In today’s briefing:
- March 2024 Nikkei 225 Rebal – Socionext, Disco, and a Consumer Goods Stock to ADD and ¥1trn To Trade
- Yuanta/P-Shares Taiwan Div+ ETF Rebalance: Changes Lead to Huge Turnover
- FnGuide Top10 Equal Weight Index Rebalance Preview: Kia Corp Could Replace Posco Future M
- Pair Trade: Want Want (151 HK) And Mengniu (2319 HK)
- Fu Shou Yuan (1448.HK) – Magic Is About to Disappear, but Is Still Undervalued
- H World Group (1179 HK): Uniquely Well-Placed for Lower-Tier Markets
- Selected European HoldCos and DLC: November’23 Report
March 2024 Nikkei 225 Rebal – Socionext, Disco, and a Consumer Goods Stock to ADD and ¥1trn To Trade
- Minimal changes in the rankings since last time. Socionext (6526), Disco (6146), and a Consumer Goods stock (Zozo (3092) top-ranked, Ryohin Keikaku (7453) a better choice) are ADDs.
- The DELETEs are still Takara Holdings (2531), Pacific Metals (5541), Sumitomo Osaka Cement (5232) with a dark horse candidate in Hitachi Zosen (7004) to replace Takara.
- There is the upweight to Nitori (9843) AND funkiness with Fast Retailing (9983) to consider. We are right on the threshold. The question is whether it gets “help” in January.
Yuanta/P-Shares Taiwan Div+ ETF Rebalance: Changes Lead to Huge Turnover
- There are 5 adds and 4 deletes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in December with implementation taking place from 15-21 December.
- The constituent changes and capping changes result in an estimated one-way turnover of 16.1% resulting in a one-way trade of US$1.26bn.
- There will be positioning in a lot of the adds/deletes and the real action could be in the other stocks with capping and/or funding flows.
FnGuide Top10 Equal Weight Index Rebalance Preview: Kia Corp Could Replace Posco Future M
- The Samsung KODEX Fn Top10 Equal Weight ETF (395170 KS) tracks the FnGuide Top 10 Index and has an AUM of US$264m.
- We expect Kia Corp (000270 KS) to replace Posco Future M (003670 KS) in the index at the December rebalance.
- There will be 0.4x ADV to buy in Kia Corp (000270 KS) while passives will need to sell 0.1x ADV of Posco Future M (003670 KS).
Pair Trade: Want Want (151 HK) And Mengniu (2319 HK)
- Want Want (151 HK) and China Mengniu Dairy Co (2319 HK) are both fairly liquid names in the China consumer staples sector.
- Both companies trade at virtually the same forward PE of 14x. However, I expect Want Want’s near term sales growth to be lower than market expectations.
- The upside risk for Want Want could be its overseas expansion efforts, as overseas sales now account for mid to high-single-digit of sales and grew high-teens yoy in FY1H24.
Fu Shou Yuan (1448.HK) – Magic Is About to Disappear, but Is Still Undervalued
- The high growth in 23H1 is unsustainable. 23H2 YoY revenue growth would be single-digit. Due to 23H1’s high base, we cannot rule out the possibility of negative growth in 24H1.
- In the case of lower-than-expected external M&A activities, Fu Shou Yuan has accumulated a large amount of cash, which would drag down ROE. So, current dividend policy still needs improvement.
- Fu Shou Yuan’s expansion would be relatively moderate. Double-digit revenue growth can still be expected in the long term. The market value of above RMB15 billion is more reasonable.
H World Group (1179 HK): Uniquely Well-Placed for Lower-Tier Markets
- H World Group (1179 HK) has been over-penalised by market weakness as its share price was off 16.8% YTD. It turned around in 3Q23 and guidance for 4Q23 is solid.
- Surge in operating and adjusted EBITDA margins indicated high operating leverage. Occupancy has not returned to 2019 level, but there will be more margin expansion when this happens.
- 55% of rooms in China are of economy type, and 82% are in tier-2 and below cities. Such characteristics allow it to benefit from the prevailing consumption downgrade.
Selected European HoldCos and DLC: November’23 Report
- The discounts to NAV of covered holdcos have all tightened during November. Discounts to NAV: C.F.Alba, 47.1% (vs. 47.8%); GBL, 34.9% (vs. 35.5%); Heineken Holding, 14.5% (vs. 14.9%);
- Industrivärden C, 4.9% (vs. 6%); Investor B, 14.6% (vs. 16.5%); Porsche Automobile Holding, 39.9% (vs. 40.9%). The spread of Rio DLC tightened to 17.2% (vs. 21%).
- What seems interesting: holding trades, Heineken Holding vs. Heineken, Porsche SE/vs. listed assets and the Rio DLC: long RIO LN/short RIO AU.
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