In today’s briefing:
- Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT
- Nikkei 225 Index Rebalance: NRI, Ryohin Keikaku IN; Nippon Paper, DIC OUT; Fast Retailing Capped
- Fuji Soft (9749 JP): KKR’s Cop-Out as It Launches at Unchanged Terms, Next Move Bain
- For Long-Term Investors, Seven & I Is the Better Bet
- Australia/NZ Real Estate: Stocks With (Large) Passive Flows
- Ecopro HN: Rights Offering of 200 Billion Won
- Hojeon: Activist Minority Investors Threaten to Sell Their Shares to a Competitor in a Block Deal
- FXI Rebalance: China Tower (788 HK) Will Replace CICC (3908 HK)
- POSCO’s Early EB Payoff and Post-Value-Up Pivot Trading Angles
- Namoi Cotton (NAM AU): Louis Dreyfus Declares Offer Unconditional
Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT
- Today, the Nikkei Index Committee decided to delete Nippon Paper (3863) for low liquidity, and DIC (4631) for sector over-representation, and added Nomura Research Institute (4307) and Ryohin Keikaku (7453).
- The only auto-delete was Nippon Paper. The DIC delete was “discretionary.” But they could have done a third. Why did they not do a third change? I do not know.
- The whole shebang should be ¥350-375bn a side. At current price, Fast Retailing is set for another capping (selling) event in March 2025. And there is one shoo-in then too.
Nikkei 225 Index Rebalance: NRI, Ryohin Keikaku IN; Nippon Paper, DIC OUT; Fast Retailing Capped
- Nomura Research Institute (4307 JP) and Ryohin Keikaku (7453 JP) will replace Nippon Paper Industries Co L (3863 JP) and Dic Corp (4631 JP) in the Nikkei 225 (NKY INDEX).
- Fast Retailing (9983 JP)‘s CPAF will drop from 3 to 2.7 and there will be further selling in March 2025 as the CPAF drops to 2.4 (or possibly even 2.1!)
- Passives will need to buy 7-15x ADV (13-14% of real float) in the adds and sell 2.7-6.5x ADV in the deletes. There is a big reverse funding trade too.
Fuji Soft (9749 JP): KKR’s Cop-Out as It Launches at Unchanged Terms, Next Move Bain
- In response to the potential Bain competing offer for Fuji Soft Inc (9749 JP), KKR has waived the precondition and launched its offer at unchanged JPY8,800 per share.
- Bain’s due diligence ends on 20 September, and it aims to submit a binding proposal in October. This timeline will thwart KKR’s offer, which closes on 21 October.
- KKR’s offer launch at unchanged terms is delaying the inevitable and will have to bump to succeed. A potential bidding war is likely to push the offer price to JPY10,500.
For Long-Term Investors, Seven & I Is the Better Bet
- The Couche-Tard “friendly bid” raises more questions than it answers: Is it real? What does CT really want? Can it afford it? Will the Japanese government let it through?
- We remain sceptical about a bid – if it happens – succeeding. Either way, Seven & Eleven Japan looks to be the much better retailer.
- It has been selling 25-40% more than competitors in the world’s toughest CVS market and looks set to extract more value in Japan/overseas than anyone else could so why sell?
Australia/NZ Real Estate: Stocks With (Large) Passive Flows
- There will be passive buying in Nextdc Ltd (NXT AU) and Charter Hall (CHC AU) and selling in Vital Healthcare Property Trust (VHP NZ) at the close on 20 September.
- Charter Hall (CHC AU)‘s stock price jumped following announcement of results and that was accompanied by big short covering. There should still be more positioning here.
- Nextdc Ltd (NXT AU)‘s increase in cumulative excess volume came on a drop in the stock price. There could be some covering here as positioning builds up.
Ecopro HN: Rights Offering of 200 Billion Won
- On 4 September, Ecopro HN announced that it plans to conduct a rights offering capital raise of about 200 billion won.
- The company plans to issue 5.67 million new shares and the expected rights offering price is 35,300 won (23% lower than current price).
- We would not subscribe to this rights offering mainly due to lofty valuations, declining sales and profit growth, continued negative free cash flow, and concerns about excessive shares dilution.
Hojeon: Activist Minority Investors Threaten to Sell Their Shares to a Competitor in a Block Deal
- A group of minority investors started to go activist on Hojeon (111110 KS), demanding that the company increase its treasury share buybacks/cancellations, dividends, and cut CEO’s salary.
- This coalition of minority investors has threatened to sell their shares to a competitor (Hansae) if the company does not abide by their demands.
- Hojeon has attractive valuations and are trading at low multiples. It had P/E of 5x, EV/EBITDA of 3.4x, and P/B of 0.5x in 2023.
FXI Rebalance: China Tower (788 HK) Will Replace CICC (3908 HK)
- China Tower (788 HK) will replace China International Capital Corporation (3908 HK) in the iShares China Large-Cap (FXI) (FXI US) at the close on 20 September.
- The appears to be a lot more positioning and short interest in China International Capital Corporation (3908 HK) compared to China Tower (788 HK).
- The listing of Midea Group Co Ltd A (000333 CH) H-shares could result in another change for the ETF prior to the next scheduled rebalance in December.
POSCO’s Early EB Payoff and Post-Value-Up Pivot Trading Angles
- Key watchpoints: Will POSCO cancel the 3.4% treasury shares in Q4 and how will they replenish cash reserves after paying ₩1.5 trillion? Their moves could set trends.
- POSCO might cancel these shares to boost their value-up index weight. This could drive up the stock price, giving them an opening to improve their cash position through equity financing.
- Expect a short-term stock pivot with value-up index and ETFs driving inflows and price pops. After this, equity financing may signal stock peaks, with POSCO and others leading the trend.
Namoi Cotton (NAM AU): Louis Dreyfus Declares Offer Unconditional
- Louis Dreyfus Company (LDC) and Olam (OLG SP)‘s Olam Agri have been going toe-to-toe over Namoi Cotton (NAM AU) since the 1st February. LDC has now declared its Offer unconditional.
- It’s an interesting move. Namoi is trading through LDC’s A$0.67/share Offer terms. But unlike Olam’s Offer, LDC now has FIRB and ACCC under its belt.
- Currently trading at Olam’s A$0.70/share terms. All eyes are on ACCC giving Olam the green light. Or not.
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