In today’s briefing:
- EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part
- Eoflow: Outlook After Trading Resumes on 16 November
- Danaher/Abcam: Balanced Risk/Return
- WuXi XDC Cayman IPO Trading – Strong Subscription Rates Heading into Listing
- Terumo Corp (4543 JP): Record High Revenue and OP in H1FY24; Better Profitability Expected in H2FY24
- Pre-IPO Genecast Group – NGS Still Has Long Way to Go; Valuation Performance Is Worrying
- Why Should Policy Shares Be Viewed as Including Deemed Shares Held?
EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part
- The KRX has completed its review and excluded Eoflow (294090 KS) from the substantive review for listing eligibility. Therefore, trading will resume tomorrow, 16 November.
- The shares should rise on trading resumption as Medtronic’s tender remains in play, KRX’s review supported Eoflow’s business continuity and the short-selling ban-driven market rally.
- Deal break risks remain significant. Medtronic Plc (MDT US)’s long-dated closing date and lack of Eoflow integration job postings suggest it remains concerned about near-term unfavourable court rulings.
Eoflow: Outlook After Trading Resumes on 16 November
- On 15 November, the Korea Exchange announced that Eoflow (294090 KS) will start trading again on 16 November.
- The fact that KRX has allowed Eoflow to trade again will be viewed positively by many investors. Plus, the recent temporary ban on short selling should also positively impact Eoflow.
- We believe a higher probability event is for Medtronic to complete a tender offer of Eoflow sometime in 2Q 2024 at about 26,000 won.
Danaher/Abcam: Balanced Risk/Return
- Shareholders of Cambridge (UK)-based Abcam (ABCM US) followed Glass Lewis and ISS recommendations and approved (>84%) the scheme resolutions at both the Court Meeting and the GM.
- The $24/share cash offer represents 10x EV/Fwd Revenue, 25x EV/Fwd NTM EBITDA. Danaher Corp (DHR US) and Abcam have guided that the transaction is expected to close by mid-2024.
- Spread is 3.21%/6.21% (gross/annualised, assuming settlement by 30 May). From the current levels, I see a balanced risk/reward.
WuXi XDC Cayman IPO Trading – Strong Subscription Rates Heading into Listing
- WuXi XDC Cayman (1877628D HK) raised US$470m in its Hong Kong IPO.
- WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
- In our previous notes, we looked at the company’s past performance and valuations. In this note, we talk about the trading dynamics.
Terumo Corp (4543 JP): Record High Revenue and OP in H1FY24; Better Profitability Expected in H2FY24
- In H1FY24, Terumo Corp (4543 JP)‘s revenue increased 10% YoY to ¥443.9B, mainly driven by a 13% YoY growth in C&V business, due to strong global demand of catheter products.
- Revenue from TIS (catheter) segment reported 12% YoY growth to¥176.5B, driven by a 12% YoY growth in overseas business, with EU and China being the main drivers.
- Terumo has reiterated FY24 guidance, which implies significant improvement in operating profit in H2FY24 due to the realization of the full effect of global price revision and cost cutting initiatives.
Pre-IPO Genecast Group – NGS Still Has Long Way to Go; Valuation Performance Is Worrying
- The clinical need for NGS hasn’t developed as rigid demand due to high cost, difficult operation, high requirements on hospitals/personnel, etc. It takes time for NGS to improve market penetration.
- Genecast’s LDT business could face compliance issue.Its in-hospital business has lower gross margin.Increasing R&D expenditure is inevitable since products need to get approval by regulatory authorities, putting pressure on profitability.
- Burning Rock is in a leading position in NGS field, but its market value is quite low. We advise investors to be prepared for valuations to fall short of expectations.
Why Should Policy Shares Be Viewed as Including Deemed Shares Held?
- Tobin’s Q is not high for companies whose policy holdings are low relative to their net assets or total assets. When discussing policy shareholdings, deemed shareholdings should be included.
- Companies with a low ratio of total policy holdings plus deemed holdings to total assets have notably higher ROE, ROA, and Tobin’s Q. Vice versa.
- These companies generate returns exceeding their cost of capital and are managed with asset and capital efficiency in mind, which shows in their approach to policy shareholdings as governance practices.
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