In today’s briefing:
- Fuji Soft (9749 JP): The Board’s Unchanged Recommendation Caps the Upside
- China Healthcare Weekly (Oct.20)-A Big Lesson from China TCM’s Deal Break, “Must Option” of Biotech
- Fujikura (5803 JP): Positioning & Potential Passive Buying
- Merger Arb Mondays (21 Oct) – Seven & I, Fuji Soft, Henlius, Canvest, GA Pack, Dyna-Mac
- Korea Value-Up Index: Estimated Passive Flows as ETF Launches Coming
- [JAPAN ACTIVISM] Murakami Group Now 23.5% on Exedy (7278) – LOTS of Room Left To Run
- SSE50 Index Rebalance Preview: Potential Inclusions Continue to Outperform; Trim into Strength
- EQD | Nikkei 225 Option Implied Volatility Analysis – Focus on Bank of Japan Rate Decision Catalyst
- EQD / NSE Vol Update / Options Mkt. Structural Changes Incoming: 15x Position Limits + 3x Lot Size
Fuji Soft (9749 JP): The Board’s Unchanged Recommendation Caps the Upside
- The Fuji Soft Inc (9749 JP) Board has maintained its recommendation of KKR’s first-stage tender offer. However, the recommendation was not unanimous, with four dissenting directors.
- Bain’s likely next move is to waive the precondition and launch its offer. To bring KKR to the negotiating table, Bain will want to acquire as many shares as possible.
- KKR’s first stage closes on 21 October. Success requires KKR to either work with Bain or match terms. As shares trade through Bain’s terms, there is little or no upside.
China Healthcare Weekly (Oct.20)-A Big Lesson from China TCM’s Deal Break, “Must Option” of Biotech
- The “industry clearing” of innovative drug companies is far longer and more brutal than imagined. But Chinese innovative drug ecosystem will ultimately usher in a better innovation pattern in the future.
- For every innovative pharmaceutical company with ambitious goals, globalization is a “must option”. With more and more Chinese biotech achieving success, the internationalization prospects will become better and better.
- China TCM’s privatization failure made us realize large SOEs we always believe in would violate their commitments to market/investors.Now, we need to get back to the fundamentals to minimize losses.
Fujikura (5803 JP): Positioning & Potential Passive Buying
- Fujikura Ltd (5803 JP) could be added to a global index at the end of November and there will be a lot of buying in the stock.
- Following the rally in the stock, Fujikura Ltd (5803 JP) trades expensive to the average and median of its peers on most valuation metrics.
- The increase in cumulative excess volume in Fujikura Ltd (5803 JP) over the last 3 months far outpaces the increase in its peers.
Merger Arb Mondays (21 Oct) – Seven & I, Fuji Soft, Henlius, Canvest, GA Pack, Dyna-Mac
- 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: Seven & I Holdings (3382 JP), Shanghai Henlius Biotech (2696 HK), Shinko Electric Industries (6967 JP),Canvest Environmental Protection Group (1381 HK), Arcadium Lithium (LTM AU).
- Lowest spreads: Trancom Co Ltd (9058 JP), Fuji Soft Inc (9749 JP), Silverlake Axis (SILV SP), T Gaia Corp (3738 JP), Descente Ltd (8114 JP), Pasco Corp (9232 JP).
Korea Value-Up Index: Estimated Passive Flows as ETF Launches Coming
- The KRX announced the 100 constituents of the much-awaited Korea Value-Up Index on 24 September. There were hits and misses but broad consensus was that the index is a miss.
- Following market feedback, the KRX could conduct a special rebalance of the index in December. But this could be after the launch of ETFs tracking the index.
- With a big overlap and similar characteristics as the KOSPI 200 Index, there could be limited assets benchmarked to the Korea Value-Up Index in the short-term.
[JAPAN ACTIVISM] Murakami Group Now 23.5% on Exedy (7278) – LOTS of Room Left To Run
- This past week, activist Murakami-san’s City Index Eleventh announced that the companies which jointly report now own 20.3%, which translates to 23.5% of voting rights. Average in-price? ¥2,928/share.
- The 2030 Plan from April saw 8% ROE by 2030, 6% by 2026. They’ve since bought back 11% of shares out. Better, but 1/4 of market cap is net cash+securities.
- If one assumes they spend the net cash+securities to buy back stock 10% higher than here, pro-forma PBR is <0.6x. ROE would be 7+%. There’s room to run here, still.
SSE50 Index Rebalance Preview: Potential Inclusions Continue to Outperform; Trim into Strength
- With over 95% of the review period complete, 4 non-constituents are in inclusion zone and 6 constituents are in deletion zone.
- We estimate one-way turnover of 6.5% at the December rebalance leading to a one-way trade of CNY 11.95bn (US$1.7bn). Index arb balances could increase the impact on the stocks.
- The potential adds have continued to outperform the potential deletes. There has been a big jump in the last few weeks as markets have rallied. Trim positions into strength.
EQD | Nikkei 225 Option Implied Volatility Analysis – Focus on Bank of Japan Rate Decision Catalyst
- Nikkei 225 (NKY INDEX) option implied volatility is stabilizing at an elevated level. This Insight analyses term structure, skew, open interest, and more.
- We identify a tactical option opportunity that profits from the current volatility structure.
- Are Consumer Price Index and Bank of Japan interest rate decision announcements systematically followed by unusually large market moves? We run the numbers.
EQD / NSE Vol Update / Options Mkt. Structural Changes Incoming: 15x Position Limits + 3x Lot Size
- SEBI-Mandated structural changes continue to percolate through for Options Markets. Position limits & lot sizes have been increased drastically, tilting regulations away from Retail & towards more Institutional participation.
- IV levels are in the middle of their 12-month ranges. Vol-Regime Model currently in “High & Down” state – grind lower in IVs projected.
- In spite of a stronger underlying index, upcoming Bank earnings results have supported BankNifty IVs.
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