In today’s briefing:
- [JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run
- Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn
- Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer
- HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)
- Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off
- Hang Seng, HSCEI, HSTECH Sep24 Rebal Final Capping Flows
- Nationwide/Virgin Money (VUK AU): At The Pointy End Of The Offer
- MSC Aug 24 Rebalance: Brazil Takes the EM Flow, SA & China Downweighted Again (Tencent)
- Potential Sale of SK Specialty and Deleveraging of the SK Group – Impact on SK Inc and NAV Analysis
- Samsung C&T: Corporate Value-Up + Reduced Overhang Post Final Lee Family Inheritance Tax in 2025
[JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run
- In late May, Toyota Group member Aisin (7259 JP) announced it would sell its 37% stake in Exedy Corp (7278 JP) . The market dropped. But that was the opportunity.
- On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.” It’s up 21.5% since (the day after). Peers are down 15-20%.
- The company completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left.
Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn
- The changes to the S&P 500 INDEX (SPX INDEX), S&P400 Index and S&P600 Index will be announced after market close on Friday.
- The conclusions of the market consultation to change the index weighting methodology for the Select Sector Indices to reduce concentration and avoid reverse turnover should also be announced.
- Changes in the index weighting methodology will result in a round-trip trade of US$35bn across the Select Sector indices. The largest turnover is in the XLP and XLK.
Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer
- Nikkei reports that Bain will launch a competing tender offer for Fuji Soft Inc (9749 JP) around JPY9,200-9,300 per share, around 5% higher than KKR’s offer.
- The Board responded that Bain submitted a non-binding proposal on 26 July. The special committee will consider its feasibility if a binding proposal is submitted.
- KKR has three options to respond to a higher Bain offer: revise it, launch a hostile offer at unchanged terms, or walk away. The first option is the most likely.
HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)
- The September rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
- The round-trip trade across all stocks across the four indices is estimated at HK$18.1bn (US$2.3bn).
- Kuaishou, ASM Pacific Technology, JD.com, J&T Global, Sunny Optical and New Oriental Education are the largest buys while Alibaba, Tencent, Meituan, Xiaomi and HSBC Holdings are the biggest sells.
Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off
- Samsung C&T’s holding company ratio is closing in on 50%, driven by the Biologics rally, which has Samsung on high alert for a forced conversion.
- Watch Samsung’s moves to avoid forced holding company status. The old Biologics-for-Electronics swap isn’t viable, so they’ll likely sell Biologics shares to lower the ratio.
- Samsung C&T might sell Biologics shares at a ₩80T market cap. They’ve boosted construction to manage assets and the holding ratio, but beyond ₩80T, risks increase.
Hang Seng, HSCEI, HSTECH Sep24 Rebal Final Capping Flows
- The close of 3 September 2024 was the final price to determine capping for the Hang Seng Index Rebalances which will take place this Friday 6 September 2024 at close.
- The numbers are largely unchanged, though price changes in the interim cause more Kuaishou Technology (1024 HK) to be bought, and more Xiaomi Corp (1810 HK) to be sold.
- The biggest name in flows is, of course, ASM Pacific Technology (522 HK) which sees 15 days to buy.
Nationwide/Virgin Money (VUK AU): At The Pointy End Of The Offer
- Back on the 21st March, Virgin Money UK (VUK AU/VMUK LN), UK’s sixth largest retail bank, entered into a Scheme with Nationwide Building Society, at 220 pence/share, in cash.
- The consideration is a solid 38% premium to undisturbed. And shareholders backed terms at the 22nd May Court Meeting. Plus UK’s CMA signed off on the 19th July.
- What now? FCA/PRA approvals are the key remaining conditions. These regulatory approvals are imminent.
MSC Aug 24 Rebalance: Brazil Takes the EM Flow, SA & China Downweighted Again (Tencent)
- South Africa was downweighted in ACW, EM and EM ex China for a second consecutive quarter.
- Brazil was the largest upweight in ACW, EM and EM ex China.
- Tencent was downweighted in the EM index but upweighted in ACW.
Potential Sale of SK Specialty and Deleveraging of the SK Group – Impact on SK Inc and NAV Analysis
- In this insight, we discuss the potential sale of SK Specialty by SK Inc (034730 KS) which owns 100% stake in the company.
- If SK Inc could sell SK Specialty at about 3 trillion won to 4 trillion won, this could reduce significantly reduce debt burden of SK Inc.
- Our base case NAV value per share for SK Inc is 203,288 won per share, representing 38% upside from current levels.
Samsung C&T: Corporate Value-Up + Reduced Overhang Post Final Lee Family Inheritance Tax in 2025
- We provide an updated NAV analysis of Samsung C&T, discuss the reduced overhang post final Lee family inheritance tax payment, and also provide further details of its Corporate Value-Up announcement.
- Given 2025 will be the last year of major inheritance tax payment for the Lee family, there is likely to be reduced overhang associated with inheritance tax issue next year.
- Our NAV analysis of Samsung C&T suggests NAV of 39.9 trillion won or NAV per share of 224,249 won which is 45% higher from current levels.
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