In today’s briefing:
- Japan – Increase in Shorts on Some Interesting*** Stocks
- KOSPI 200 December Rebalancing: Rule Change Clarifications & Possible Delay in Price Impact
- IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
- Weekly Deals Digest (12 Nov) – Eoflow, Benesse, Shidax, PS Mitsubishi, IRC, Hollysys, WuXi XDC
- IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
- Oizumi Mfg (6618) Gets Takeout from Parent Ferrotec (6890) – Probably Cheap, Disappointing Process
- Mainland Connect NORTHBOUND Flows (To 10 Nov 23): Back To Net Sales (Ping An, Eoptolink, Innolight)
- A/H Premium Tracker (To 10 Nov): Bad Week for H | A Across the Board Despite SB/NB Going “Right Way”
- HK Connect SOUTHBOUND (To 10 Nov 23); High-Div SOEs AGAIN See Outflows, Tencent and ETFs Big Buys
- STAR50 Index Rebalance Preview: Big Impact Expected on the Changes
Japan – Increase in Shorts on Some Interesting*** Stocks
- Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent Inc, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp have underperformed the Nikkei 225 recently.
- The underperformance could lead to selling from global passive trackers and liquidity events on some of the stocks at month-end.
- There has been an increase in short interest on most stocks over the last week as positioning for the liquidity event ramps up.
KOSPI 200 December Rebalancing: Rule Change Clarifications & Possible Delay in Price Impact
- Although not explicitly outlined, it appears practical to interpret that we should filter out stocks that have entered a trading suspension among those receiving a WARNING designation.
- The dynamics of KOSPI 200 flow trading have become notably tumultuous due to the abrupt short selling ban and additional liquidity halts imposed on market makers in the futures market.
- The manifestation of price impact due to passive flows may be significantly delayed. So, we should prepare for this week’s announcement day setup targeting the delayed impact of passive flows.
IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
- IJTT Co., Ltd. (7315 JP) has recommended Sparx Group (8739 JP)’s offer of JPY812 per share, an 18.5% and 16.0% premium to the undisturbed (9 November) and last close price, respectively.
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 23.48% ownership ratio.
- Despite the modest premium, the offer represents a high five-year share price. The minimum acceptance condition requires a 41.3% minority acceptance rate.
Weekly Deals Digest (12 Nov) – Eoflow, Benesse, Shidax, PS Mitsubishi, IRC, Hollysys, WuXi XDC
- A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
- ECM developments – EcoPro Materials (ECO123 KS), WuXi XDC Cayman (1877628D HK), Midea Group Co Ltd A (000333 CH) and Cainiao Smart Logistics Network (1437124D HK) IPOs
- Event-Driven developments – Eoflow (294090 KS), Benesse Holdings (9783 JP), Shidax Corp (4837 JP), Ps Mitsubishi Construction (1871 JP), Hollysys Automation Technologies (HOLI US), Irc Ltd (1029 HK).
IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
- A Fund named Mirai Creation Fund, investing in five “fields” “vital to the future” (“intelligent technologies”, robotics, hydrogen-economy, electrification, and “new materials”) will buy out casting/forging mainstay IJTT.
- The look and feel of this fund screams “lead me to the future”, so of course, the buy-out is being done with 26% equity, 74% debt. Levered is good.
- That’s to buy at 0.46x PBR. Equity check is 12% of net assets. The Board says “yes” because it will lead to “improvement of corporate value”. Unfortunately, not for shareholders.
Oizumi Mfg (6618) Gets Takeout from Parent Ferrotec (6890) – Probably Cheap, Disappointing Process
- Ferrotec Corp (6890 JP) on Friday announced a takeover for subsidiary Ohizumi Mfg (6618 JP) on Friday. There will be synergies and growth and corporate value increase.
- The takeover price is not overly high, and includes no measure of synergies – not even the DCF value of delisting the company (no listing/filing/IR/legal fees/costs).
- I think this gets done. It is too closely held, there are few foreigners in it, and it’s not large enough for an activist to care.
Mainland Connect NORTHBOUND Flows (To 10 Nov 23): Back To Net Sales (Ping An, Eoptolink, Innolight)
- This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
- The same five names continue at the top of the gross flows list – Kweichow Moutai, Contemporary Amperex, Wuliangye Yibin, Foxconn Industrial, and BYD. Nets are still smaller.
- Last week, NORTHBOUND returned to net OUTflow after the previous week saw the first net buy in 3mos. This week saw RMB 7.95bn of net NORTHBOUND selling.
A/H Premium Tracker (To 10 Nov): Bad Week for H | A Across the Board Despite SB/NB Going “Right Way”
- The New and Better (10 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- HUGE underperformance of Hs vs As across the board. A horrible week and it is not clear why. I doubt it was the short-selling warning or increase in haircuts.
- SOUTHBOUND was a net buy and NORTHBOUND a net sell and the largest net SB flows on H/A pairs were the high-div SOEs.
HK Connect SOUTHBOUND (To 10 Nov 23); High-Div SOEs AGAIN See Outflows, Tencent and ETFs Big Buys
- This is the somewhat brand-spanking-new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
- SOUTHBOUND flows the last four weeks clearly indicate a momentum move. The top net sells are all down. The top buys are all up.
- Tencent and three ETFs see the top net buys as SOUTHBOUND bought HK$18.4bn this past week. Energy and Telco net sales persist. And persist. And persist.
STAR50 Index Rebalance Preview: Big Impact Expected on the Changes
- With the review period complete, we expect one change for the STAR50 INDEX in December if the index committee continues to use a 6-month minimum listing history.
- With net inflows to mainland China ETFs over the last few months, passive trackers will need to trade between 9-25 days of ADV on the potential add and delete.
- SMIC (688981 CH) will be capped and there will be reverse funding flows on the index constituents. One-way turnover is estimated at 1.8% resulting in a one-way trade of CNY2,580m.
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