In today’s briefing:
- What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?
- 2024 High Conviction: Air China (753 HK) – What Comes Down Must Go Up
- H.I.G./DX (Group): Recommended Offer with Possibility of Bump-Up
- 2Q Follow-Up – Kantsu (9326 Jp)
- WILLs (4482) – Stronger than Expected Results with Positive Trends
What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?
- The day the basis spread disappears is this Friday, the 24th of November. This mirrors a comparable pattern observed during Korean Air’s rights offering in 2020.
- If the spot price does not fall below the futures price of our entry until this Friday, we could potentially be in a profitable range.
- There has been a notable pattern where the spread continues to exist until just before the moment when new share selling becomes feasible.
2024 High Conviction: Air China (753 HK) – What Comes Down Must Go Up
- With P/B back to the 5-year average of 1.9x but ROE surpassing the last five years, Air China Ltd (753 HK) is our High Conviction pick for 2024.
- Lower US interest rates next year will reduce interest expenses as 18.7% of debt is USD-denominated. Potential Rmb appreciation vs. USD may bring significant exchange gain too.
- Supportive government policies will further drive domestic traffic. For international traffic, more capacity resumption will power recovery. Cathay Pacific Airways (293 HK) is another profit accelerator.
H.I.G./DX (Group): Recommended Offer with Possibility of Bump-Up
- DX Group PLC (DX/ LN) agreed to a 47.5p/share offer (plus 1p dividend, ex-dividend 16 November) from H.I.G., 33% premium, 8.8x 2023a EBITDA, to be conducted via scheme of arrangement.
- DX had a substantial improvement in revenue and profitability in 2018-2023. Although irrevocables represent 33.1% of the share capital, some shareholders have some doubts and letters of intent total 21.5%.
- Some shareholders will try to extract more: DCF-based 50p could be defended, 5.2% above current offer. Spread 1.05%/3% (gross/annualised, assuming 30 March settlement). I’d be long in case of bump-up.
2Q Follow-Up – Kantsu (9326 Jp)
- Kantsu is a logistics company that supports the high-growth e-commerce industry, specializing in warehouse logistics and handling the entire upstream logistics process, from order processing to delivery.
- The company is also creating a highly profitable business by selling its in-house developed IT system that boosts efficiency to external customers.
- In 1H FY24/2, Kantsu reported net sales of ¥5,619 mn (+10.0% YoY), operating profit of ¥164 mn (-14.1% YoY), ordinary profit of ¥162 mn (-7.4% YoY), and profit attributable to owners of the parent of ¥115 mn (+2.3% YoY).
WILLs (4482) – Stronger than Expected Results with Positive Trends
- Upside risk to company guidance – Q1-3 FY12/2023 results were ahead of guidance and a positive surprise in our view.
- Operating profit grew 25.8% YoY, driven by a major improvement in profitability in the Advertising segment, continued robust demand for ESG services, and management’s prudent cost control (with SG&A margins stable YoY).
- The mainstay Premium Benefits Club service saw 2 net additional customers QoQ for Q3 FY12/2023, rising to 89 customers – the service is experiencing a positive trend of demand from an increasing number of retail shareholders, and a hike in spending by companies on shareholder benefits program.
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