In today’s briefing:
- IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
- Asics (7936) | Running the Numbers
- IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
- China Consumption Weekly (13Nov2023): Li Auto, NIO, Alibaba, Best, Meituan, KE
- Mainland Connect NORTHBOUND Flows (To 10 Nov 23): Back To Net Sales (Ping An, Eoptolink, Innolight)
- A/H Premium Tracker (To 10 Nov): Bad Week for H | A Across the Board Despite SB/NB Going “Right Way”
- STAR50 Index Rebalance Preview: Big Impact Expected on the Changes
- Merger Arb Mondays (13 Nov) – Benesse, JSR, IJTT, Shidax, Cybernet, CMIC, IRC, Hollysys, Healius
- Sheng Siong (SSG SP) – Great Execution So Far, Maintaining >20% ROCE
- Wolters Kluwer: Management Confident About 2024
IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
- IJTT Co., Ltd. (7315 JP) has recommended Sparx Group (8739 JP)’s offer of JPY812 per share, an 18.5% and 16.0% premium to the undisturbed (9 November) and last close price, respectively.
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 23.48% ownership ratio.
- Despite the modest premium, the offer represents a high five-year share price. The minimum acceptance condition requires a 41.3% minority acceptance rate.
Asics (7936) | Running the Numbers
- ASICS reports solid Q3 results, featuring a 14.5% rise in net sales, 31% rise in operating profit, improved gross margin, and digital growth.
- ASICS revises FY23 outlook with increased sales and operating profit. New OP guidance of Y52b is inline with consensus
- Market to focus on new Mid-Term Plan (end-Nov). Valuation at 16x forecast EBIT still a discount to average 18x multiple.
IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
- A Fund named Mirai Creation Fund, investing in five “fields” “vital to the future” (“intelligent technologies”, robotics, hydrogen-economy, electrification, and “new materials”) will buy out casting/forging mainstay IJTT.
- The look and feel of this fund screams “lead me to the future”, so of course, the buy-out is being done with 26% equity, 74% debt. Levered is good.
- That’s to buy at 0.46x PBR. Equity check is 12% of net assets. The Board says “yes” because it will lead to “improvement of corporate value”. Unfortunately, not for shareholders.
China Consumption Weekly (13Nov2023): Li Auto, NIO, Alibaba, Best, Meituan, KE
- Li Auto’s revenue increased by 271% YoY and vehicle deliveries increased by 296% YoY in 3Q23.
- NIO will dismiss 10% of its employees and even 20% in some departments.
- We do not believe Alibaba will take over the whole Best Inc.
Mainland Connect NORTHBOUND Flows (To 10 Nov 23): Back To Net Sales (Ping An, Eoptolink, Innolight)
- This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
- The same five names continue at the top of the gross flows list – Kweichow Moutai, Contemporary Amperex, Wuliangye Yibin, Foxconn Industrial, and BYD. Nets are still smaller.
- Last week, NORTHBOUND returned to net OUTflow after the previous week saw the first net buy in 3mos. This week saw RMB 7.95bn of net NORTHBOUND selling.
A/H Premium Tracker (To 10 Nov): Bad Week for H | A Across the Board Despite SB/NB Going “Right Way”
- The New and Better (10 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- HUGE underperformance of Hs vs As across the board. A horrible week and it is not clear why. I doubt it was the short-selling warning or increase in haircuts.
- SOUTHBOUND was a net buy and NORTHBOUND a net sell and the largest net SB flows on H/A pairs were the high-div SOEs.
STAR50 Index Rebalance Preview: Big Impact Expected on the Changes
- With the review period complete, we expect one change for the STAR50 INDEX in December if the index committee continues to use a 6-month minimum listing history.
- With net inflows to mainland China ETFs over the last few months, passive trackers will need to trade between 9-25 days of ADV on the potential add and delete.
- SMIC (688981 CH) will be capped and there will be reverse funding flows on the index constituents. One-way turnover is estimated at 1.8% resulting in a one-way trade of CNY2,580m.
Merger Arb Mondays (13 Nov) – Benesse, JSR, IJTT, Shidax, Cybernet, CMIC, IRC, Hollysys, Healius
- 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 – 111 Inc (YI US), Eoflow (294090 KS), Benesse Holdings (9783 JP), Hollysys Automation Technologies (HOLI US), Irc Ltd (1029 HK), IJTT Co., Ltd. (7315 JP).
- Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Chindata Group (CD US).
Sheng Siong (SSG SP) – Great Execution So Far, Maintaining >20% ROCE
- Sheng Siong (SSG SP) continues to maintain steady, low, single-digit growth in revenue and flat profitability despite a challenging environment.
- Inflation trends reversing due to lower power costs in 2024, and an improvement in its product mix could lead to increased low double-digit profitability (10-11% YoY).
- Trading at 18.5x/17.6x FY23e/24e PE and 3.9% dividend yield, the stock remains on our watchlist if a correction leads to a favorable entry point.
Wolters Kluwer: Management Confident About 2024
- Wolters Kluwer is executing on the second year of its strategic plan, with bold steps taken during the past few months
- The business model is solid, with recurring revenues totaling 80% of the group’s total revenues.
- Management is positive about the pipeline, the retention rates, and the promising net promoter scores seen in H2; the key element for determining revenue growth in 2024
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