In today’s briefing:
- Kakao Pay Placement – Discount Is Enticing, That’s It
- HSI, HSCEI, HSTECH: June Rebalance Flows Post Capping
- Alipay’s Kakao Pay Exit: Common Prosperity Policy or Partnership Starting to Crack?
- Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations
- Vinda Vs Hengan: Cut From A Different Cloth
- Tuhu Car Pre-IPO – The Positives – Aiming to Address the Painpoints of the Industry
- China Education Group (839 HK): Further Evidences for Underlying Health
- Record Sales for Pal Group Driven by 300 Yen Chain
- KKR/Accell NV: What Next?
- MFE/Mediaset España: Sweetened Offer
Kakao Pay Placement – Discount Is Enticing, That’s It
- Alipay aims to raise around US$386m via selling around 3.3% of outstanding shares of Kakao Pay.
- The stock more than doubled on listing, providing one of the best first day returns in 2021. However, its performance since then hasn’t been all that great.
- In this note, we will talk about the deal dynamics and run the deal through our ECM framework.
HSI, HSCEI, HSTECH: June Rebalance Flows Post Capping
- The June rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
- The largest inflows will be on JD.com Inc. (9618 HK), Tencent (700 HK), Baidu (9888 HK), SMIC (981 HK), Orient Overseas (316 HK), Zhongsheng Group (881 HK), Lenovo (992 HK).
- The largest outflows will be on Meituan (3690 HK), Alibaba (9988 HK), ASM Pacific (522 HK), Kuaishou (1024 HK), AIA (1299 HK), China Construction Bank (939 HK), HKEX (388 HK).
Alipay’s Kakao Pay Exit: Common Prosperity Policy or Partnership Starting to Crack?
- Alipay’s return on investment is 10x, so it may be natural to realize a profit for some stakes. But the local market believes that the strategic partnership is cracking.
- Starting with this stake sale, it is highly likely that Alipay will go through a multi-phased stake sale process similar to that of Temasek/JPM’s Celltrion stake sales.
- Meanwhile, we should also pay attention to the possibility that this block deal by Alipay will likely lead to the inclusion of Kakao Pay in the MSCI August IR.
Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations
- Alipay’s stake sale raises another critical issue: Kakao Pay’s MSCI inclusion. Kakao Pay comfortably satisfies the full MC threshold but tightly exceeds the float MC hurdle.
- As for the passive flow, we should see an inflow of 6.11x ADTV, equivalent to 1.48% of SO. It represents nearly 2M shares, close to ₩210B.
- If we build up a position betting on Kakao Pay’s downward trend due to Alipay’s block deal risk, we should consider temporarily switching the position when this event is triggered.
Vinda Vs Hengan: Cut From A Different Cloth
- Given their market leadership in China’s personal care industry, Hengan International Group (1044 HK) and Vinda International Holdings (3331 HK) arguably make a valid pair trade.
- Yet Hengan’s bottom line is dominated by its sanitary napkin products; whereas Vinda’s tissue segment has a similarly high contribution to its net profit.
- On various valuation metrics, both companies, relative to listed peers, and their historical trading numbers, appear inexpensive.
Tuhu Car Pre-IPO – The Positives – Aiming to Address the Painpoints of the Industry
- Tuhu Car (2007986D HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
- Tuhu is an integrated online and offline platform for automotive services in China.
- Initially starting as a pure online retail platform, the firm has over time been building its offline network with well-managed stores and technicians to deliver standardized services in-store.
China Education Group (839 HK): Further Evidences for Underlying Health
- Despite the 21% spike in share price, we believe good student enrollment outlook and earnings prospects of China Education Group (839 HK) are still yet to be fully reflected.
- The 70.1% YoY surge in approved top-up degree program quotas in China and the guidance for substantial quota increase for bachelor’s degree and junior college programs are both exciting.
- Its comprehensive cooperation agreement with Bank of China Jiangxi Branch adds another peace of mind as this suggests support from the state and lowers regulatory risks, in our view.
Record Sales for Pal Group Driven by 300 Yen Chain
- Not many retailers could boast sales growth of more than 50% last year, especially a retailer from the fashion sector.
- Pal Group’s 3Coins managed this thanks to the huge success of the discount fashion to home decor format.
- Its success is one more example of the growth in discount chains.
KKR/Accell NV: What Next?
- During the acceptance period, 73.53% of the shares were tendered or committed, below the 80% minimum acceptance threshold that allows to sideline the holdouts (Moneta and others are seeking €70/share).
- Tomorrow, 8 June, would be the last day for the offer to be declared unconditional. The minimum acceptance condition has to be waived (with prior written approval from the Boards).
- The share price has rebounded by c.11% over the last three trading sessions. Gross spread is 1.7%. 27 June would be the last day of a hypothetical post-tender acceptance period.
MFE/Mediaset España: Sweetened Offer
- MFE improves the cash component to €2.16/share, taking the package value to €4.75 (6 June). The acceptance period has been suspended; the CNMV will inform of the new acceptance period.
- The sweetened price seems more reasonable. The Board of Mediaset España is now minded to recommend the offer, but the low valuation of both companies does not help the deal.
- Holdouts may expose themselves to being trapped in a group with an even stronger control by MFE with no qualms about running its subsidiary for its own interests.
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