In today’s briefing:
- China Traditional Chinese Medicine (570 HK): Something Is Brewing, but Nobody Knows Quite What
- Malaysia Airports (MAHB MK)’s Offer: Buckle Up!
- Tax-Loss Selling In Australia 2024 – Time To Reverse The Trade (7.2-8.6% Rtn in Two Months So Far)
- Sawai Group (4887) – BIGLY Buyback To “Drastically” Change Capital Structure
- Quiddity Leaderboard MV J-Gold Miners Sep 24: Mergers Mean Possible Up-And-Out DELETEs
- Redox IPO Lock-Up Expiry – Limited Liquidity Might Provide a Good Excuse to Sell
- Midea Real Estate (3990 HK): Ex-In-Specie, The Rump Is Rich
- Merger Between Classys and Ilooda Likely to Reduce Local Competition
- Adnoc/Covestro: Fresh Takeover Negotiations and Valuation Scenarios
China Traditional Chinese Medicine (570 HK): Something Is Brewing, but Nobody Knows Quite What
- On no news, China Traditional Chinese Medicine (570 HK) shares declined 12% today. We spoke to several readers to gauge the likely reasons for the fall.
- The speculation is that the fall could be due to forced liquidation, Sinopharm’s new Chairman pulling the offer, the consortium unravelling, SAMR issues and Ping An blocking the deal.
- There is clearly news behind today’s fall, but none of the above rumours seem credible. The risk/reward is attractive as the upside (25% spread) outweighs the downside (18% to undisturbed).
Malaysia Airports (MAHB MK)’s Offer: Buckle Up!
- Back on the 15th May, Khazanah Nasional, the EPF, the Abu Dhabi Investment Authority, and GIP, offered to buy shares not already owned in Malaysia Airports (MAHB MK) at RM11.00/share.
- The premium to undisturbed appears reasonable. The price is a life-time high. The 90% acceptance hurdle was not insurmountable, and the consortium had the flexibility to lower the %.
- But the Offer is now facing unexpected political pushback, amid protests against the Israel-linked bid.
Tax-Loss Selling In Australia 2024 – Time To Reverse The Trade (7.2-8.6% Rtn in Two Months So Far)
- The original trade was discussed at end-April in Tax-Loss Selling in Australia 2024 – Historical Analysis and A Trade Basket then updated here and here.
- That has done OK. The LIQUID basket has delta neutral performance of +8.4% over 2mos; LIQUID+LESSLIQUID +7.2%; If one did a mixed basket (3x L+LL + 1x Illiquids) it’s +8.6%.
- Now it is time to reverse the trade, buying the basket you were short, and running it against index for the next 6-8 weeks.
Sawai Group (4887) – BIGLY Buyback To “Drastically” Change Capital Structure
- Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
- By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
- The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.
Quiddity Leaderboard MV J-Gold Miners Sep 24: Mergers Mean Possible Up-And-Out DELETEs
- The MV J-Gold Miners index represents the performance small-cap gold and silver mining companies listed around the world.
- This index is reviewed semi-annually in March and September. During these reviews, names can be added or deleted from the index.
- In this insight, we take a look at the potential ADDs and DELs and our flow expectations for the index rebal event in September 2024.
Redox IPO Lock-Up Expiry – Limited Liquidity Might Provide a Good Excuse to Sell
- Redox (RDX AU), a chemical and ingredients distributor, raised US$270m in its IPO in Jun 2023. Some of its founding family shareholders will be released from their IPO lockup soon.
- Redox primarily serves the ANZ market, and it has a presence in Malaysia and the US. It is one of the largest chemicals and ingredients distributors in Australia.
- In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.
Midea Real Estate (3990 HK): Ex-In-Specie, The Rump Is Rich
- In an unusual move, property developer Midea Real Estate Holding (3990 HK) announced the In-Specie distribution of its core ops, either in unlisted scrip, or HK$5.90/share in cash.
- As this is considered a “very substantial disposal“, a Scheme-like vote from independent shareholders is required at an EGM. And controlling shareholders – with 81.13% – are required to abstain.
- The EGM will be held on the 2 September, with the cash payment expected on (or before) the 18 October. The question is: what is the Rump worth?
Merger Between Classys and Ilooda Likely to Reduce Local Competition
- On 25 June, Classys (214150 KS) announced a merger with Ilooda (164060 KS). The merger ratio is set at 0.1405237 to 1 for Classys and Ilooda.
- This merger aims to combine Classys’ expertise in high-intensity focused ultrasound (HIFU) with Ilooda’s in micro-needle radio frequency (RF) and laser technologies.
- We have a positive view of this merger between Classys and Ilooda. This merger is likely to reduce the overall competition in the aesthetics devices market in Korea.
Adnoc/Covestro: Fresh Takeover Negotiations and Valuation Scenarios
- On 24 June, Covestro AG (1COV GR) confirmed it has decided to enter into concrete negotiations with ADNOC regarding a potential transaction at an indicative €62/share (9.6x EV/fwd NTM EBITDA).
- Covestro is trading at 8x (vs. 6.5x median of peers). To justify €70/share (sought last December), Covestro should overdeliver, but analysts and market are somehow skeptical about that.
- Considering a takeout price of €62, gross spread is 12.1% and the shares are pricing a 32.5% probability of deal completion.
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