In today’s briefing:
- Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
- Kokusai Electric (6525): Global Index Inclusion Highly Dependent on Free Float
- Itochu Buying Out Sub CI Takiron (4215) Below Book – Too Cheap And Weak Process/Transparency
- Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
- China TCM (570.HK) Privatization Update – Things Are Still Manageable
- Technology Select Sector Index (XLK US): Reversing the Huge Flows from June
- C.I.TAKIRON (4215 JP): Itochu’s (8001 JP) Light Tender Offer at JPY870
- Potential Additions and Deletions to KOSPI 200 in December 2024 Amid Market Downturn
- TOPIX Inclusions: Who Is Ready (August 2024)
- EQD | The S&P500 WEEKLY Smashed The Tails Barrier, Reversal Due Soon
Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
- Today, Itochu Corp (8001 JP) announced it would launch a Tender Offer when approvals were received, to buy out minorities in Descente Ltd (8114 JP) at ¥4,350/share.
- Itochu was buying at that price or higher, in the market, in October 2023. Earnings and book are up since then. Outlook for the Descente China Holdings affiliate? Great.
- The valuation transparency is disappointing. Activists would have 3mos or so to push for more. But with friendly holders, they get very close to the minimum anyway.
Kokusai Electric (6525): Global Index Inclusion Highly Dependent on Free Float
- IPO lock-up expiry of Kokusai Electric (6525 JP) results in a forecasted increase in free float to 35% and fcap of $2.9bn for the August 2024 review.
- Secondary offering of Kokusai Electric (6525 JP) results in a forecasted increase in free float to 60-65% and latest fcap of $3.4bn- $3.7bn for the November 2024 review.
- Inclusion will be determined based on fcap against the fcap threshold. Fcap uncertainty for November is largely driven by stock price fluctuations and the Greenshoe Option.
Itochu Buying Out Sub CI Takiron (4215) Below Book – Too Cheap And Weak Process/Transparency
- Itochu Corp (8001 JP) today announced another TOB to buy out minorities of a sub other than Descente Ltd (8114 JP). C.I. TAKIRON Corporation (4215 JP) at ¥870. A takeunder.
- The stock was up a lot today I assume on news I didn’t see. Slightly lower than the close. Low EV/EBITDA multiple. Lacking transparency.
- The Board is OK selling at below book, but if one takes out net cash, securities, net receivables, and inventory/materials of one quarter of sales, the rest is 0.54x book.
Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
- Descente Ltd (8114 JP) has recommended a pre-conditional tender offer from Itochu Corp (8001 JP) at JPY4,350, 16.6% premium to the undisturbed price.
- The pre-condition is approval under the competition laws of Japan and China. The offer is anticipated to commence in early November. In January 2019, Itochu completed a hostile partial offer.
- While the offer is attractive vs peer multiples, it is light vs historical trading ranges. Securing the required acceptance rate could prove challenging as the price is light.
China TCM (570.HK) Privatization Update – Things Are Still Manageable
- What disappoints investors is that privatization progress is slower-than-expected. Since approval is in “advanced stage”, August update is eye-catching. Investors may need more patience with this type of SOE deal.
- The key to the success of this privatization lies in whether CNPGC is willing to abide by its commitments. If yes, CNPGC will take all measures to solve the problems.
- According to our valuation calculation, even without this privatization, HK$3.5/share is fair for China TCM. Reasonable share price is above HK$5/share. Don’t forget, the privatization is still on the agenda.
Technology Select Sector Index (XLK US): Reversing the Huge Flows from June
- The Technology Select Sector SPDR (XLK US) ETF tracks the Technology Select Sector Index and has an AUM of over US$65bn.
- The recent drop in NVIDIA Corp (NVDA US) has taken its market cap and free float market cap lower than Microsoft Corp (MSFT US) and Apple (AAPL US).
- If that continues to be the case on 13 September, there will be huge outflows for NVIDIA (NVDA) and huge inflows for Apple (AAPL) at the close on 20 September.
C.I.TAKIRON (4215 JP): Itochu’s (8001 JP) Light Tender Offer at JPY870
- C.I. TAKIRON Corporation (4215 JP) has recommended a tender offer from Itochu Corp (8001 JP) at JPY870, a 9.7% premium to the undisturbed price of JPY793 (2 August).
- The lower limit of the tender offer is set at a 10.97% ownership ratio. The tender offer runs from 6 August to 18 September, with payment from 26 September.
- While attractive vs peer multiples, the offer is light due to a skinny takeover premium, an implied P/B below 1x, and 9% below the mid-point IFA DCF valuation.
Potential Additions and Deletions to KOSPI 200 in December 2024 Amid Market Downturn
- We discuss the potential additions and deletions to KOSPI 200 in December 2024 amid big declines in share prices of many stocks in KOSPI in the past week.
- The eight potential additions are up on average 8.5% from end of 2023. The eight potential deletion candidates are down on average 39.1% YTD.
- The average market cap of the seven potential additions is 1.9 trillion won. The average market cap of the seven potential deletion candidates is 0.6 trillion won.
TOPIX Inclusions: Who Is Ready (August 2024)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) moved to the Prime market in July 2024 which means there will TOPIX Inclusions at the end of August 2024.
- Our pre-event pick CELSYS (3663 JP) has seen its price fall by more than 20% during the recent market sell-off and it is close to a key share price threshold.
EQD | The S&P500 WEEKLY Smashed The Tails Barrier, Reversal Due Soon
- The S&P 500 INDEX is massively oversold WEEKLY (and DAILY).
- Our models indicate the index is trading in the “Tails” area of the LONG model, a reversal is probably imminent, but forecasts in this price area are less reliable.
- Accumulation can start from Monday’s low prices (around 5100), the reversal will probably come next week.
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