In today’s briefing:
- Merger Arb Mondays (09 Dec) – HKBN, ESR, Lifestyle China, GA Pack, Latin Res, De Grey, SG Fleet
- A/H Premium Tracker (To 6 Dec 2024): AH Premia Lower, Markets Up, Tech Weaker, Materials Up
- HK Connect SOUTHBOUND Flows (To 6 Dec 2024); SB Trading Volumes Up, US/China Trade Volleys Up Too
- China National Building Material (3323 HK): H Share Buyback Short Changes Minorities
- China National Building Materials (3323 HK): Buying Back 9.98% of H-Shares
- Lifestyle China (2136 HK): Thomas Lau’s Scheme – The Premium Is Wrong
- Innovent Biologics (1801.HK) – Wounds Heal but Scars Remain
Merger Arb Mondays (09 Dec) – HKBN, ESR, Lifestyle China, GA Pack, Latin Res, De Grey, SG Fleet
- 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: Lifestyle China (2136 HK), Arcadium Lithium (ALTM US), Shanghai Henlius Biotech (2696 HK), ESR Group (1821 HK), Get Nice Financial Group Ltd (1469 HK), Canvest.
- Lowest spreads: Renewable Japan (9522 JP), Macromill, Inc (3978 JP), Fuji Soft Inc (9749 JP), Nec Networks & System Integr (1973 JP), Capitol Health (CAJ AU), Elematec Corp (2715 JP).
A/H Premium Tracker (To 6 Dec 2024): AH Premia Lower, Markets Up, Tech Weaker, Materials Up
- Mainland share market volumes continue to be better than HK and SOUTHBOUND volumes, but SB volumes rebounded, tech saw limited net buying, BABA was bought but other major tech sold.
- The first leg of China’s retaliatory acts against US trade measures appeared with export bans on gallium, germanium, antimony, graphite products, etc. These will not be lifted soon.
- China is also retaliating against the Phils, Vietnam, Taiwan and changing tack in Europe. The next couple of years threatens to be “interesting times.
HK Connect SOUTHBOUND Flows (To 6 Dec 2024); SB Trading Volumes Up, US/China Trade Volleys Up Too
- SOUTHBOUND gross trading activity rebounded about 20% this week vs the previous week. Net buying was a little lower but still strong. Market volumes overall in HK remain weak.
- Alibaba Group Holding (9988 HK) was again the top buy and EV names XPeng (9868 HK) and BYD (1211 HK) were bought, but tech as a whole was sold.
- I continue to expect HK-listed tech to see ongoing buying. Alibaba, Tencent, Xiaomi, etc are safe havens against Trump tariffs as they don’t compete in the US.
China National Building Material (3323 HK): H Share Buyback Short Changes Minorities
- China National Building Material (3323 HK) has launched a conditional share buyback to acquire a maximum of 841.7 million H Shares (18.47% of H Shares) at HK$4.03.
- The share buyback seems designed to enable the CNBM parent company to bypass the creeper rule and squeeze the shorts.
- The buyback is unattractive and will leave minorities short-changed, weakening a stretched balance sheet. Nevertheless, while potentially tricky, the votes should pass.
China National Building Materials (3323 HK): Buying Back 9.98% of H-Shares
- We view China National Building Material (3323 HK)‘s proposal to buy back 9.98% of H-shares as a good opportunity for the shareholders to cash out in their position.
- Without further significant government stimulus, CNBM will find it difficult to return to the HK$4.03 offer price. Potential weak FY24 results also mean downside risks.
- Other companies with high gearing and low P/B may follow CNBM’s move. We single out the infrastructure construction companies as the likely candidates.
Lifestyle China (2136 HK): Thomas Lau’s Scheme – The Premium Is Wrong
- After Lifestyle China (2136 HK) was suspended pursuant to then Takeovers Code, the takeaway was that Thomas Lau with 74.91% of shares out would table a Scheme.
- Which is exactly what unfolded. What was not expected was a stingy 21.7% premium to last close.
- The Offer Price has not been declared final. Lifestyle China is trading at 0.11x P/B. This Offer deserves a bump. Otherwise minorities should vote this down.
Innovent Biologics (1801.HK) – Wounds Heal but Scars Remain
- Innovent did a good job in 24Q3. The 2024 full-year revenue is estimated to reach above RMB8 billion. Peak sales to reach the level of RMB20 billion is entirely possible.
- It’s a mistake for Innovent to sell a minority stake in Fortvita to Lostrancos. Alhough the Subscription Agreement has been terminated, the confidence in long-term holding this stock has decreased.
- Innovent’s internationalization needs to be based on the parent company as the main body, which is the most suitable and in line with the interests of shareholders/investors/management/employees of the Company.
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