In today’s briefing:
- A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
- Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- DPC Dash Pre-IPO – The Negatives – Lags the Leader, Remains Loss Making
- 2023 High Conviction: Workman’s Cost Performance Will Beat the Competition
- Geely – ’22 Target Miss Already in Expectations, Catalysts for ’23
- Small- And Mid-Cap Indexes Poised to Break Out?; Further Upside Expected; Buys Within Cyclicals
- China Dongxiang (3818 HK): Losses Narrowing Down, a Good Sign
- IPAR: Guidance Removes Overhang
- Ambev SA: Initiation of Coverage – Improving Demand For Beer & Other Drivers
- Petrobras: Pricing Amargeddon, With a Muddle Through Likely
A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
- This post will specifically examine arb trade opportunities during the subscription rights trading period, with the recent HLB and Lotte Chemical cases.
- HLB gave an arb yield of 8%. As for Lotte Chemical, the size (₩1.1T) is much bigger, and it carries single-stock futures, a powerful incentive for arb traders.
- Another thing for Lotte Chemical is that it is unclear whether the major shareholders will participate in the subscription, which can lead to a widening of our arb spread.
Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- With just over two months left in the review period, we expect three changes to the Nikkei 225 (NKY INDEX) at the March rebalance.
- Lasertec Corp (6920 JP), Oriental Land (4661 JP) and Renesas Electronics (6723 JP) could replace Toyobo Co Ltd (3101 JP), Nippon Light Metal (5703 JP) and Toho Zinc (5707 JP).
- As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.
DPC Dash Pre-IPO – The Negatives – Lags the Leader, Remains Loss Making
- DPC Dash aims to raise around US$100m in its Hong Kong IPO.
- The company is the exclusive master franchisee for Domino’s Pizza in China, HK and Macau. DPC operated 562 stores across 13 cities, as of Nov 2022.
- In this note, we will talk about the not-so-positive aspects of the deal.
2023 High Conviction: Workman’s Cost Performance Will Beat the Competition
- Although spending on non-necessities withered from March 2020 onwards, some low-cost retailers of discretionary items continued to grow.
- Workman’s mix of high cost performance and engagement with the ever more active outdoor market has, and will, support expansion, even if same-store sales growth has slowed.
- Future category expansion will deliver higher same-store sales as well as top line growth. 1,500 stores (from 1,000) is certain but 2,000 is possible thanks to new categories like footwear.
Geely – ’22 Target Miss Already in Expectations, Catalysts for ’23
- Sector headwinds including supply chain shortage and business interruptions from Covid lockdown is easing.
- More new models in pipeline to drive sales volumes and earnings in 2023E
- Valuation re-rating would be triggered with earning recovery, consensus estimate upgrades, Zeekr ramping up and potentially Zeekr spin off.
Small- And Mid-Cap Indexes Poised to Break Out?; Further Upside Expected; Buys Within Cyclicals
- Despite $IWM already hitting our price target at 200-day MA/YTD downtrend, and the $SPX getting to within 1% of our target at 200-day MA, we see this 1.5-month rally continuing.
- We expect further upside as long as the 1.5-month uptrend channels remain intact on the SPX and IWM, and we believe that breakouts above their 200-day MAs could be coming
- Breakouts above their 200-day MAs that would likely signal the end to this bear market.
China Dongxiang (3818 HK): Losses Narrowing Down, a Good Sign
- Lower losses for investment business and sportswear retailing have contributed to a 48.4% reduction in losses for 1H FY23 at China Dongxiang Group Co (3818 HK).
- The resumption of interim special dividend is a welcoming sign. Inventory clearance, store optimisation, cost reduction and growth at the PHENIX ski wear brands are positive drivers.
- Its market capitalisation of HK$1.88bn represents a steep discount of 79% to its cash and investment portfolio of Rmb8.46bn, and this also means sportswear business is free.
IPAR: Guidance Removes Overhang
- IPAR continues to experience a strong consumer spending environment for fragrances where it has become increasing difficult to have all the components to manufacture a bottle
- IPAR reported third quarter sales of $280.5 million compared to our original estimate of $275.3 million. The increase in sales was the result of a strong showing from new licenses
- At the start of 2022, our 2022 EPS forecast was $3.05. It is now $3.40. IPAR’s stock has shown little movement for such an achievement
Ambev SA: Initiation of Coverage – Improving Demand For Beer & Other Drivers
- This is our first report on Brazilian beverage giant, Ambev SA.
- In spite of the headwinds in a few of its international operations, Ambev delivered strong results in the previous quarter in terms of both organic growth and net revenue.
- Non-alcoholic beverages also delivered a stellar quarter with volume growth.
Petrobras: Pricing Amargeddon, With a Muddle Through Likely
- I had to write a brief note about the panic whipped up by UBS’ downgrade of Petrobras, cutting its price target from R$47 to R$22 on fears of a policy shift under the incoming Lula administration.
- This combined with quarterly ex-dividend day, to send the shares sharply lower and extend their slide since the election.
- This Reuters article sums up recent events nicely- namely Lula is over-hauling PBR management and seeking a strategic shift from monster dividend pay-outs, towards increased investment in renewables and possible domestic price caps.
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