In today’s briefing:
- Merger Arb Mondays (15 Jul) – China TCM, Canvest, Henlius, Hollysys, Second Chance, Anasarda, Rex
- CSI300 Index Rebalance Preview: 18 Changes in Dec; Third Plenum; ETF Inflows; Short Sell Crackdown
- CK Infra (1038 HK): London Calling
- A/H Premium Tracker (To 12 Jul 2024): Roughly Flat Week Ahead of 3rd Plenum, Possible A Short-Covers
- Legend Biotech (LEGN US) – A Takeover Offer?
- Mainland Connect NORTHBOUND Flows (To 12 July 2024): Finance, Industry, Infotech Bought
- HK Connect SOUTHBOUND Flows (To 12 Jul 2024); Slower Flows Gross and Net (Buy), Still SOEs
- China Consumption Weekly (15 Jul 2024): Seres, BYD, Guangzhou Automobile,Trip.com
- T.S. Lines Pre-IPO – Looks like an Opportunistic Listing
- Quiddity Leaderboard CSI 300/500 Dec 24: Positive Start to the Trade; Some Changes to Expectations
Merger Arb Mondays (15 Jul) – China TCM, Canvest, Henlius, Hollysys, Second Chance, Anasarda, Rex
- 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), Canvest Environmental Protection Group (1381 HK), A8 New Media (800 HK), Asia Cement China (743 HK).
- Lowest spreads: Fancl Corp (4921 JP), Tatsuta Electric Wire & Cable (5809 JP), Alumina Ltd (AWC AU), Nagatanien Holdings (2899 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP).
CSI300 Index Rebalance Preview: 18 Changes in Dec; Third Plenum; ETF Inflows; Short Sell Crackdown
- There could be 18 changes at the December rebalance with the Industrials sector gaining 3 index spots and the Information Technology sector losing 5 spots.
- We estimate one-way turnover of 3.3% at the rebalance leading to a one-way trade of CNY 22.07bn (US$3bn). There are a lot of stocks with multiple days ADV to trade.
- The potential adds have outperformed the potential deletes. There were ETF inflows last week amid a short selling crackdown as the Third Plenum kicks off.
CK Infra (1038 HK): London Calling
- CK Infrastructure Holdings (1038 HK), 75.67%-held by CK Hutchison Holdings (1 HK), announced it is considering a second listing on an overseas stock exchange, such as London.
- A UK-listing makes perfect sense. In excess of 90% of CKI’s FY23 profit was sourced from businesses outside Asia, with ~50% from its UK ops.
- The wording in the announcement is unclear – a dual primary listing, or a secondary listing? The LSE is also undergoing a listing regime change, effective 29th July.
A/H Premium Tracker (To 12 Jul 2024): Roughly Flat Week Ahead of 3rd Plenum, Possible A Short-Covers
- The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND inflow continues, albeit smaller. SOE Banks/Energy/Telecoms remain a big net buy. Percentage of volume is large. NORTHBOUND saw finance buying. Possible short-covering ahead of new short-selling restrictions/access.
- AH Premia were up small on average, down small on the liquid pairs. But HSI/HSCEI vs CSI300/500 performance spreads were higher. Third Plenum this week may drive “sentiment.”
Legend Biotech (LEGN US) – A Takeover Offer?
- Legend Biotech received takeover interest and hired Centerview Partners to review the offer. Due to the satisfactory clinical results/promising commercialization outlook of Carvykti, Legend Bio is an attractive M&A candidate.
- Peak sales of Carvykti could exceed US$5 billion. After Carvykti is approved by the FDA/EC for 2L treatment of MM, future valuation leap of legend Bio is becoming more certain.
- Legend Bio is clearly undervalued. We think reasonable market value range for Legend Bio is about US$12.5 – 15 billion, which means there is decent upward potential for share price.
Mainland Connect NORTHBOUND Flows (To 12 July 2024): Finance, Industry, Infotech Bought
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net BUY RMB +15.9bn of A-shares. NORTHBOUND bought Financials, Industry, Infotech, etc. They sold Communications (which was a HUGE SOUTHBOUND buy) and Pharma/Healthcare.
- It is notable that net flows as a percentage of value traded are clearly “short gamma”, which is to say, sector underperformers are being sold, sector outperformers being bought.
HK Connect SOUTHBOUND Flows (To 12 Jul 2024); Slower Flows Gross and Net (Buy), Still SOEs
- SOUTHBOUND was again a net buyer, for HK$7.3bn this week, on smallish two-way volumes. Major buying was mostly SOEs.
- The more I watch, the more I think the last few months have had serious national team buying of banks and energy, perhaps ahead of shareholder return policy changes.
- But valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.
China Consumption Weekly (15 Jul 2024): Seres, BYD, Guangzhou Automobile,Trip.com
- Guangzhou Automobile sales volume of new energy vehicle decreased by 38% YoY in June and by 31% YoY in 1H24.
- BYD plans to invest US$1 billion to build a factory in Turkey.
- AliPay announced that foreigners’ consumption amount in China in 1H24 was eight times of last year.
T.S. Lines Pre-IPO – Looks like an Opportunistic Listing
- T.S. Lines (TSL HK) is looking to raise about US$300m in its upcoming Hong Kong IPO.
- T.S. Lines (TSL) is a container shipping firm primarily operating in the Asia Pacific (APAC) region.
- In this note, we look at the firm’s past performance.
Quiddity Leaderboard CSI 300/500 Dec 24: Positive Start to the Trade; Some Changes to Expectations
- CSI 300 represents the 300 largest stocks by market cap and liquidity from the Shanghai and Shenzhen Exchanges. CSI 500 is the next 500.
- In this insight, we take a look at the potential ADDs and DELs leading the race for the semiannual index rebal event in December 2024.
- There have been multiple changes to our expected ADDs/DELs list since our last insight.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
