In today’s briefing:
- JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings
- HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
- Yuanta/P-Shares Taiwan Dividend+ ETF Preview: Two Weeks to Cutoff
- AAG Energy (2686 HK): New Scheme Vote Date, Different Result?
- Kum Yang: Shorting Entry Timing on the Inevitable Block Deals
- Merger Arb Mondays (08 May) – Toshiba, AAG, Lian Beng, Penguin, Golden Energy, Estia
- Quiddity Leaderboard TWSE Div+ Jun 23: New Potential Index Changes and Flow Expectations Update
- JAPAN FLOW: Foreign Investor Inflows May Increase
- Skyworth (751 HK): Thoughts On Proration
- Liontrust/GAM: Rescue All-Share Agreed Offer
JAPAN GOVERNANCE CHANGES II – Who Could Surprise on Buybacks? Quant Rankings
- Japanese companies are buying back more stock than ever before, and recent moves by the TSE and METI are effectively pushing for more.
- The new goal is to lift PBR and ROE. The easiest way to lift ROE is reduce E. Low-PBR Cos with excess assets and cross-holdings (outbound and inbound) are targets.
- In this insight I look at several possible rankings for potential large buyback targets.
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
- There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
- There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
- A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.
Yuanta/P-Shares Taiwan Dividend+ ETF Preview: Two Weeks to Cutoff
- With two weeks left to the cutoff, there could be 5 changes to the Yuanta/P-Shares Taiwan Dividend Plus ETF in June.
- Apart from the adds/deletes, there will also be capping and funding flows that will lead to an estimated one-way turnover of 13.5% and a one-way trade of US$886m.
- There are 9 stocks with at least 5 days ADV to trade from passive trackers and another 12 stocks that have at least 1 day ADV to trade.
AAG Energy (2686 HK): New Scheme Vote Date, Different Result?
- Aag Energy Holdings (2686 HK)’s disclosed a revised timetable to vote on Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer. The new scheme meeting is set for 2 June.
- Our analysis suggests that in the best case, Xinjiang Xintai would need to further swing NO votes representing 6.52%-8.34% of outstanding shares to YES to get the scheme approved.
- AAG’s case is unprecedented. The risk-reward remains unattractive as the upside to a scheme pass (13.5% upside) is equal to the downside to a scheme fail (average 13.5% downside).
Kum Yang: Shorting Entry Timing on the Inevitable Block Deals
- Kum Yang IR director Park once mentioned that the block deals to sell the 2M treasury shares would likely occur in late May or early June.
- There has been speculation in the market that the timing of the block deal may be postponed until after its inclusion in the KOSPI 200, allowing for short selling.
- Considering the immediate funding needs faced by the company, setting an aggressive approach to shorting from shortly after its inclusion in the KOSPI 200 would be reasonable regarding entry timing.
Merger Arb Mondays (08 May) – Toshiba, AAG, Lian Beng, Penguin, Golden Energy, Estia
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads 111 Inc (YI US), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK),Origin Energy (ORG AU), Metro Pacific Investments Co (MPI PM).
- Lowest spreads Liontown Resources (LTR AU), Healius (HLS AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service (3085 JP).
Quiddity Leaderboard TWSE Div+ Jun 23: New Potential Index Changes and Flow Expectations Update
- There have been some changes to my expectations for the TWSE Div+ index June 2023 index changes and capping flows.
- I currently see 5 ADDs/DELs. Some of these names are different from the ones I specified in my previous insight.
- In this insight, we take a look at my latest flow expectations.
JAPAN FLOW: Foreign Investor Inflows May Increase
- For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
- The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to one relatively simple indicator.
- The policy backdrop points to greater corporate buying, greater foreign flow, greater selling by individuals and trust banks. The current timing probably matches.
Skyworth (751 HK): Thoughts On Proration
- Back on the 23 December, Skyworth Group (751 HK) announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.
- On the 28 March, terms were bumped to $5.00/share. Independent shareholders approved the whitewash waiver on the 5 May.
- The Offer closes on the 18 May. The minimum proration is 7.8%. Expect the final proration to be higher.
Liontrust/GAM: Rescue All-Share Agreed Offer
- Liontrust is offering 0.0589 of its own shares per share of fallen angel GAM (which had CHF132 billion AuM by end 2020 vs CHF 23.3 billion now).
- Although the GAM brand arguably retains some value, Liontrust is being somehow genereous, in my view. My fair value estimate (multiples based) is CHF 0.58/share.
- Gross spread is +16.4%. I wouldn’t get involved right now, because spread is positive, there is risk of a legal challenge and next results are likely to be ugly.
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