In today’s briefing:
- TOPIX October 2022 Rebal – Treading Water
- CSI300 Index Rebalance Preview: Potential Changes and Close Names
- Closing the Gap Between LG Energy Solution & LG Chem Pair Trade
- GoTo Lock-Up: A Sizeable Secondary Offering Incoming
- Tencent (700 HK): Game Market Weak in 3Q22 and to Be Worse in 2023
- Delta Taiwan Vs. Thailand Monitor: Major Disconnect Post Thai Earnings, Trade Taiwan Into Earnings
- Alibaba ADR: Initiation of Coverage – Business Strategy & Key Drivers
- IRDM: Orbiting Subscriber Growth
- ELMO Software (ELO AU): $4.85/Share Offer From K1 Investment
- Lam Research: Major Drivers
TOPIX October 2022 Rebal – Treading Water
- The TOPIX October FFW rebalance is Friday at the close.
- It is still ¥2trln+ to buy and ¥2trln+ to sell. And there are some big names. A spreadsheet is attached with all the flows.
- Surprisingly, the top 40 Z-scores on each side have traded in a VERY tight range for the 6 weeks prior to the announcement and the two weeks post. Very weird.
CSI300 Index Rebalance Preview: Potential Changes and Close Names
- Near the end of the review period, we see 16 potential changes to the CSI 300 Index at the December rebalance. There are other stocks very close to the cutoffs.
- We estimate a one-way turnover of 3.04% at the December rebalance leading to a one-way trade of CNY 8.4bn.
- The potential adds have outperformed the potential deletes, though the gap has narrowed in the last few weeks. We’d position for outperformance post the end of the review period.
Closing the Gap Between LG Energy Solution & LG Chem Pair Trade
- In this insight, we discuss a pair trade between LG Chem Ltd (051910 KS) (go long) and LG Energy Solution (373220 KS) (go short).
- LG Chem’s shares are trading at nearly 66% discount to its NAV which we believe to be excessive.
- Another major factor that could negatively impact LGES’ shares in the next several months is the end of the lock-up period for the company’s ESOA shares in about three months.
GoTo Lock-Up: A Sizeable Secondary Offering Incoming
- GoTo (GOTO IJ) confirmed that it is exploring a coordinated secondary offering of shares held by pre-IPO shareholders. The Series A shareholders’ lock-up expires on 30 November 2022.
- The lock-up of 89.63% of the outstanding shares expires on 30 November. Within these shares, Alibaba (ADR) (BABA US) and Softbank Group (9984 JP) stakes are worth a combined US$2.6bn.
- GoTo continues to grow but with material losses and cash burn. The shares are fairly valued but the sizeable secondary offering (US$1 billion based on reports) will pressure the price.
Tencent (700 HK): Game Market Weak in 3Q22 and to Be Worse in 2023
- In 3Q22, the game market size shrank in China and globally.
- The limitations on time spent on games by juveniles, imposed earlier by the authorities, severely impacted the domestic market.
- We believe the key impact for 2023 is the predictable license approval.
Delta Taiwan Vs. Thailand Monitor: Major Disconnect Post Thai Earnings, Trade Taiwan Into Earnings
- Delta Electronics Thailand shares rose sharply ahead of its earnings result, where profit beat expectations. Delta Taiwan shares fell the same day, thus we see an opportunity.
- Delta Taiwan to report on October 28th. Delta Taiwan is now smaller in market cap than its subsidiary despite earning substantially higher levels of net profit.
- 2023E growth expectations are relatively similar for both, supporting Delta Taiwan to revert vs. Thailand. Trade opportunity into the Delta Taiwan October 28th results.
Alibaba ADR: Initiation of Coverage – Business Strategy & Key Drivers
- This is our first report on global tech giant, Alibaba.
- The company is currently trading close to its 52-week low with its results just around the corner.
- Tmall GMV and Taobao experienced a percentage decline in the mid-single-digit in the last quarter.
IRDM: Orbiting Subscriber Growth
- IRDM put the emphasis on its quarterly report versus commentary on smartphones and drones using satellite connectivity. The third quarter results continued to show the ongoing growth in IOT subscribers
- IRDM’s service revenue has been trending higher with added maritime and IOT subscribers
- During the third quarter, IRDM added 7 thousand voice subscribers and 89 thousand IOT subscribers. The rate of voice customer additions can be lumpy depending on seasonality
ELMO Software (ELO AU): $4.85/Share Offer From K1 Investment
- Elmo Software (ELO AU) has entered into a Scheme Implementation Deed (“SID”) with K1 Investment under which ELMO shareholders will be entitled to receive $4.85/share, in cash.
- The SID has the support of the independent board and ELMO’s three largest shareholders collectively holding ~33.4% of shares out.
- The Scheme is expected to complete in the 1Q23. The proposal requires FIRB approval. This looks done.
Lam Research: Major Drivers
- Like most of its semiconductor peers, Lam has witnessed a strong correction after its earlier highs.
- It demonstrated its sustained strength in execution by surpassing the $5 billion revenue for the first time.
- It is ramping up output levels and has increased revenue by almost 10% compared to the previous quarter.
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