In today’s briefing:
- Kokusai Electric (6525 JP): Placement Price Could Be Determined Today; Index Impact Could Be Delayed
- The Naspers/Tencent & Prosus/Tencent Stub: Entry Levels so Attractive It Looks Too Good to Be True
- ENEOS Extends Tatsuta Electric (5809) Tender Offer Means They Don’t Have The Shares
- Merger Arb Mondays (22 Jul) – China TCM, GA Pack, Huafa, Samson, CPMC, Fancl, Tatsuta, Capitol
- GAPack (468 HK): Grinding Towards a Stalemate
- A/H Premium Tracker (To 19 Jul 2024): SB Bought, NB Sold, HK Crushed Vs A-Shares
- HK Connect SOUTHBOUND Flows (To 19 Jul 2024); Tencent the Big Buy, but Few Banks and a Long Tail
- EQD / NSE Vol Update / IVs Marked Higher & Vol Curve Inverts … Its All About the Budget
- Private Equity Interest Is Back
- Mainland Connect NORTHBOUND Flows (To 19 July 2024): A Big Broad Sell in Third Plenum Week
Kokusai Electric (6525 JP): Placement Price Could Be Determined Today; Index Impact Could Be Delayed
- Kokusai Electric (6525 JP) could price their secondary offering after market close today. The stock is down 10.5% since the rumors of the placement began 7 trading sessions ago.
- The Philadelphia Stock Exchange Semiconductor Index (SOX INDEX) has been dropping over the last few days and is 8.6% lower over the last 8 trading days.
- Kokusai Electric (6525 JP) has been trading higher on expectations of index inclusion in August, but that could move to November now.
The Naspers/Tencent & Prosus/Tencent Stub: Entry Levels so Attractive It Looks Too Good to Be True
- Discounts likely set for a re-rating as market continues to overreact to appointment of CEO amid good set of results.
- The discounts of both Naspers and Prosus have continued to widen since the appointment of Fabricio Bloisi to Group CEO was announced in May (effective 10 July).
- At the end of June, the group released its strongest set of results in years, delivering on consolidated ecommerce profitability ahead of target.
ENEOS Extends Tatsuta Electric (5809) Tender Offer Means They Don’t Have The Shares
- ENEOS Holdings (5020 JP) announced its deal for affiliate Tatsuta Electric Wire & Cable (5809 JP) 18-plus months ago. China approvals held it up more than a year.
- Last month, they launched. The sector was up a lot. TOPIX was up a lot. The stock had recently been trading through terms. But ENEOS didn’t bump the price.
- A month later, and the tender was supposed to have closed Friday 19 July. It didn’t. ENEOS extended, for no reason, which suggests they don’t have the shares.
Merger Arb Mondays (22 Jul) – China TCM, GA Pack, Huafa, Samson, CPMC, Fancl, Tatsuta, Capitol
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK).
- Lowest spreads: Tatsuta Electric Wire & Cable (5809 JP), Alumina Ltd (AWC AU), Fancl Corp (4921 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP), Hollysys.
GAPack (468 HK): Grinding Towards a Stalemate
- Since announcing Shandong Xinjufeng Technology Packaging (301296 CH)’s pre-conditional voluntary offer for Greatview Aseptic Packaging (468 HK) at HK$2.65 per share, the gross spread has increased.
- The Board’s strategy is to rally shareholders against a hostile offer. However, the recent AGM protest votes suggest that the Board cannot easily thwart the offer.
- Shandong Xinjufeng’s renewed efforts to secure Board representation suggest that its offer is in trouble. Meanwhile, China Mengniu Dairy Co (2319 HK) seems disinclined to engage in a bidding war.
A/H Premium Tracker (To 19 Jul 2024): SB Bought, NB Sold, HK Crushed Vs A-Shares
- The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
- SOUTHBOUND inflow strong but SOEs not leading and Hang Seng down hard. Bank buying minimal. NORTHBOUND saw significant selling, but A-share indices generally strong on the week. Window-dressing?
- AH Premia rose 3.3% on average. Really bad week for H vs A as Liquid Hs underperformed their As by 4%. Stunning week really. Relative performance a sea of red.
HK Connect SOUTHBOUND Flows (To 19 Jul 2024); Tencent the Big Buy, but Few Banks and a Long Tail
- SOUTHBOUND was again a net buyer, for HK$19.2bn this week, on smallish two-way volumes. Tencent and ETFs stood out as large net buys.
- I’ve thought national team was buying banks for months. This week, no banks showed in the top five net buys, and only 1 in the top ten.
- It is somewhat perplexing that the flows just stopped. But that may be a sign of things to come. Confirmation may require a week or two.
EQD / NSE Vol Update / IVs Marked Higher & Vol Curve Inverts … Its All About the Budget
- Weekly IVs marked significantly higher. Options demand returns post holiday-shortened week. Market focuses on 23.07.2024 Budget & Corporate Earnings announcements.
- Put-Call Ratio compression + Rising IVs indicative of call-buying activity. Significant Open-Interest buildup seen in 25000 calls.
- Vol Term-structure: Entire curve in Backwardation. Much of which can be attributed to the India Budget event. Curve expected to flatten out post event.
Private Equity Interest Is Back
- SoftwareONE is currently considered a special situation case by the market, with its new Board of Directors being more receptive to a potential transaction, possibly above CHF 20/share.
- Compelling stock narrative: strong balance sheet (10.3% of market cap in net cash&equivalents), low valuation (8.7x EV/NTM EBITDA, 17.5x Fwd P/E), shareholder return policy (buyback and dividend), and ongoing recovery.
- My fair value estimate is CHF 20.04/share, which implies an undemanding 9.8x EV/Fwd NTM EBITDA. SoftwareONE releases Q2 and H1 results on 21 August. Long.
Mainland Connect NORTHBOUND Flows (To 19 July 2024): A Big Broad Sell in Third Plenum Week
- The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
- Last week saw NORTHBOUND net SELL RMB +19.3bn of A-shares. NORTHBOUND sold everything. Consumer, Finance, and Energy hit hardest.
- Net flows as a percentage of value traded are clearly “short gamma”, but the net buys this week were of stocks previously a net sell.
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