In today’s briefing:
- The MatsuKiyoCocokara (3088) February Flow Show
- Adaro Energy (ADRO IJ) Buyback – A Decent Chunk of 1 Year ADV
- HK Electric Investments (2638 HK): MSCI Deletion Could Mark a Bottom
- S&P/ASX Index Rebalance Preview: Review Period (Nearly) Complete
- Who Wants SM Entertainment More? Kim Bum-Soo (Kakao) Or Bang Si-Hyuk (Hybe)?
- Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes
- Star Entertainment (SGR AU): Entertaining Known Unknowns
- EQD | KOSPI2 Index: Reloading on Upside Calls
The MatsuKiyoCocokara (3088) February Flow Show
- MatsukiyoCocokara (3088 JP) has run up quite well in the past year, rising strongly and outperforming Peers significantly. It has been the avatar of Inbound Rebound hopes and dreams.
- Over that time, forward EPS expectations have also improved, but not as much as price. MatsukiyoCocokara used to be cheap to peers on forward PER. Now it is not.
- 28 Feb sees an MSCI inclusion trade to swing 7% of shares from active to passive. Understanding where those come from is key.
Adaro Energy (ADRO IJ) Buyback – A Decent Chunk of 1 Year ADV
- Yesterday, Indonesia’s second largest coal mining business Adaro Energy (ADRO IJ) announced a buyback. This follows another buyback which ended in December 2022.
- The Sep21-Dec22 buyback bought back 1bn shares, but did not spend all the money allocated to the buyback. This new one might buy back a similar quantity.
- Looking at Real World Float is the right frame of reference. And the stock was at a recent low vs a Peer Basket.
HK Electric Investments (2638 HK): MSCI Deletion Could Mark a Bottom
- HK Electric Investments (2638 HK) will be deleted from the MSCI Hong Kong Index at the close on 28 February. This was largely expected.
- We estimate passive MSCI trackers will need to sell 172.3m shares (US$111m; 19.1 days of ADV to trade). That is a lot. But there are pre-positions on the stock.
- HK Electric Investments (2638 HK) has underperformed its peers and now trades at a lower price to book. There could be outperformance post the MSCI deletion.
S&P/ASX Index Rebalance Preview: Review Period (Nearly) Complete
- We currently see 1 change for the ASX20 Index, 2 changes for the ASX100 Index, 4 changes for the ASX200 Index, 10 adds/7 deletes for the ASX300 Index in March.
- On average, the potential adds to each of the indices have outperformed the potential deletes with the largest outperformance for the ASX300 Index.
- Shorts have continued to increase positions on the potential deletes while covering their positions on the potential adds. We expect there are large pre-positions on some of the stocks now.
Who Wants SM Entertainment More? Kim Bum-Soo (Kakao) Or Bang Si-Hyuk (Hybe)?
- It has been reported that Kakao has hired local brokerage firms to discuss the details of another tender offer of SM Entertainment shares (at more than 130,000 won).
- We believe that this has been the key reason why SM Entertainment’s shares rose an additional 5% on 15 February.
- We believe that eventually Kakao Group will win the M&A fight for SM Entertainment and shares of SM could rise further in the coming weeks.
Japan Tobacco: An Activist Targeting Torii Pharmaceutical, Turns to JT to Fulfil Their Wishes
- Japan Tobacco (2914 JP)’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.
- 2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.
- But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in Torii Pharmaceutical (4551 JP).
Star Entertainment (SGR AU): Entertaining Known Unknowns
- Star Entertainment Group (SGR AU) scored an own goal by failing to provide an update on the balance sheet in the update on 13 February. The results are next week.
- There is a whirlwind of uncertainty surrounding potential fines and Star is in desperate need to recapitalise its balance sheet to avoid breaching covenants.
- Our leverage scenarios suggest an equity raise of A$250-500 million is required. Despite the share price fall, we would steer clear until the details of its equity raise are disclosed.
EQD | KOSPI2 Index: Reloading on Upside Calls
- KOSPI2 Index trading off the highs but supported by the 200-dma
- Implied vols are trading cheap offering a good entry point
- Options continue to be priced cheaply and we look at simple upside plays
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