In today’s briefing:
- Toshiba – As Bad As It Gets?
- KOSPI Size Indices – Potential Changes in March
- Link REIT US$2.4bn Rights Issue – Mistimed but Yield at the Rights Price Might Be the Saving Grace
- K-Pop Battle: HYBE’s Tender Offer For S.M. Entertainment:
- Long Short Idea: Ecopro Co Ltd & Iljin Materials on March 9 with K-New Deal Rebalancing
- Kirin’s Holdco Discount Could Keep Unwinding After The Price Hikes Announcement
- Both C&T & SDS Are Still on the Table for Block Deals by Lee Seo-Hyun, Here’s Why
- Idemitsu (5019) – A Big Miss and A Big Buyback
- Potential Inclusions & Exclusions in KOSPI 200 Rebalance in May 2023
- Ecopro Co: A Likely Inclusion in MSCI Korea May Rebalance
Toshiba – As Bad As It Gets?
- Toshiba results looked rather poor at the headline on account of additional one-off costs leading to a guidance downgrade to ¥95bn in OP.
- Despite that, we see some small positive signs across the various industrial segments.
- On balance, however, the downgrade and tight lips on the JIP bid leave little to be positive about in the near term.
KOSPI Size Indices – Potential Changes in March
- The review period for the March rebalance of the KOSPI Size Indices ends 28 February. The results will be announced early March and implemented at the close on 9 March.
- We see 5 migrations between MidCap and LargeCap, 8 migrations from SmallCap to MidCap, 3 new adds to MidCap, and 11 migrations from MidCap to SmallCap.
- Stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.
Link REIT US$2.4bn Rights Issue – Mistimed but Yield at the Rights Price Might Be the Saving Grace
- Link REIT (823 HK) (LREIT) aims to undertake a 1 for 5 rights issue at a subscription price of HK$44.20/unit, to raise around US$2.4bn.
- After announcing a S$2.2bn acquisition in late Dec 2022, the company explicitly mentioned that it didn’t need to raise any new capital. Thus, the rights issue marks an abrupt turnaround.
- In this note, we talk about the right issue, its previous acquisition and the overall implications.
K-Pop Battle: HYBE’s Tender Offer For S.M. Entertainment:
- In a move to counter Lee Soo-man’s influence, S.M.Entertainment Co (041510 KS) intends to issue new shares (9.05% on a fully diluted basis) to Kakao Corp (035720 KS).
- Lee, with 18.4% in SM, responded by selling 14.8% to SM’s rival HYBE (352820 KS). HYBE concurrently announced a tender offer for an additional 25%, at ₩120,000/share, a 22% premium.
- Kakao and SM are less than impressed. But these developments are a power grab for the pioneer of K-pop.
Long Short Idea: Ecopro Co Ltd & Iljin Materials on March 9 with K-New Deal Rebalancing
- One constituent change is expected in the BATTERY index rebalancing as Ecopro Co Ltd surpassed Iljin Materials based on the average daily market cap during the review period.
- Ecopro Co Ltd is a pure holding company, so it may not be subject to inclusion. However, KRX recognizes related sales from unlisted subsidiaries as sales from the holding company.
- The actual passive impact of the rebalancing day will likely be 0.15x or more for both. This level can enable a long-short setup for these from a day trading perspective.
Kirin’s Holdco Discount Could Keep Unwinding After The Price Hikes Announcement
- A trade idea involving Kirin Holdings (2503 JP) from a Holdco perspective, which we suggested last year outperformed Topix by more than 30% in the first 9 months of 2022.
- Since November 2022, Kirin has underperformed Topix by 18% (driven by input cost inflation) to push the Holdco discount yet again to an attractive level.
- The price hike announcement yesterday could change the cost inflation narrative and help Kirin to keep on unwinding the Holdco discount.
Both C&T & SDS Are Still on the Table for Block Deals by Lee Seo-Hyun, Here’s Why
- The family devoted all their efforts to maintaining 33.4% of voting shares in Samsung C&T, a level that can block a special resolution at the general shareholders’ meeting.
- The most likely scenario being speculated by the market at this point is to touch both Samsung C&T and Samsung SDS. However, the C&T stake sale is to be minimized.
- The possibility currently circulating in the local market is that she has 0.40% (Hana Sec) and 0.62% (Hana Bank), which currently have the highest interest burden, on the table.
Idemitsu (5019) – A Big Miss and A Big Buyback
- On 14 February 2023, Idemitsu Kosan (5019 JP) reported Q3 results. They were less impressive than one would have hoped.
- Lower USDJPY and lower Dubai crude prices mean a JPY 90bn hit to inventory marks, but the rest of the petro business made almost no money in the quarter.
- However, the company announced a large buyback. THAT is worth looking at.
Potential Inclusions & Exclusions in KOSPI 200 Rebalance in May 2023
- We discuss potential inclusions and exclusions of the upcoming KOSPI 200 rebalance in May 2023. With regards to the upcoming KOSPI 200 rebalance, we like the following long-short trading strategy.
- We would short a basket of potential exclusions from KOSPI 200 rebalance which would include the bottom 5% of KOSPI 200 index (10 stocks).
- We would go long a basket of potential inclusions in KOSPI 200 rebalance which include four stocks including Dentium, Jeju Air, Samyang Foods, and DGB Financial.
Ecopro Co: A Likely Inclusion in MSCI Korea May Rebalance
- Ecopro Co Ltd (086520 KS) is one of the likely inclusions in the MSCI Korea rebalance in May 2023.
- Many investors have pushed up share price of Ecopro Co, already factoring in that this stock will be included in the next round of MSCI Korea index rebalancing.
- Our NAV analysis of Ecopro Co suggests an implied NAV per share of 207,087 won, representing a 5% upside from the current price.
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