In today’s briefing:
- China Traditional Chinese Medicine (570 HK): Relief as Update Favours the Bulls
- Examining the September Reshuffle of the KOSPI Size Index Series
- TCM (570 HK): A Spoonful Of Sugar …
- Midea Group (000333 CH): Index Implications at US$3bn Issue Size
- Namoi Cotton (NAM AU): Louis Dreyfus Has This Stitched Up
- Hankook Tire & Technology: M&A of Hanon System Falling Apart?
- Porsche Automobile Holding: H1, Model Update, Discount to NAV
China Traditional Chinese Medicine (570 HK): Relief as Update Favours the Bulls
- China Traditional Chinese Medicine (570 HK)’s monthly update reinforces the bull case. The gross spread has remained uncomfortably high since falling on no news on 26 June.
- The monthly update will relieve the bulls, as the consortium has finally made the regulatory submissions. The update stresses that the filing delay is due to an unwieldy consortium.
- Potential stumbling blocks remain, which should not be an issue. Nevertheless, the risk (17.7% downside to the undisturbed price)/reward (21.4% gross spread) remains attractive.
Examining the September Reshuffle of the KOSPI Size Index Series
- The September KOSPI Size Index rebalancing could bring back the typical price impacts seen over the past decade, unlike the March rebalancing.
- The previous rebalancing had anomalies due to newly listed stocks in LARGE and a stronger downward trend in LARGE-to-MID transitions, disrupting the expected price impact.
- For September’s rebalancing, fewer distortions are expected compared to March. The NPS Mid to Small Cap fund, a key influence, shows no significant changes in benchmark or AUM.
TCM (570 HK): A Spoonful Of Sugar …
- A 14.8% gain month-to-date, including this past Monday’s 6.5% pop – you just knew something positive was taking place behind closed doors. And leaking its way into the public.
- So it was no real surprise to read in the latest monthly update announcement on the HKEx that various regulatory approvals are almost, but not quite, satisfied.
- The wording in the announcement strikes a positive tone. Even remaining conservative on the timeline, this could be wrapped up before year-end.
Midea Group (000333 CH): Index Implications at US$3bn Issue Size
- Midea Group Co Ltd A (000333 CH) has got approval to list on the HKEX (388 HK) and reports are that the listing could be up to US$3bn.
- That issue size is around half of the maximum that the company can issue. But it would still need cornerstone investors and a nice discount on the H-shares.
- The stock will still get included in some indices even with the scaled down size, and inclusion in Southbound Stock Connect is a given.
Namoi Cotton (NAM AU): Louis Dreyfus Has This Stitched Up
- Since Louis Dreyfus Company (LDC) first announced a A$0.51/share Offer, by way of a Scheme, on the 28 November 2023, and Olam Agri countered, there have been significant developments.
- Both suitors have now tabled off-market Offers (A$0.67/share from LDC, and A$0.70/share from Olam Agri). Both Offers are open for tendering. Both have extended their closing dates numerous times.
- And both suitors have also faced ACCC scrutiny. As of today, only LDC, currently holding a 20.2% stake in Namoi, is in the clear.
Hankook Tire & Technology: M&A of Hanon System Falling Apart?
- There are increasing signs that Hankook Tire & Technology’s M&A of Hanon Systems could be falling apart.
- The deadline for signing the main M&A contract to purchase a 25% stake in Hanon Systems has been postponed indefinitely.
- New contingent liabilities at Hanon Systems have been uncovered during the 10 week due diligence process of Hanon Systems by Hankook T&T.
Porsche Automobile Holding: H1, Model Update, Discount to NAV
- Porsche SE is trading at a 35.3% discount to NAV, vs. 32.4% long-term average, implying a 68% probability that Porsche SE will be liable for c. €6.5 billion legal claims.
- I think this is too harsh. Shares are trading at a Fwd P/E of 2.5x and a dividend yield of 7.8%, which I consider very attractive.
- Porsche SE presents an attractive opportunity to gain exposure to Volkswagen and Porsche AG. Porsche SE is focusing on deleveraging which should drive a reduction in the discount.
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