In today’s briefing:
- Update: Shinko Electric (6967) Shorter-Dated and Break Risk Small but GAP RISK Now Much Higher
- Sumitomo Forestry (1911 JP): Selloff Provides Entry for Potential Index Inclusion
- China Healthcare Weekly (Aug.4)- Taiji Group & China TCM, TCM Formula Granules VBP, Keymed’s Trouble
- Local Market Observations on Timing Samsung Electronics 1P Discount Narrowing
- Merger Arb Mondays (05 Aug) – Henlius, Asia Cement, Canvest, GA Pack, CPMC, A8, Fancl
- Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Nuvoton Deletion & Positioning
- Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Aug24)
- CPMC Holdings (906.HK) Privatization Update- Due to Risk Behind ORG’s Offer, Baosteel Is a Wiser Bet
- EQD / NSE Vol Update / Coffee Boost for Sleepy Vol Mkts as Risk Sentiment Sours into the Weekend
Update: Shinko Electric (6967) Shorter-Dated and Break Risk Small but GAP RISK Now Much Higher
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- Nearly 7mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5mos ago, recommended taking profits.
- Ibiden has now underperformed Shinko by 25+% in 2-plus weeks. GAP RISK is higher but this is a short-timer. HUGE yield to “expected” start date, so everyone assumes a delay.
Sumitomo Forestry (1911 JP): Selloff Provides Entry for Potential Index Inclusion
- Sumitomo Forestry (1911 JP) is a potential inclusion to a global index at the August rebalance. If added, passive trackers will need to buy over 6x ADV.
- Sumitomo Forestry (1911 JP) has traded lower on risk-off sentiment and further downside provides an entry point that could pay off if the stock is added to the index.
- Sumitomo Forestry (1911 JP) has outperformed its peers but trades at similar valuations to some stocks. A long/short trade could protect the downside.
China Healthcare Weekly (Aug.4)- Taiji Group & China TCM, TCM Formula Granules VBP, Keymed’s Trouble
- TCM formula granules VBP would cause some disturbance to related enterprises’ performance, but the substitution of TCM formula granules for TCM decoction pieces is a trend, indicating long-term optimistic growth.
- Keymed’s CM310 would probably miss the NRDL negotiation this year, which will put the Company in passive situation. Based on competitive landscape, we are worried about the performance of Keymed.
- Unsatisfactory performance of Taiji’s shares is related to concerns on China TCM’s privatization/24H1 results.However, even without the integration with China TCM, Taiji’s market value should be more than RMB20 billion.
Local Market Observations on Timing Samsung Electronics 1P Discount Narrowing
- Local traders see interest rate cuts and value-up disclosures as key for timing Samsung Electronics 1P discount narrowing.
- Samsung’s only realistic value-up goal beyond 50% FCF return is improving ROE, likely through a pref-skewed buyback or cancellation program.
- If Samsung announces a value-up plan during the Bank of Korea’s rate cuts, local traders expect the 1P discount to reverse, targeting October-November for position entry.
Merger Arb Mondays (05 Aug) – Henlius, Asia Cement, Canvest, GA Pack, CPMC, A8, Fancl
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Shanghai Henlius Biotech (2696 HK).
- Lowest spreads: Fancl Corp (4921 JP), Second Chance Properties (SCE SP), Tatsuta Electric Wire & Cable (5809 JP), Mimasu Semiconductor Industry (8155 JP), Alps Logistics (9055 JP).
Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Nuvoton Deletion & Positioning
- Nuvoton Technology (4919 TT) should be deleted from the Yuanta/P-Shares Taiwan Dividend Plus ETF in September and that will trigger selling of over 4 days of ADV.
- Nuvoton Technology (4919 TT) has underperformed most of its peers since the start of the calendar year and shorts have started to increase in the stock.
- Positioning appears light and the recent deletion from an index has increased the real float of the stock. Recent semiconductor weakness could further pressure the stock.
Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Aug24)
- July saw 825 new Corporate Governance Reports filed and 8 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed. June saw 1,673 and 5, respectively. That’s 2500 cos.
- We created a tool show every report, provide links to every document, and now a new diff file tool. Put in a name, see the difference between the Old/New Reports.
- We hope this tool will help. It is designed to be a shelf reference. We update the tool once a month, a couple of weeks ahead of the TSE.
CPMC Holdings (906.HK) Privatization Update- Due to Risk Behind ORG’s Offer, Baosteel Is a Wiser Bet
- Baosteel’s choice to maintain its original Offer may partly reflect its “confidence” in the deal. If investors bet that Huarui Offer will succeed, they need to bear some risks.
- If investors choose to arbitrage at HK$7.21/share, annualized return is 9% assuming privatization would be completed in mid-Jan 2025.Such return may not be attractive considering the uncertainties behind the deal.
- If investors are optimistic about Baosteel’s final acquisition of CPMC, they can consider buying Baosteel shares, as Baosteel will become the new industry leader, with greater upside potential for valuation.
EQD / NSE Vol Update / Coffee Boost for Sleepy Vol Mkts as Risk Sentiment Sours into the Weekend
- Implied Volatilities (IVs) fell post-FOMC, but reversed course as market sentiment worsened late -week. IV-jump expected as Indian markets catch up to Friday’s U.S. price action
- Vol-Regime Model still in a “High & Down” vol state. Will switch if large IV change on the open. Short Vega & Risk-Reversal positions will need to be reevaluated.
- Low PCR, OI call bias & Skew compression: All point to unguarded downside in Nifty50. Next stop 24000.
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