In today’s briefing:
- L’Occitane (973 HK): Share Alternative a Crucial Step Towards the Offer Being Declared Unconditional
- Exedy Corp (7278 JP): Murakami Becomes a Substantial Shareholder
- Hengdeli Holdings (3389 HK): Negative EV Play Halted
- Quiddity Leaderboard HSTECH Sep 24: No Changes but US$425mn One-Way Flows Due to Capping
- Kagome (2811) – Well-Flagged Slightly Dilutive Equity Financing for High ROIC Purchase
- Quiddity Leaderboard HSCEI Sep 24: Two Changes Possible; US$256mn One-Way
- Hyundai Motor India IPO Preview
- L’Occitane (973.HK) – The Privatization Is About to Succeed
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – June 2024
- Clues to Management Change Are % Independent Directors and …..
L’Occitane (973 HK): Share Alternative a Crucial Step Towards the Offer Being Declared Unconditional
- L’Occitane (973 HK) announced the share alternative at an exchange ratio of 10 rollover shares for each offer share, subject to a cap of 5% of outstanding shares.
- The share alternative option will help the offer and was likely required to get Pleasant Lake Partners’ support (3.25% of outstanding shares). There is minimal vocal opposition to the offer.
- Irrevocables/Letters of support represent 49.83% of disinterested shares. An attractive offer and the share alternative facilitate meeting the minimum acceptance condition, which requires an 80% disinterested acceptance rate (ex. irrevocables).
Exedy Corp (7278 JP): Murakami Becomes a Substantial Shareholder
- Murakami’s entity, City Index Eleventh, and daughter reported a 5.46% position in Exedy Corp (7278 JP). The shares purchases began two days after the Aisin (7259 JP) secondary offering.
- Murakami’s average buy-in price is JPY2,607.30 per share, 2.3% higher than the recent secondary offering price of JPY2,549.
- Murakami’s disclosure suggests two possibilities: the start of an activist campaign or a short-term pump-and-dump play. Recent precedents suggest the latter.
Hengdeli Holdings (3389 HK): Negative EV Play Halted
- Watch accessory play Hengdeli Holdings (3389 HK) is currently suspended pursuant to the Takeovers Code.
- Potentially founder Zhang Yuping (holding 17%), CEO Tony Cheung (16%) and/or Swatch Group (UHR SW) (9.94%) may table an Offer. My money is on Zhang.
- This is a very illiquid name. What is interesting is that Hengdeli has net cash of HK$1.3bn – as at 31 December 2023 – against a market cap of HK$0.59bn.
Quiddity Leaderboard HSTECH Sep 24: No Changes but US$425mn One-Way Flows Due to Capping
- The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
- In this insight, we take a look at the rankings of potential ADDs and potential DELs for the September 2024 index rebal event.
- We do not see any index changes in September 2024 but there could be one-way flows of US$425mn due to capping.
Kagome (2811) – Well-Flagged Slightly Dilutive Equity Financing for High ROIC Purchase
- In January, Kagome Co Ltd (2811 JP) announced an acquisition of an additional 50% stake in a US equity affiliate. It is transformational. Incremental ROIC is truly excellent.
- At the time, they said they’d finance the purchase with a bridge loan but would sell treasury shares for ¥25bn or less to cover it. They announced the shelf then.
- Friday they announced the Offering. Today shares fell 8+%. This is now cheap.
Quiddity Leaderboard HSCEI Sep 24: Two Changes Possible; US$256mn One-Way
- The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
- In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI index rebal event in September 2024.
- Based on the current data, I see two ADDs and two DELs.
Hyundai Motor India IPO Preview
- Hyundai Motor India is getting ready to complete its IPO in 2H 2024. Hyundai Motor India plans to offer up to 142.2 million shares (17.5% stake) to investors.
- Hyundai Motor (005380 KS) currently owns a 100% stake in Hyundai Motor India. The IPO of Hyundai Motor India could raise as much as US$3 billion.
- If Hyundai Motor India (HMI) is valued at US$25 billion and HMC sells a 17.5% stake in the company, HMC’s remaining stake in HMI would be worth nearly US$21 billion.
L’Occitane (973.HK) – The Privatization Is About to Succeed
- So far, about 49.8% of disinterested shares from Irrevocable Undertakings/Non-binding Letters of Support would accept the Share Offer. Success is within reach based on a “good enough” privatization price.
- The Share Alternative is mainly aimed at investors who are hoping for the future re-listing of L’Occitane in the overseas markets – They can still get a vantage point.
- However, re-listing seems still distant/uncertain. The value of Rollover Shares in the future remains uncertain. Investors would face risks if they choose the Share Alternative. The Cash Alternative is preferred.
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – June 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).
- While HK stocks have weak data, we persist in being long these names, keeping in mind their long-term outlook and deep value.
Clues to Management Change Are % Independent Directors and …..
- Companies with low valuations have lower ROE, ROA, and foreign ownership as well as inferior board practices and key actions. Conversely, companies with high valuations show the opposite relationship.
- Over the past year, companies that increased their valuations were those with already high valuations, return on capital and foreign ownership that further improved their earnings and increased their valuations.
- This suggests that companies that have begun to make progress in management reform by improving board operations and clarifying management policies through engagement by overseas investors have achieved positive results.
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