In today’s briefing:
- MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
- Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears
- Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG
- Japan Post Insurance (7181 JP) – Reading Between The Lines
- Toyo Tecnica (8151) – BIG Buyback
- Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme
- Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva
MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
- As announced, there are 8 adds and 3 deletes for the MSCI Standard indices in Asia Pacific. To trade, there are 8 adds and 2 deletes.
- Most of the changes are inline with what we forecast. The non-inclusion of Gcl Poly Energy Holdings Limited (3800 HK) is the big surprise, though that could change.
- All the adds in China are potential inclusions to the FTSE All-World Index in September and that will add to the passive inflows on the stocks.
Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears
- Swire Pacific (A) (19 HK)/Swire Pacific Ltd-Cl B (87 HK) has announced a HK$4bn buyback. While that is 6.5% of shares out, it is over 15% of real float.
- Swire Pacific (A) (19 HK) was trading at a 50% discount to NAV and near the widest level over the last few years.
- There will be passive selling once the buyback is complete, but the stocks should run up prior to that.
Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG
- Today Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced earnings, and they announced a large (HK$4bn) buyback.
- Details are somewhat thin, but there are a bunch of possibilities, and all of them should have non-negligible impact on Swire and Swire vs Peers.
- The immediate market response was to send them up 10% on the day. That puts both at somewhere near one-year highs, but the discount to NAV is still big.
Japan Post Insurance (7181 JP) – Reading Between The Lines
- Japan Post Insurance (7181 JP) reported soft Q1 Tuesday on negative existing policy premium growth and higher (covid-related) underwriting claims costs. Guidance was unchanged but JPI also announced a buyback.
- The buyback structure is designed to keep Japan Post Holdings (6178 JP) under 50% to continue to abide by the strictures and goals of the Japan Postal Privatisation Act.
- 50% or more will be done in a ToSTNeT-3 buyback Thursday morning 12 August. The rest will be bought on market. Impact is non-negligible. And JPI is cheap cheap cheap.
Toyo Tecnica (8151) – BIG Buyback
- Toyo Corp (8151 JP) is a smallcap electronics firm specialising in sensors/testers/loggers for industrial and data system processes, large scale antennae systems, high tech medical equipment, remote sensing equipment, etc.
- They have seen their (extraordinarily seasonal) revenues go mostly nowhere over the past ten years, but they have, until recently, accumulated cash and securities.
- On 10 August, the company announced a LARGE buyback of up to 8.44% of shares out. The details suggest
Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme
- Swire Pacific (19 HK) has announced a “small” buyback at HK$4bn, but it is a material portion of ADV.
- What remains unknown is how the buyback will be split. The split will only be known once buyback volumes are announced.
- Swire is trading cheap at a look-through forward P/B of 0.28x compared to its five-year average of 0.38x, and the two-year average pre-Covid of 0.48x.
Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva
- This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. It considers interest expense, capex and short term maturities for additional input.
- The companies may not be viable given cash flows and capital structures. These shorts tend to have higher betas and can have strong down moves as the crisis is recognized.
- This week we flag: BridgeBio, Wayfair, Archaea Energy, Enviva Inc.
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