proposed new rules for TOPIX constituent selection. There is a 2-month consultation period, then rules come out end-Sep 2024. Expect few changes from the Proposal.
- NextGen TOPIX will be created October 2026. 3-4 dozen ADDs, 500-600 DELETEs to create an index of 1,100-1,200 names. Some obvious large impacts 2+yrs from now, but this changes IPOs.
2. [JAPAN ACTIVISM] – Murakami Group Goes Activisting on Exedy (7278) – Room To Run
- Late May, Aisin (7259 JP) announced a sell-down of its 34% stake in Exedy Corp (7278 JP) – a big non-dilutive offering, pricing 11% below undisturbed. Exedy announced a buyback.
- Announced on the 27th of May, shares fell sharply the next day, it priced on the 3rd, and offering shares traded on the 10th. Then the price started climbing back.
- My first and second pieces argued that buyback accretion, index impact, and change in register shape all meant it was a buy. Activist Murakami agreed, now he has 6.5%.
3. Blackstone Does a BIG Deal for Infocom (4348) – Minorities Get ¥6,060/Share
- 15 weeks ago, a specialised media outlet suggested Teijin Ltd (3401 JP) was in process to sell its stake in Infocom Corp (4348 JP).
- I caught up later, after the stock had run up significantly, but writing bullishly here and here. Since then, the stock is up another 33-35%.
- Today we finally got the announced deal. Blackstone will buy the stock at a valuation of ¥280bn, paying ¥6,060/share for the minority stake, and buying back Teijin’s stake at ¥4,340/share.
4. Great Eastern (GE SP): Inching Towards Suspension
- Back on the 10th May, OCBC (OCBC SP) made a voluntary unconditional general Offer for the 11.56% in life/non-life insurer Great Eastern Holdings (GE SP) not held.
- At a 36.9% premium to last close, the S$25.60/share Offer Price appeared fair. Yet GE has consistently traded through terms, potentially as someone seeks to block delisting, and negotiate terms.
- OCBC has now declared terms final. The IFA says “not fair, but reasonable” – and recommends shareholders accept the Offer. GE will be suspended at the close of the Offer.
5. Guzman Y Gomez IPO: Listing & Index Inclusion Timeline
- Guzman Y Gomez (0817833D AU) has raised A$335.1m in a primary + secondary offering, valuing the company at A$2.23bn. The stock starts trading on the ASX Ltd (ASX AU) today.
- Just over 54% of the shares are escrowed which means there is a lot of stock that will be available for sale on listing day.
- Guzman Y Gomez (0817833D AU) could be added to the S&P/ASX 300 Index in September and there could be global index inclusions in November and December.
6. TOPIX Market Consultation: Wider Next-Gen Universe in a Couple of Years; But Stocks Moving Already
- JPX has commenced a market consultation on changes to the TSE Tokyo Price Index TOPIX (TPX INDEX) including expansion of the universe and periodic stock selection.
- Based on current market cap/ liquidity, there could be 38 adds and 447 deletions for the TSE Tokyo Price Index TOPIX, though the changes only start in October 2026.
- The deletions will be phased out of the index in 8 steps that will end in July 2028 and most of the stocks will move to the TOPIX Next-tier.
7. Shin-Etsu Chem TOB for Rest of Mimasu Semi (8155) – Far Too Cheap, But No Squeaky Wheel No Grease
- Shin Etsu Chemical (4063 JP), owner of a 44% stake in Mimasu Semiconductor Industry (8155 JP), will launch the TOB to buy out Mimasu minority holders, as pre-announced 2mos ago.
- Not surprising. They bought in 19yrs ago, raised to 40+% 18yrs ago, then waited. Finally, we have a deal. It’s too cheap but in 18yrs, I recall zero activism here.
- Shin-Etsu starts with ~45%, and crossholders and the chairman get it to 53%. Then they need a bit to get them to 67% but it should be straightforward.
8. Merger Arb Mondays (17 Jun) – Fancl, Tatsuta, A8, China TCM, GAPack, CPMC, Malaysia Airports, Bapcor
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), Fancl Corp (4921 JP), Asia Cement China (743 HK), Ansarada Group Ltd (AND AU).
- Lowest spreads: Tatsuta Electric Wire & Cable (5809 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Alumina Ltd (AWC AU), Nagatanien Holdings (2899 JP).
9. Pref-Centred Dividend Plays with Expanded ISA Tax Benefits in Value-Up Context
- Local stock market focuses on ISA tax benefits expansion; political push for higher tax-exempt limits seen as pivotal event.
- Investors expect dividend stocks to outperform due to ISA tax advantages: tax exemptions within limits and lower 9.9% taxation on excess amounts, boosting ISA-based equity investments.
- ETF influence declining; ISA tax benefits may boost dividend plays, heightening interest in preferred stocks tied to efforts to redeem them, impacting equity costs.
10. Sep24 Nikkei 225 Rebal – Still 1 ADD, 1 DELETE, 1 Dark Horse, But #2-Ranked ADD Is Close
- The Sep 2024 Nikkei 225 Review base date is six weeks away. One can no extrapolate results quite accurately. It still gives us one ADD, one DELETE, and capping fun.
- Recently, Yanai-san sold more Fast Retailing (9983 JP). More active holders own more stock (which may mean less interest to buy later), and only 1% to go to avoid capping.
- There should be one DELETE, one ADD. There is a low-probability Dark Horse ADD but I expect Kokusai Electric (6525) to be added in March 2025.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Unsolicited Partial Offer for 19% of Sun Corp (6736 JP) – Play on Cellebrite from SPAC Sponsor
- Sun Corp (6736 JP) for years has been a play on its investment holding in Cellebrite DI (CLBT US), brought to market in a $2.4bn SPAC deal announced 30Aug2021.
- The SPAC entity was an entity called TWC Tech Holdings II Corp (TWC = “True Wind Capital”). The next day, Cellebrite DI (CLBT US) was born, trading up to US$11.00+.
- Sun Corp (6736 JP)‘s value realisation path had begun. Today, a True Winds entity announced a Partial Tender Offer – unsolicited, unannounced previously – on Sun Corp, for 19.0%.
2. Mandatory Block Deal Pre-Announcement Requirement in Korea Starting 24 July: Impact on Block Deals
- Starting 24 July, there will be a mandatory pre-announcement requirement for block deal sales in Korea.
- In other words, the major shareholders of the Korean companies need to report publicly prior to their actual sales of their stakes in these companies through block deal sales.
- The potential block deal sales candidates could continue to underperform on average the companies that are selling these stocks in potential block deal sales in the next several weeks.
3. Yuanta/P-Shares Taiwan Div+ ETF Rebalance: One Surprise as Round-Trip Trade Hits US$2.3bn
- There are 5 adds and 5 deletes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in June with implementation taking place from 21-27 June.
- The constituent changes and capping changes result in an estimated one-way turnover of 12.8% and in a one-way trade of TWD 37.2bn (US$1.15bn).
- The changes are in line with our forecasts with one exception. Uni President Enterprises (1216 TT) was not added and Yulon Finance (9941 TT) was added instead.
4. [JAPAN ACTIVISM] Palliser Gets ISS/GL Nods for Keisei AGM Proposals – How Will The Swing Vote Swing?
- In Oct2023, activist Palliser Capital launched a campaign on well-known “stub trade” Keisei Electric Railway Co (9009 JP) (1.6% stake). The proposal? Monetise OLC, invest for growth, be shareholder friendly.
- Keisei responded 3+mos ago: buyback and 1% OLC stake sale but said OLC would remain an equity affiliate. Palliser re-engaged in late April (Japanese/English and two AGM agenda items). Keisei objected.
- Palliser made their case, Glass Lewis and ISS support Palliser. Palliser likely cannot win. The goal here isn’t to win though. It is to get enough to raise management consciousness.
5. Helios Techno Holding (6927) TOB – Today Could Be The Day
- Rs Technologies (3445 JP) announced a TOB on Helios Techno Holding (6927 JP) 12 days ago. At a 74% premium, but that was too cheap. I discussed it here.
- Shares went limit up for two days then traded huge volume the first full day last Wednesday. The lowest trade so far in open trading is 3% through terms.
- 57% of Shares Out Ex-Treasury have traded in five days. Anyone who bought 5% on Day 1 has to file a Large Shareholder Report today.
6. Technology Select Sector Index (XLK US): NVIDIA Could Flip Places with Apple; HUGE Flows
- The Technology Select Sector SPDR (XLK US) ETF tracks the Technology Select Sector Index and has an AUM of over US$70bn.
- NVIDIA Corp (NVDA US) has broken through the US$3tn market cap barrier and is very close to Apple (AAPL US) in terms of free float market cap.
- If NVIDIA ranks higher than Apple on free float market cap at the close on Friday, there could be huge inflows to NVIDIA and outflows from Apple a week later.
7. Fancl (4921) TOB – Kirin (2503) Does the Inevitable and Takes Out Minorities. Lightish But…
- Kirin Holdings (2503 JP) bought a 33% stake from the founder and several others in August 2019. Five years later, they are coming back for the rest.
- The price here is ¥2,690/share which is a 42.7% premium from yesterday’s close. Kirin paid 20+% more in 2019. Earnings fell, but they paid 37x NTM. This is 32x.
- This is lightish… but… this should get done. Activism would be difficult. There are enough shareholders who should be OK getting out. This should trade tight.
8. Sciclone Pharmaceuticals (6600.HK) Privatization Update – Some “Unstable Factors” During Voting
- Some shareholders have confirmed to be acting in concert at the Court Meeting, but long-term investors may vote against the privatization because they are not satisfied with the Cancellation Price.
- The success rate of SciClone’s privatization is lower than that of China TCM and L’Occitane. If fails, there’s a high probability that the share price will fall back to HK$14/share.
- The current share price cannot provide decent returns. Together with exchange rate risk, potential failure risks, etc., there’s no need for investors to take risks at this share price level.
9. Sun Corporation (6736 JP): True Wind’s Hostile Partial Offer
- True Wind has launched a hostile partial tender offer for Sun Corp (6736 JP) for a minimum (3.8m) and maximum (4.2m) shares at JPY4,400, 19.2% premium to the undisturbed price.
- The offer was prompted by frustration with the Board’s lack of urgency in closing the disparity between Sun Corp’s market cap and the value of its Cellebrite DI (CLBT US) stake.
- The Board has three options: do nothing (low probability), find a white knight bidder (high probability), or commit to selling/distributing its Cellebrite stake (medium probability).
10. Specifics of Korea’s Official Short-Selling Regulations, Announced This Morning
- Limiting extensions to four times after a 90-day repayment and mandating repayment after 12 months increases short-selling costs. The revision omits limits on position-holding cycles, disappointing retail investors.
- Today’s release did not set a timeline for short-selling resumption. The ruling party has requested it after March 2025, with key officials present suggesting next year March resumption.
- Regarding the electronic system implementation, core content aligns with the draft, but newly revealed institution numbers add a new perspective. Uncertainties remain on integrating overseas stock borrowing into the system.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. TIP Customized Taiwan Select High Dividend Index Rebalance: 13 Changes & US$5.2bn Round-Trip Trade
- There are 13 changes for the TIP Customized Taiwan Select High Dividend Index in June. The TIP Taiwan Select High Dividend ETF (00919 TW) has an AUM of US$6.4bn.
- One-Way turnover is estimated at 41% and that will result in a round-trip trade of TWD 168.8bn (US$5.2bn). There are 16 stocks that could have over 4x ADV to trade.
- The rebalance will be implemented over 8 trading days and the ETF has started trading the stocks last week.
2. HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (June 2024)
- The June rebalance of the HSI, HSCEI INDEX, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
- The round-trip trade across all stocks across the four indices is estimated at HK$32bn (US$4.1bn).
- Li Auto, Alibaba, NetEase, Zijin Mining, SenseTime and BYD Electronics are the largest buys while Tencent, Meituan, JD.com, Kuaishou Technology, Xiaomi and HSBC Holdings are the largest sells.
3. Shinko Electric (6967) – Break/Gap Risk Early June 2024 Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- Nearly 5mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 12wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 2.6% wider than at narrowest. In May, gap risk narrowed as Shinko underperformed Ibiden.
4. Teijin (3401 JP): Alternative Play on the Potential Infocom Tender
- Blackstone (BX US) is widely reported to have agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a valuation of JPY260 billion.
- If the valuation refers to market cap and Teijin shares its tax benefits, Teijin’s sale proceeds are around JPY128 billion, which is 42% of its market cap.
- However, since 9 May, Teijin shares have been flat vs. Infocom shares are up 63%. Teijin’s medium-term plan suggests that the Infocom proceeds could result in substantial share buybacks.
5. STAR50/STAR100 Index Rebalance: Index Committee Flip-Flops on Profitability
- There are 3 changes for the SSE STAR50 (STAR50 INDEX) and 9 changes for the STAR100 Index. Implementation will take place at the close on 14 June.
- United Nova Technology (688469 CH) and Biwin Storage Technology (688525 CH) were not added at the March rebalance since they were consistently loss-making. But they have been added this time.
- United Nova Technology (688469 CH) had been trading poorly and then the stock dropped further after non-inclusion in March. That could change now with inclusion confirmed.
6. Asia Cement (743 HK): $3.22/Share Offer – Really?
- After Chinese cement play Asia Cement China (743 HK) (ACC) was suspended on the 28th May, a punchy Offer from its parent Asia Cement (1102 TT) was expected.
- Not to be. Asia Cement is offering $3.22/share, best & final. A 3.01% discount to last close, ~ 45% premium to undisturbed, and a whopping 37% discount to net cash.
- Asia Cement plus concert parties hold 73.38%, so a blocking stake at the Court Meeting is 2.662%. One (possible) aspect in Asia Cement’s favour is that ACC is not shortable.
7. SMFG Cross-Shareholding – At Least US$17bn of Cross-Shareholding to Sell, Planning to Speed It Up
- Following up on our earlier cross-shareholding notes, in this note we look at Sumitomo Mitsui Financial Group (8316 JP) cross-shareholding.
- SMFG had a stake over US$100m in at least 47 listed Japanese stocks, amounting to a total of around US$17bn.
- In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.
8. China TCM (570.HK) Privatization Update – Investors May Need to Prepare for a Longer Wait
- The approval/filing process of China TCM’s privatization is complicated and would take some time, but there’re almost no cases of disapproval. It also depends on the adequacy of materials submitted.
- Due to the extension of time for the despatch of Scheme Document, this process would be delayed for more months.But we should receive clear information by October at the latest.
- For arbitrageurs, China TCM is an investment opportunity of high success rate, which becomes more attractive if HK stock market is depressed.It’s better suited to idle funds considering potential risks/returns.
9. Softbank (9984 JP): This Time, It’s Different
- Elliott Management has emerged as a 2%+ shareholder in SoftBank group and is driving for share buybacks of upto USD15bn; we see this as a game changer for minority shareholders
- Recent moves to enhance corporate governance in Japan have taken root, yet we see Softbank group as a laggard on corporate governance which been targeted by an experienced activist
- Softbank shares trade at a 54% discount to the estimated NAV; an activist like Elliott on board could meaningfully drive shareholder value creation and a narrowing of the NAV discount
10. CK Asset Holdings (1113 HK): First Down, Then Up?
- CK Asset Holdings (1113 HK) has traded lower recently and shorts have exploded in the stock in the last few months.
- CK Asset Holdings (1113 HK) has underperformed its peers in the last 6 months and trades cheaper on forward PE and price to book.
- There will be passive selling in the stock in just over two weeks. There will be positioning, but not enough to meet passive supply. Expect a further move lower.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Cash-Rich Exedy (7278) Sees Huge Offering Offset by Huge Buyback – Watch For Short-Term Games
- Toyota equity affiliate Aisin (7259 JP) last September said it would sell all its crossholdings. That now includes a 36.5% stake in Exedy Corp (7278 JP).
- Today, they announced an offering of all the shares (when including the greenshoe). That is nearly ¥50bn. That is offset by a ¥15bn buyback which could reduce the offering size.
- Games may be played, but there is considerable accretion, and Exedy will see higher float and still-high net cash.
2. TIP Customized Taiwan Select High Dividend Index Rebalance Preview: AUM Jump & HUGE Trade
- The TIP Taiwan Select High Dividend ETF (00919 TW) tracks the TIP Customized Taiwan Select High Dividend Index and has an AUM of TWD 209bn (US$6.5bn).
- There could be 14 changes for the ETF in June with an estimated one-way turnover of around 40% and a round-trip trade of around US$5bn.
- The potential adds have outperformed the potential deletes over the last couple of months and there could be more to go heading into announcement and implementation.
3. Infocom (4348 JP) – The Meaning of ‘Binding Bids’ and ‘¥250bn’
- A variety of articles of recent from private media sources have suggested that Teijin Ltd (3401 JP) has its 55% stake in Infocom Corp (4348 JP) up for auction.
- According to earlier articles, binding Second Round bids were due last week. According to an article out late last week, binding bids have been made, with some “around ¥250bn.”
- What that means for price may depend on what the “around ¥250bn” means. A brief exploration below.
4. Yuanta Taiwan Div+ ETF Rebalance Preview: 5 Changes as Names Move Around; US$2.35bn Round-Trip Trade
- With the review period now complete, there could be 5 changes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in June.
- Price changes and changes to dividend estimates have led to names dropping off the list of potential adds and deletes over the last week.
- Constituent changes, capping and funding flows will lead to a one-way turnover of 12.7% and a one-way trade of US$1.17bn. There are 12 stocks with over 4x ADV to trade.
5. Infocom (4348 JP) – Reports of an Exclusive Negotiation May Give Hints
- The entire saga here of Teijin Ltd (3401 JP)‘s disposal of its 55.1% stake in Infocom Corp (4348 JP) is being played out in the non-generally-public press.
- There is reportedly a new piece of writing out late Thursday which suggests an approach.
- I wrote about the “meaning” of words in Infocom (4348 JP) – The Meaning of ‘Binding Bids’ and ‘¥250bn’ and now there is more nuance to parse.
6. Taiwan Top 50 ETF Rebalance Preview: Asia Vital Components (3017 TT) In Back-To-Back Inclusion?
- Asia Vital Components (3017 TT) could replace Chang Hwa Commercial Bank (2801 TT) in the Yuanta/P-Shares Taiwan Top 50 ETF at the June rebalance.
- This ETF inclusion for Asia Vital Components (3017 TT) could come back-to-back with another index inclusion scheduled for the end of May.
- Shorts in Asia Vital Components (3017 TT) have been increasing recently while shorts in Chang Hwa Commercial Bank (2801 TT) are near their lows.
7. S&P/ASX Index Rebalance Preview: Regular & Ad Hoc Changes in June
- With the review period complete, we take a look at the potential index changes at the June rebalance as well as potential index inclusions due to M&A.
- Timing is key for the ad hoc inclusions to the S&P/ASX 200 (AS51 INDEX) with an ad hoc inclusion being announced prior to the regular announcement.
- Passive trackers will need to buy 1.3-27x ADV on the expected adds and have 0.8-4.7x ADV to sell on the expected deletes. Shorts have built up on the potential deletes.
8. Exedy (7278) Huge Offering Resized – Watch the Dynamics Here
- On Monday 27 May, Aisin (7259 JP) announced an offering to sell ALL of its 36+% stake in equity affiliate Exedy Corp (7278 JP) for likely ¥40bn+.
- Exedy announced a big buyback to go with it. It bought back 30% of the total on Weds morning, and that reduced the size of the offer.
- I had expected “short-term games” but we haven’t really had them. Which is a bit weird. This update shows the details and dynamics (they differ).
9. KRX Announces Final Version of Value-Up Disclosure Guidelines Alongside Dedicated Website Launch
- Starting May 27th, KRX-listed firms can voluntarily disclose value-up details, publicly available on the website. Additionally, view five investment indicators for all KRX-listed companies below.
- Finalized version similar to draft, with added content requested by listed companies, like R&D investment growth rate. Tax incentives excluded, awaiting alignment with Ministry’s plan in July.
- KRX keeps a screening framework for the index akin to March’s criteria, with ROE likely having the highest weight. Recent signals hint at increasing dividend weighting.
10. Kansai Paint (4613) – Going Hard with a BIG Buyback and More Capital Moves Beyond
- 24mos ago, Kansai Paint (4613 JP) announced a new MTMP, a large buyback, and plans to unwind cross-holdings. Big. 15mos ago a large secondary offering kicked off the festivities.
- Key was Toyota sold. Then KP could sell its Toyota shares – two-thirds of its cross-holdings. The offering was one to buy. A buyback followed. KP vs Nippon Paint doubled.
- KP offered a CB recently with the delta hedge done by TN-3. Now there is a HUGE new buyback. Really big. This gets rid of more cross-holders. And there’s more.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: 13% One-Way Turnover & US$2.27bn Trade
- Using data from the close on 17 May, there could be 5 changes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in June.
- There will also be capping and funding flows that will lead to a one-way turnover of 12.6% and a one-way trade of US$1.13bn.
- Shorts have increased on the potential adds and potential deletes and covering will lead to rally in some stocks while providing support in others at rebalance implementation.
2. Carlyle To Take KFC Japan (9873) Private at ¥6,500/Share – Big Win For All, a Model Transaction
- Carlyle has a deal to buy Kfc Holdings Japan (9873 JP). ¥6,500/share is a 78% premium to undisturbed as a professional holder sells in an auction to the highest bidder.
- That’s a great format for achieving a great price. And we got one. This should get done easily.
- Importantly, the Bidco is named Crispy KK. It is 100% owned by Juicy KK. Juicy KK itself is 100% owned by Crispy Holdings L.P. Someone had some fun.
3. MUFG Cross-Shareholding – At Least US$20bn of Cross-Shareholding to Sell, Taking It Slow
- Following up on our earlier cross-shareholding notes, in this note we look at Mitsubishi UFJ Financial (MUFG) (8306 JP)’s cross-shareholding.
- MUFG had a stake over US$100m in at least 47 listed Japanese stocks, amounting to a total of around US$19bn.
- In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.
4. L’Occitane (973 HK): Who Owns What, And When
- A fortnight ago, I sought access to L’Occitane (973 HK)‘s lesser-known shareholder register, a byproduct of investigative disclosure reports under Chapter 571, s329 of the Securities and Futures Ordinance.
- This is the same register I discussed in Giordano (709 HK): A Closer Look At The Shareholder Register Ahead Of The SGM; and one also used by proxy solicitors.
- The register confirms what has been long rumoured about a certain shareholder activist. It is also informative for what isn’t present.
5. FSS Head’s Aggressive Remarks for Value-Up at NY Event, Incl. Short Selling Resumption Late June
- Lee Bok-hyun hopes for short selling to resume by late June. Given his influence on the Value-up policy, it’s likely to happen.
- Lee expects key tax incentives for the value-up program to be included in the July tax reform bill, showing a market-friendly stance.
- Yesterday’s New York event had a very positive atmosphere with more attendees than expected, showing genuine investor interest, likely ensuring sustained interest in Korea’s Value-up program.
6. July Short Selling Resumption in Korea: Local Market Info & Trading Considerations
- According to market information confirmed so far, the resumption is set for July 1st, and short selling will be restricted to the constituents of KOSPI 200 and KOSDAQ 150.
- The surge in trading volume likely stemmed from the return of long-short positions post-short-selling ban, leading to an overall market volume increase.
- Another critical factor is the buying pressure on value-up stocks resuming in early July. We should aim at the price impacts of intersecting long-short flows and value-up stock purchases.
7. Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK).
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Mimasu Semiconductor Industry (8155 JP), Boral Ltd (BLD AU).
8. EOFlow (294090 KS): Suitably Pumped
- For a company that strives to improve people’s lives, investors in EOFlow (294090 KS) shares have mostly faced a world of pain over the past year.
- After Insulet Corp (PODD US) filed a lawsuit on the 8th August 2023, accusing EOFlow of misappropriating trade secrets, patent infringement, and trademark dilution, shares declined ~88% by year-end.
- Earlier this month, the courts quashed Insulet’s preliminary injunction. EOFlow is up 200%. Insulet is up 3% (?). And Medtronic (MDT US), EOFlow’s prior suitor, is no doubt weighing options.
9. Tax-Loss Selling in Australia 2024 – A Trade Basket [Updated]
- Three weeks after instantiation of Phase 1, the ASX200 vs LiquidBasket is +1.8% if you traded the basket VWAP the next day. vs LessLiquid it is +8.5%.
- Equal weight all names in the two is +3.1%. Trade VWAP over two days it is +0.7%, +7.6%, and +2.7%. So far things are OK.
- Next week one would add another basket, then in the last week of June, one would cover and reverse the trade and hold on for 30-40 trading days or so.
10. Chilled & Frozen Logistics (9099) Gone Ballistic – Reminder of Structure, Price, and Incentives
- In late March, AZ-Com Maruwa Holdings (9090 JP) made an unsolicited (“hostile”) bid for Chilled & Frozen Logistics Holdings (9099 JP) at a near 50% premium at ¥3,000/share.
- It traded through, then C&F ran a bid solicitation process, got four bids. Since the day AFTER that announcement, the stock is up 56%. We approach Alps Logistics multiples.
- This deal doesn’t get the split price benefit that HTS and Alps Logistics did. And it is a fundamentally different logistics business. And target management dynamics are different.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Japan Post Holdings (6178) – Bigger Better Bullish Buyback With Caveats
- Today, Japan Post Holdings (6178 JP) announced results (and Mar25 guidance) as did its subsidiaries Japan Post Insurance (7181 JP) and Japan Post Bank (7182 JP).
- There are a number of interesting things in all the announcements/presentations but the most interesting one for JPH holders is a big buyback. Another one.
- The company has announced a ¥350bn buyback. It is larger than last year’s (¥300bn) buyback and has another important difference.
2. HSTECH Index Rebalance Preview: Round-Trip Trade of US$2.4bn in June
- We do not forecast any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June but there could be capping changes for 7 stocks.
- Capping changes will result in a one-way turnover of 7.6% leading to a round-trip trade of US$2.4bn. 17 stocks will have over 0.5x ADV to trade from passive trackers.
- Li Auto (2015 HK) will have the largest inflow while there will be big outflows from Meituan (3690 HK), Xiaomi Corp (1810 HK), JD.com (9618 HK) and Tencent (700 HK).
3. Alibaba (9988 HK): Dual Primary Listing & Potential Southbound Flows
- Along with its fiscal 2024 results, Alibaba (9988 HK) announced that they were preparing for their primary listing in Hong Kong and the conversion was expected to complete by August.
- If the conversion is completed by the end of August, Alibaba (9988 HK) could be added to Southbound Stock Connect in September and that could bring in significant flows.
- We do not forecast any passive inflows due to the change with Alibaba Group Holding (9988 HK) capped at 8% of the HSI, HSCEI and HSTECH indices.
4. ESR Group (1821 HK): Offer Musings
- Back in February this year, various media sources reported that the key shareholders of warehouse/fund management play ESR Group (1821 HK), were exploring options, including a privatisation.
- Long-Term holders Warburg Pincus and Canadian pension fund OMERS hold 14% and 10.7% respectively. ESR co-founders/directors Jeffrey Shen, Stuart Gibson, Charles de Portes, and Hwee Chiang collectively hold another ~23%.
- Shares in ESR were suspended this morning “pursuant to the Hong Kong Code on Takeovers and Mergers“.
5. KDDI (9433) – Own Share Tender Offer, Toyota To Sell (Gasp!) Redux (Another Buyback in H2 Possible)
- In May 2023, KDDI Corp (9433 JP) announced a ¥300bn buyback program, did nothing for two months, then announced a Tender Offer Buyback to buy shares from Toyota.
- Toyota had increased its stake years before, then KDDI bought back shares from others, so Toyota was backing its ownership down. I discussed the relationships, history, etc, here.
- This year, KDDI announced Friday with earnings that is buying back another large stake from Toyota.
6. L’Occitane (973 HK): On Activism And The Scrip Alternative
- In the 29th April HK$34/share VGO announcement, a share scrip alternative may be afforded if 10% of L’Occitane (973 HK)‘s disinterested shareholders expressed interest by the 15th May
- That pre-condition has been satisfied. However, we are none the wiser whether you receive shares of the levered-up Bidco, at some undetermined scrip ratio; or keep shares of L’Occitane as-is.
- Some shareholders, like Butler Hall, considered terms low-balled. They now have the option to rollover. But there are still other large activists on the register, whose intentions are not known.
7. Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for June
- Post market close tomorrow, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 7 June.
- There were no constituent changes to the index in March. We highlight ten profitable and eligible stocks that could be added to the index in June.
- Changes to the Hang Seng Industry Classification System (HSICS) could lead to inclusions for the Information Technology industry while there could also be inclusions for the underweighted Healthcare industry.
8. CSI Medical Service Index Rebalance Preview: Repeat of the December Rebal Could See Big Gains
- The review period ended on 30 April, there are just over 2 weeks to announcement of the changes, and implementation will be done at the close on 14 June.
- We forecast 5 potential changes for the index in June where there could be buying of 1.6-2.6x ADV on the adds and selling of 0.7-2.6x ADV on the deletes.
- At the December 2023 rebalance, the adds outperformed the deletes in the weeks prior to announcement of the changes and then spiked post-announcement. Repeat this time?
9. Japan – Another Big Round of Passive Selling
- There are 15 stocks in Japan that will be sold by passive trackers at the close on 31 May.
- Short interest has been increasing in these stocks over the last few months and there will be covering on implementation date.
- Cumulative excess volume on all stocks has risen in the last couple of months though the pace of the increase has varied.
10. ESR Group (1821 HK): Starwood Capital and SSW Partners Gauging a Privatisation Bid
- ESR Group (1821 HK) is on a trading halt. Press reports suggest a consortium featuring Starwood Capital Group and SSW Partners is considering a buyout.
- Starwood and SSW are approaching other shareholders to join the consortium. The other members are likely Warburg Pincus, OMERS, Jinchu Shen, and Hwee Chiang Lim.
- The offer is likely to be structured as a Cayman privatisation scheme. Our best guess is that an offer of at least HK$14.00 per share would be needed.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. Nikkei 225 Index Rebalance Preview (Sep 2024): Ranking, Capping, Funding & Other Changes
- The review period for the Nikkei 225 (NKY INDEX) September rebalance ends in July. There could be three changes at the rebalance with sector balance in focus for the additions.
- Depending on the changes, passive trackers will need to buy between 5-16x ADV (10.1%-24% of real float) on the inclusions and sell between 4-42x ADV on the deletions.
- Fast Retailing (9983 JP) will be capped to 10% of the index weight while Tokyo Electron (8035 JP) is also close to the 10% cap.
2. CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- The review period for the June rebalance is complete and we expect 11 changes to the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).
- We estimate one-way turnover of 1.4% at the rebalance leading to a one-way trade of CNY 8.82bn (US$1.22bn). There are a lot of stocks with multiple days ADV to trade.
- The potential deletes have bounced off their lows as the market has recovered. But the potential passive selling could see them underperform over the next month.
3. KKR Deal for Alps Logistics (9055) Appears Imminent
- There was a news article I missed in late February saying Alps Alpine (6770 JP), parent of Alps Logistics (9055 JP) was in the process of selling the logistics unit.
- A deal made sense for a strategic given the upcoming “2024 Problem”. Pre-close, headlines blared, the stock popped 12%, now we’re at double the end-February price.
- Late in the evening,Alps Logistics said it had received a bid from Logisteed but nothing had been decided. This morning we have a few more details, but nothing concrete
4. Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- 15wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 8wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 3.6% wider than at narrowest, but gap risk has widened as Shinko outperforms, Ibiden.
5. L’Occitane (973 HK): The Rollover Option, And Alternate Listing Valuations
- Concurrent with its HK$34/share VGO, L’Occitane (973 HK)‘s disinterested shareholders may be entitled to a share scrip alternative. IF afforded, up to 5% of shares out can participate.
- The big unknown is whether you receive shares of the levered-up Bidco, at some as yet undetermined scrip ratio; or keep shares of L’Occitane as-is.
- To trigger the rollover option, 10% of disinterested shareholders need to express interest by the 15th May (a Hong Kong holiday btw). A deadline without details.
6. Sigma Healthcare (SIG AU): ASX200 Inclusion Now, MUCH More Squeezy Fun Later. Maybe…
- In early December, pharmacy distributor Sigma Healthcare (SIG AU) arranged a “transformational merger” with mega chain Chemist Warehouse (CWG). Effectively a reverse takeover designed to get CWG listed.
- SIG issued shares, raising cash, enabling it so NEWCO had high enough minimum float upon merging. Financial engineering for the win. SIG popped – a kind of IPO premium trade.
- But plenty of people are against the deal, and ACCC hasn’t yet opined (13 June is the provisional date), but on Thursday, S&P announced SIG would join ASX200 despite risks.
7. CSI500 Index Rebalance Preview: Potential Adds Rally and Outperform the Potential Deletes
- With the review period now complete, we forecast 50 changes (the maximum permitted) for the CSI Smallcap 500 Index – Shang (SH000905 INDEX) at the close on 14 June.
- We estimate a one-way turnover of 9.3% at the rebalance resulting in a one-way trade of CNY10.88bn (US$1.5bn). The Industrials and Information Technology sectors gain at the expense of Materials.
- The potential adds have outperformed the potential deletes by 8% over the last 3 months. There could be further outperformance over the next few weeks.
8. SSE50 Index Rebalance Preview: Financials Continue to Outperform
- With the review period nearing completion, 6 stocks are in inclusion zone and 9 are in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 7.1% at the June rebalance leading to a one-way trade of CNY 9.9bn (US$1.37bn). Index arb balances should increase the impact on the stocks.
- The potential inclusions (of which four are Financials) have continued to outperform the mixed bag of potential deletions. With pretty big impact on the deletes, expect further divergence.
9. China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- Some investors have concerns that the privatization may fail. We also noticed that Morgan Stanley raised China TCM’s target price to HK$5.4. However, the privatization of China TCM seems “mandatory”.
- At this stage, some background information is worth the attention, which will help investors better understand the logic behind this privatization and thus resolve the “confusion”.
- According to regulatory requirements, it’s expected that both CNPGC and Taiji will integrate resources in pharmaceutical manufacturing and distribution sectors, so as to solve horizontal competition issue between the two.
10. STAR50 Index Rebalance Preview: Adds Steamroll Deletes
- With the review period complete, we forecast 3 changes for the SSE STAR50 (STAR50 INDEX) in June. All changes are migrations from/to the STAR 100 Index.
- One way turnover is estimated at 3.4% resulting in a one-way trade of CNY 4.5bn (US$630m). There is a lot to trade from passive trackers, especially on the inclusions.
- The potential adds have outperformed the potential deletions by ~18% over the last month with Hangzhou EZVIZ Network (688475 CH) and APT Medical (688617 CH) moving higher.