In today’s briefing:
- Information Received Through KRX Officials Regarding Changes in the KOSPI 200 Methodology
- System Information Co (3677 JP) “MBO” By Bain an Exit Trade for Founder+CEO+Employees
- SK Square: M&A of 11st – Alibaba Out and Qoo10 In?
- Kokusai Electric IPO – Don’t Worry, This’ll Be Fine Too
- 4Paradigm IPO: Thoughts on First Day Trading
- System Information (3677 JP): Bain Backed MBO’s JPY930 Tender Offer
- Blackstone&Permira/Adevinta: Potential LBO
- 4Paradigm IPO Trading – Low Insti Subscription and Small Float
- Chinese Semiconductor Beneficiary
- Fortinet Inc.: Launch Of Data Center Firewalls With AI Support & Other Major Developments
Information Received Through KRX Officials Regarding Changes in the KOSPI 200 Methodology
- The official announcement from KRX regarding the KOSPI 200 rebalancing rule change is expected to be released shortly after the end of October.
- The rule change will take effect beginning with this year’s December rebalancing. An official from KRX has communicated that we can confidently regard this as confirmed.
- It is essential to be aware that during this December review, there exists a significant potential for generating substantial price fluctuations within a narrow timeframe.
System Information Co (3677 JP) “MBO” By Bain an Exit Trade for Founder+CEO+Employees
- The stock is down more than 50% from its high 3yrs ago. The founder is 79. The CEO is 75. Employees and former directors own another 10%.
- This is an exit vs an MBO. And the Target Side negotiating the exit were rolled by Bain. This is NOT an expensive purchase. Bain’s equity check is 2.3x EBIT.
- But it probably gets done anyway unless someone gets noisy. For that, they’d have to buy a 10-15% stake I expect.
SK Square: M&A of 11st – Alibaba Out and Qoo10 In?
- On 27 September, Maeil Business Daily reported that SK Square signed an MOU with Qoo10 to pursue a joint management of 11st.
- It appears that Alibaba may have been reviewing this deal but it is no longer interested in pursuing 11st.
- A deal between Qoo10 and 11st could occur, but this is not certain, which means some of the cash proceeds to FI would need to be burdened by SK Square.
Kokusai Electric IPO – Don’t Worry, This’ll Be Fine Too
- Early last year there were articles suggesting that KKR would IPO Kokusai Electric at a valuation of about ¥700bn.
- A year plus later the company is now set to IPO for something on the order of ¥436bn.
- We are sure KKR is breathing a sigh of relief that they didn’t unload shares 60% higher and can now offer other investors some “value”.
4Paradigm IPO: Thoughts on First Day Trading
- 4Paradigm has priced its IPO at HK$55.60 per share, at the bottom end of the indicative IPO price range of HK$55.6-61.16 per share and raised net proceeds of HK$835.5m.
- The HK offering and the international offering of the company were oversubscribed by 11.4x and 1.57x respectively implying very moderate demand for the company’s shares.
- Though priced at the bottom of the indicative IPO price range, our analysis suggests that 4Paradigm’s IPO is still expensive.
System Information (3677 JP): Bain Backed MBO’s JPY930 Tender Offer
- System Information (3677 JP) has recommended Bain’s tender offer of JPY930 per share, a 21.9% premium to the undisturbed price (27 September).
- 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 50.69% ownership ratio.
- Irrevocables to accept the offer represent a 19.69% ownership ratio. The minimum acceptance condition (lower limit) requires a 37.0% minority acceptance rate. The tender offer is reasonable.
Blackstone&Permira/Adevinta: Potential LBO
- An investor consortium (including Blackstone and Permira) has made a non-binding bid for Adevinta ASA (ADE NO), which says the talks are in an early phase.
- By applying a 30% premium, the potential offer price would be NOK 111.5/share (18.6x EV/Fwd NTM EBITDA, IBES consensus). A leveraged buyer could obtain an 18% IRR by year 8.
- Adevinta trades (COM 26 September) at 17.6x EV/Fwd NTM EBITDA (vs. 16.4x median of comparables), so we can say the shares look fairly valued. Downside looks limited. I’d be long.
4Paradigm IPO Trading – Low Insti Subscription and Small Float
- 4Paradigm (6682 HK) raised around US$131m in its Hong Kong IPO.
- 4P is a platform-centric AI enterprise solutions provider. It was the largest player by revenue in the platform-centric decision-making AI market in China in 2022, as per CIC.
- We have covered various aspects of the deal in our previous notes. In this note, we will talk about the demand and trading dynamics.
Chinese Semiconductor Beneficiary
- ACM Research is a bit of an oddball stock. It’s a US listing of a Chinese company, with 82% ownership of the Chinese subsidiary.
- The US listing is the parent company and has been in the crossfire of US-China trade tensions for years.
- It is probably the best Chinese Semicap company and has real orders with multinational companies, notably SK Hynix.
Fortinet Inc.: Launch Of Data Center Firewalls With AI Support & Other Major Developments
- Fortinet Inc. delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
- Their quarter was marked by impressive total revenue growth of 26%, driven primarily by solid service revenue expansion exceeding 30% for the second consecutive quarter.
- In this report, we have carried out a fundamental analysis of the historical financial statements of the company.
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