In today’s briefing:
- L’Occitane (973 HK): Conditional Offer Opens
- HSCEI Index Rebalance Preview: Two Changes Likely in September
- HK Connect SOUTHBOUND Flows (To 28 June 2024); Still a Net Buy, but Less Strong. Financials Dominate
- CPMC Holdings (906.HK) Privatization – Some New Information Worth the Attention
- STAR50 Index Rebalance Preview: Two Changes & Over US$1.2bn to Trade
- Chenqi Technology Pre-IPO – PHIP Updates – Sales Growth Accelerated but Sustainability in Question
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – July 2024
- Shanghai Voicecomm IPO Preview: Superior Growth Profile and Collaboration With Baidu on ERNIE Bot
- Mainland Connect NORTHBOUND Flows (To 28 June 2024): BIG Consumer Name Selling Again
- Robosense IPO Lock-Up Expiry – US$2.8bn Lockup Expiry for 99% of the Stock, CCASS Movement
L’Occitane (973 HK): Conditional Offer Opens
- The L’Occitane (973 HK) IFA opines that Reinold Geiger’s conditional voluntary cash (HK$34.00) or scrip offer (10 rollover shares for each share, subject to a cap) is fair and reasonable.
- Irrevocable/Letters of support have nudged lower from 49.83% (17 June) to 47.66% of disinterested shares due to Southeastern Asset Management selling its shares.
- Nevertheless, the scrip option, an attractive offer and no vocal opposition should facilitate achieving the minimum acceptance condition. At the last close, the gross spread was 2.4%.
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.
HK Connect SOUTHBOUND Flows (To 28 June 2024); Still a Net Buy, but Less Strong. Financials Dominate
- SOUTHBOUND was again a net buyer, for HK$9.3bn this week, on smallish two-way volumes. Banks were a big buy.
- It is not clear how much of this is H/A discounts, expected dividend tax removal, shareholder return KPIs for SOE CEOs, upcoming Third Plenum policy, or national team buying…
- But valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.
CPMC Holdings (906.HK) Privatization – Some New Information Worth the Attention
- ORG purchased 27% of CPMC’s shares at HK$6/share in 2015.After about eight years, Baosteel’s Offer Price was only HK$6.87/share. The annualized return rate was low, which obviously cannot satisfy ORG.
- Baosteel and CPMC have been in talks for a long time – There may have been some “tacit agreement” between the two parties. The approval process is smooth so far.
- For acquisitions/consolidation between SOEs, private enterprises usually have limited chances of winning.ORG has financial pressure and the approval process face uncertainties. There would be more negotiations among CPMC, ORG, Baosteel.
STAR50 Index Rebalance Preview: Two Changes & Over US$1.2bn to Trade
- The review period for the September rebalance ends 31 July. We expect the changes to be announced 30 August with the implementation taking place after the close on 13 September.
- We expect the index committee to continue using a 6-month minimum listing history resulting in two changes to the index.
- One-Way turnover is estimated at 3.5% resulting in a one-way trade of CNY 4.5bn (US$618m). Passive trackers will need to trade 4-8x ADV on the index changes.
Chenqi Technology Pre-IPO – PHIP Updates – Sales Growth Accelerated but Sustainability in Question
- Chenqi Technology Limited (CT HK) is looking to raise US$130m in its upcoming Hong Kong IPO, after downsizing from an earlier reported float of US$300m.
- Chenqi Technology (Chenqi) is a mobility technology and service company in China, founded by the GAC Group and Tencent.
- In our previous note, we talked about the company’s historical performance. In this note, we talk about its PHIP updates.
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – July 2024
- We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
- Our top picks are Perfect Medical Health (1830 HK), The Keepers Holdings (KEEPR PM), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and Ginebra San Miguel (GSMI PM).
- Despite weak data, HK stock earnings and dividend payouts in the results have been resilient, resulting in solid dividend yields of over 10%.
Shanghai Voicecomm IPO Preview: Superior Growth Profile and Collaboration With Baidu on ERNIE Bot
- Shanghai Voicecomm Information Technology Co., an IT solution provider for enterprise-level users in China, plans to price its IPO by July 10, 2024 and raise ~HK$664M.
- CICC is leading the offering in Hong Kong and the IPO is expected to be priced at HK$152.10 per H share, implying a market cap of ~HK$5.4B or ~$690M.
- Cornerstone investors have agreed to acquire ~1.8M H shares, representing 41% of the offer shares or ~5% of the total outstanding shares.
Mainland Connect NORTHBOUND Flows (To 28 June 2024): BIG Consumer Name Selling Again
- 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 SELL RMB 11.8bn of A-shares. NORTHBOUND bought utilities and raw materials and sold everything else, especially consumer names. Appliances remain on the sell side.
- 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, not bought.
Robosense IPO Lock-Up Expiry – US$2.8bn Lockup Expiry for 99% of the Stock, CCASS Movement
- Robosense Technology (2498 HK) raised around US$126m in its Hong Kong IPO in Jan 2024. The lockup on its shareholders will expire soon.
- The company provides LiDAR and perception solutions to its customers. As of March 2024, it had design wins for mass production of LiDAR products with 22 automotive OEMs and suppliers.
- In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.
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