In today’s briefing:
- Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban
- TOPIX Inclusions: Who Is Ready (Nov 2023)
- Sankyo (6417) – Second Go-Round for a BIG Buyback
- Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
- Hollysys (HOLI US): Ascendent Capital Joins the Fray
- Momentum Trading Opportunities Among Top 50 Stocks in KOSPI With Highest Short Interest Ratios
- CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650
- SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
- Telefonica/Telefonica Deutschland Holding AG: Offer for Minorities
- EQD | The Hang Seng Index May Go Higher
Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban
- Given Korea’s blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.
- It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.
- Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.
TOPIX Inclusions: Who Is Ready (Nov 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- Our main pre-event candidate CELSYS (3663 JP) has outperformed TOPIX by ~12.6% since 1 Sep (when it was highlighted) and 6 Nov 2023.
- There are three TOPIX Inclusion events confirmed for the end of November and two other interesting pre-event names we are closely monitoring.
Sankyo (6417) – Second Go-Round for a BIG Buyback
- Back in late September, Sankyo Co Ltd (6417 JP) announced a 10mm share buyback along with a new dividend policy. Only 4.22mm shares showed up to sell.
- The largest holder – Exec Chair Busujima-san – sold 2.22mm shares under his own name and his company’s name. Hikari Tsushin, which had been selling in the market, didn’t participate.
- Now Sankyo has launched another 10mm share ToSTNeT-3 buyback tomorrow (8 Nov) AM at ¥6,099/share. They may not complete. But they may continue buying later. They have oodles of cash.
Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
- I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
- Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%.
- Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.
Hollysys (HOLI US): Ascendent Capital Joins the Fray
- Ascendent Capital has made a non-binding proposal for Hollysys Automation Technologies (HOLI US) at US$26.00 per share, a 4.0% premium to the MBO and Recco proposal of US$25.00 per share.
- Ascendent has also become the largest shareholder by securing 13.69% of outstanding shares at an average price of A$20.84 per share. Ascendant is supportive of the special meeting request.
- The Board has tried several delaying tactics, but the emergence of Ascendant ramps up the pressure on the Board to conduct a transparent sale process and address shareholder concerns.
Momentum Trading Opportunities Among Top 50 Stocks in KOSPI With Highest Short Interest Ratios
- In this insight, we discuss near-term momentum trading opportunities among the top 50 stocks in KOSPI with highest short interest ratios.
- Given the recent temporary ban on stock short selling in Korea, there is likely to be increased volatility in the stock market.
- We have identified 10 companies in particular that have high short interest ratios, among the worst performing stocks YTD, but with strongest share price performance in the past two days.
CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650
- CMIC Holdings (2309 JP) has recommended an MBO tender offer of JPY2,650 per share, a 55.9% premium to the undisturbed price (7 November).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 41.29% ownership ratio.
- Irrevocables to accept represent a 23.29% ownership ratio. While the offer is light vs. peer multiples, the minimum acceptance condition requires a 35.1% minority acceptance rate, which is doable.
SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
- With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
- Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.
Telefonica/Telefonica Deutschland Holding AG: Offer for Minorities
- Telefonica SA (TEF SM) surprised everyone with a €2.35/share voluntary cash offer for the minorities in Telefonica Deutschland Holding (O2D GR), 37.6% premium, 4.4x EV/Fwd EBITDA (vs.5.1x Telefonica), €1970 million value.
- The premium is attractive, c.31% premium to median IBES consensus TP, so I believe the offer will succeed. There will be no additional acceptance period. Spread is +0.17%.
- Telefonica will add 7% more leverage at a time it is seeking the opposite: on the cards are some sort of divestment of Virgin Media O2 or a dividend cut.
EQD | The Hang Seng Index May Go Higher
- The Hang Seng Index closed last week at 17664.12 (CC=+2), currently rallying this week, but there is a chance for a short-lived pullback (i.e. closing this week down).
- The current global equities bounce should continue for the entire month of November: the HSI may continue rallying for +2 weeks (if it does not close down this week).
- Price targets to watch for the end of the rally (i.e. shortable) are between 18300 and 18700.
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