In today’s briefing:
- JSR (4185) – Time To Fight The FUD
- Ecopro Materials KOSPI 200 Fast Entry Assessment: With K Car as the Outgoing Constituent
- Geely Stalls As ZEEKR Spins Off
- S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement
- JSR Corporation (4185 JP): Risk/Reward as SAMR Approves Broadcom/VMware
- Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
- A Potential Fight for Management Rights of Socar Between Lee Jae-Woong and Lotte Rental
- EQD | A Quick US/Global Equities Correction IS Possible Soon (…a Really OVERSOLD VIX…)
- Blackstone&Permira/Adevinta: Firm Offer
JSR (4185) – Time To Fight The FUD
- Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come.
- FUD and Flows would widen the spread. And they did.
- Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.
Ecopro Materials KOSPI 200 Fast Entry Assessment: With K Car as the Outgoing Constituent
- The fast entry screening spans from November 17th to December 7th. Given its current market cap, we should anticipate the potential success of fast entry.
- The implementation date will coincide with the effective day of the December rebalancing, which is December 15th. There are precedents of successfully achieving fast entry with such a tight schedule.
- The setup will be challenging due to the short selling ban. Nevertheless, with an existing position, there may be value in a market timing approach.
Geely Stalls As ZEEKR Spins Off
- Geely Auto (175 HK)‘s share price has largely swatted away the pending US-listing of ZEEKR (ZK US).
- ZEEKR was valued at US$13bn after a US$750mn fund raising in February. At that value, Geely’s 54.7% stake is worth 58% of its market cap.
- Geely is trading around a six and half year low, and below its five average trailing/forward metrics.
S&P/ASX Index Rebalance Preview: Big Impact; A Week From Announcement
- There could be 3 changes for the S&P/ASX 200 (AS51 INDEX) in December. There are unlikely to be any changes for indices higher up the hierarchy.
- Passive trackers will need to buy between 7-11 days of ADV in the inclusions while the impact on the deletions will be larger at between 11-23 days of ADV.
- Short interest has decreased on the potential inclusions and increased on the potential deletions. There is significant pre-positioning on some of the stocks.
JSR Corporation (4185 JP): Risk/Reward as SAMR Approves Broadcom/VMware
- JSR Corp (4185 JP)’s pre-conditional tender offer from JIC is conditional on several regulatory approvals, notably China SAMR approval. JIC can waive the conditions precedent.
- A takeaway from the Broadcom (AVGO US)/VMware Inc Class A (VMW US) SAMR clearance is that if JIC is willing to commit to restrictive conditions, SAMR approval can be obtained.
- On 6 November, JSR reiterated a late December tender start. However, with time fast running out, the likely scenario is SAMR conditional approval with a delayed tender start.
Xiaomi (1810 HK): Outperformance Leads to Passive Selling & Opens Up Trading Opportunities
- Xiaomi Corp (1810 HK) is a member of the Hang Seng Index, Hang Seng China Enterprises Index and Hang Seng TECH Index, among others.
- Capping of stocks at 8% of the index weight will lead to selling in Xiaomi (1810 HK) at the close on 1 December, mainly from Hang Seng TECH Index trackers.
- Relative underperformance vs the HSTECH Index from now to Tuesday will require passive to sell less stock, while outperformance will lead to increased passive selling. That opens up trading opportunities.
A Potential Fight for Management Rights of Socar Between Lee Jae-Woong and Lotte Rental
- It was announced that founder of Socar Lee Jae-Woong purchased 336,000 additional shares of Socar. This signals a potential M&A fight for Socar between Lee Jae-Woong/related parties and Lotte Rental.
- Founder Lee Jae-Woong and related parties currently own 37.8% stake in Socar versus Lotte Rental which has 32.9% stake.
- Socar is currently trading at more attractive valuations and we like the company’s aggressive strategy to raise profitability.
EQD | A Quick US/Global Equities Correction IS Possible Soon (…a Really OVERSOLD VIX…)
- The VIX INDEX has reached very OVERSOLD levels, it could bounce soon. Our models predict a short-lived bounce, probably 1-week.
- An increased VIX could trigger panic selling also in Asia-Pacific markets, dragging down returns and increasing volatility.
- The S&P500 is also WEEKLY OVERBOUGHT, the combination of VIX OVERSOLD and SPX OVERBOUGHT for us is a clear indication: WEEKLY pullback incoming!
Blackstone&Permira/Adevinta: Firm Offer
- Permira and Blackstone announced a NOK 115.0/share offer, two months after their approach was unveiled. 3-month VWAP premium is 52.6%. The offer represents 18.3x EV/NTM Fwd EBITDA (vs. 14.6x comparables)
- The three largest shareholders (c.72.3%) communicated at the outset their support, so it’s a done deal. 90% condition can be waived. Board says price “financially fair”, but cannot recommend it.
- I set my TP at NOK 115. The consortium could achieve an IRR of 17.8% by year 8. Spread is 3.3%/6.65% (gross/annualised, assuming settlement by 31 May). Long.
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