In today’s briefing:
- Merger Arb Mondays (15 Jul) – China TCM, Canvest, Henlius, Hollysys, Second Chance, Anasarda, Rex
- MMG (1208) – Rights Results Show High Take-Up, Small Unhedged Portion
- POSCO Holdings: Announces Shares Buyback and Cancellation of Nearly 2 Trillion Won
- CSI300 Index Rebalance Preview: 18 Changes in Dec; Third Plenum; ETF Inflows; Short Sell Crackdown
- CK Infra (1038 HK): London Calling
- A/H Premium Tracker (To 12 Jul 2024): Roughly Flat Week Ahead of 3rd Plenum, Possible A Short-Covers
- Legend Biotech (LEGN US) – A Takeover Offer?
- Mainland Connect NORTHBOUND Flows (To 12 July 2024): Finance, Industry, Infotech Bought
- HK Connect SOUTHBOUND Flows (To 12 Jul 2024); Slower Flows Gross and Net (Buy), Still SOEs
- EQD / NSE Vol Update / Vega Was Bid & Gamma Was Offered
Merger Arb Mondays (15 Jul) – China TCM, Canvest, Henlius, Hollysys, Second Chance, Anasarda, Rex
- 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), Canvest Environmental Protection Group (1381 HK), A8 New Media (800 HK), Asia Cement China (743 HK).
- Lowest spreads: Fancl Corp (4921 JP), Tatsuta Electric Wire & Cable (5809 JP), Alumina Ltd (AWC AU), Nagatanien Holdings (2899 JP), Mimasu Semiconductor Industry (8155 JP), Infocom Corp (4348 JP).
MMG (1208) – Rights Results Show High Take-Up, Small Unhedged Portion
- Friday post-close, MMG (1208 HK) released the results of its Rights Offering. 3.4654bn Rights Shares at HK$2.62 saw 98.18% take-up. New Rights Shares officially start trading on 16 July.
- The other 1.82% (63.1mm Rights Shares) saw 6.383bn excess Rights Shares applications. EAFs were allocated evenly, so applicants got 0.99% of what they bid for, but hey, free money?
- The new Rights Shares are expected to commence trading on 16 July. Even better, there was good fundamental news out late Sunday which should add to the general wellbeing.
POSCO Holdings: Announces Shares Buyback and Cancellation of Nearly 2 Trillion Won
- POSCO Holdings (005490 KS) announced a major shareholder return policy to buyback and cancel nearly 2 trillion won worth of treasury shares from 2024 to 2026.
- The company will cancel 5.25 million treasury shares representing 6.2% of outstanding shares (about 1.9 trillion won). It will also repurchase and cancel additional 100 billion won of shares.
- POSCO Holdings has taken a major initiative to provide greater returns to its shareholders and this should have a positive impact on its share price.
CSI300 Index Rebalance Preview: 18 Changes in Dec; Third Plenum; ETF Inflows; Short Sell Crackdown
- There could be 18 changes at the December rebalance with the Industrials sector gaining 3 index spots and the Information Technology sector losing 5 spots.
- We estimate one-way turnover of 3.3% at the rebalance leading to a one-way trade of CNY 22.07bn (US$3bn). There are a lot of stocks with multiple days ADV to trade.
- The potential adds have outperformed the potential deletes. There were ETF inflows last week amid a short selling crackdown as the Third Plenum kicks off.
CK Infra (1038 HK): London Calling
- CK Infrastructure Holdings (1038 HK), 75.67%-held by CK Hutchison Holdings (1 HK), announced it is considering a second listing on an overseas stock exchange, such as London.
- A UK-listing makes perfect sense. In excess of 90% of CKI’s FY23 profit was sourced from businesses outside Asia, with ~50% from its UK ops.
- The wording in the announcement is unclear – a dual primary listing, or a secondary listing? The LSE is also undergoing a listing regime change, effective 29th July.
A/H Premium Tracker (To 12 Jul 2024): Roughly Flat Week Ahead of 3rd Plenum, Possible A Short-Covers
- 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 continues, albeit smaller. SOE Banks/Energy/Telecoms remain a big net buy. Percentage of volume is large. NORTHBOUND saw finance buying. Possible short-covering ahead of new short-selling restrictions/access.
- AH Premia were up small on average, down small on the liquid pairs. But HSI/HSCEI vs CSI300/500 performance spreads were higher. Third Plenum this week may drive “sentiment.”
Legend Biotech (LEGN US) – A Takeover Offer?
- Legend Biotech received takeover interest and hired Centerview Partners to review the offer. Due to the satisfactory clinical results/promising commercialization outlook of Carvykti, Legend Bio is an attractive M&A candidate.
- Peak sales of Carvykti could exceed US$5 billion. After Carvykti is approved by the FDA/EC for 2L treatment of MM, future valuation leap of legend Bio is becoming more certain.
- Legend Bio is clearly undervalued. We think reasonable market value range for Legend Bio is about US$12.5 – 15 billion, which means there is decent upward potential for share price.
Mainland Connect NORTHBOUND Flows (To 12 July 2024): Finance, Industry, Infotech Bought
- 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 BUY RMB +15.9bn of A-shares. NORTHBOUND bought Financials, Industry, Infotech, etc. They sold Communications (which was a HUGE SOUTHBOUND buy) and Pharma/Healthcare.
- It is notable that net flows as a percentage of value traded are clearly “short gamma”, which is to say, sector underperformers are being sold, sector outperformers being bought.
HK Connect SOUTHBOUND Flows (To 12 Jul 2024); Slower Flows Gross and Net (Buy), Still SOEs
- SOUTHBOUND was again a net buyer, for HK$7.3bn this week, on smallish two-way volumes. Major buying was mostly SOEs.
- The more I watch, the more I think the last few months have had serious national team buying of banks and energy, perhaps ahead of shareholder return policy changes.
- But valuations are acceptable. Flows are good. Policy changes are afoot. SOUTHBOUND may continue to see inflows – national team and otherwise.
EQD / NSE Vol Update / Vega Was Bid & Gamma Was Offered
- IVs for Monthly & Quarterly contracts rose as options market baked in additional risk premia for the Budget Announcement.
- Vega bid & Gamma offered – Monthly IVs higher by +2.3 vols & Weekly IVs lower by -0.5 vols. Short-Dated IVs closed lower in spite of upcoming earnings events
- Term structure is trading with a kinked shape, with Monthly IVs trading at a markup to rest of the curve
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