In today’s briefing:
- MSCI May 2022 Index Rebalance Preview: Changes in a Volatile Market
- JD.com Tencent Div Distribution – The US$10bn Overhang – Passives Might Have to Sell
- S&P/ASX Indices: March 2022 Rebalance Update and Post-Inclusion Outlook
- Yashili (1230 HK): More Formula Fortune?
- WH Group (288 HK) – Now Cheapest in Yonks Outright and Vs Peers
- Uniti’s A$4.50 Indicative Bid from Morrison & Co
- Hyundai Heavy Industries: Multi-Phase Trading on Lockup Release & FTSE GEIS Inclusion
- Korea Preferred Shares: Suitable Long/Short Pairs at This Point
- Apollo/Pearson: Prospective Offer
- Most Shorted Stocks on KOSDAQ 150 in Last 5 Days
MSCI May 2022 Index Rebalance Preview: Changes in a Volatile Market
- The review period runs from 18-29 April for the May SAIR, the results will be announced on 13 May (Asia-time) with the changes implemented after the close on 31 May.
- Most of the potential changes are in China with few changes spread across the other Asian markets. China loses the most number of index members, followed by Japan.
- There are over 4 weeks to the start of the review period and there will be changes over that time as stock prices move around.
JD.com Tencent Div Distribution – The US$10bn Overhang – Passives Might Have to Sell
- On 23rd Dec, Tencent declared a dividend in the form of distribution in specie of 457.326m shares of JD.com, i.e. 1 share of JD.com for every 21 shares of Tencent.
- While Tencent went ex-div on 20th Jan 2022, the actual settlement of the distribution is expected to happen on or about 25th Mar 2022.
- In this note, we talk about the likely impact of Prosus’ shareholding on passive flows at the time of settlement.
S&P/ASX Indices: March 2022 Rebalance Update and Post-Inclusion Outlook
- The March 2022 regular rebalance constituency changes for ASX 300, ASX 200, ASX 50, and ASX 20 were announced on 4th March 2022.
- These constituency changes will be implemented at the close of 18th March 2022 (Friday) and will be effective from the open on 21st March 2022 (Monday).
- Below is a discussion on the performance of these candidates so far and our expectation for the next few weeks.
Yashili (1230 HK): More Formula Fortune?
- Infant formula play Yashili International Holdings (1230 HK) is currently suspended “pursuant to The Hong Kong Code on Takeovers and Mergers“.
- Shares closed up 98% yesterday, on clear news leakage, before shares were suspended. China Mengniu Dairy Co (2319 HK) holds 51.04% with Danone SA (BN FP) another 25%.
- This trading halt follows the recent successful Offer for Ausnutria Dairy Corp (1717 HK), one of Yashili’s key peers.
WH Group (288 HK) – Now Cheapest in Yonks Outright and Vs Peers
- WH Group (288 HK) is two businesses – a US pork processor and a Chinese one – and both businesses are suffering lower margins than they’d like.
- But they are doing better than and are cheaper than peers. And still the stock falls. Today, the stock price hit a 6-year low on dramatic underperformance of peers.
- The question is what the proper discount would be for people who question its governance credentials. It’s a really big discount now.
Uniti’s A$4.50 Indicative Bid from Morrison & Co
- Morrison & Co will offer A$4.50 cash per share, a 42.9% premium to the unaffected price of A$3.15 (on 13 March).
- We think that the Morrison offer is attractive in the context of historical multiples and share prices. At last close, the gross spread is 12.2%.
- Uniti Group Ltd (UWL AU) flagged in January that it had received takeover approaches from more than one party. Consequently, the Morrison offer could force out other bidders.
Hyundai Heavy Industries: Multi-Phase Trading on Lockup Release & FTSE GEIS Inclusion
- Hyundai Heavy Industries will face significant volatility this week. First, on March 17, IPO 6-month lockup will be released. The next day, March 18, rebalancing trading of FTSE GEIS occurs.
- If half of the lockup release hits the market, it will be about 3.0x ADTV. At 30%, it is 1.8x ADTV. Then, we should see an inflow of 1.04x ADTV.
- The short position exit timing is crucial. Some of the volumes scheduled for release are likely to sell on the 18th or early next week, targeting Friday’s FTSE GEIS event.
Korea Preferred Shares: Suitable Long/Short Pairs at This Point
- I first screened those with a sigma below -1.0 on a 20D MA relative to Ords. I then filtered those having underperformed the common shares on a YTD price performance.
- As a result, I have the following four preferred shares: Samsung Electronics 1P, Hyundai Motor 1P, Daishin Securities 1P, and Doosan Corp 1P.
- As for the pref/ord dividend yield difference, Hyundai Motor 1P’s dividend yield difference has widened considerably compared to the past three years.
Apollo/Pearson: Prospective Offer
- Apollo approached educational conglomerate Pearson Plc (PSON LN) regarding a 854.2p prospective offer for 100%, rejected by the Board. Value creation should come from further divesting businesses. PUSU deadline is 8 April.
- Cevian, top shareholder, has a 10.24% stake, and bargaining power (it could prevent a delisting). Using DCF, base-case TP is 742p, best case is 834p. Comps-based valuation is 815p.
- The market’s gone beyond initial doubts, shares closed at 827.6p on 15 March (3.3% gross spread), betting Apollo will succeed (probably raising the offer). The CDS market already believed it.
Most Shorted Stocks on KOSDAQ 150 in Last 5 Days
- Here are the top 30 most shorted stocks on KOSPI 200 over the last five trading days, by short-selling volume as a % of the accumulated trade volume.
- I then sorted out those with a short-selling volume exceeding 10% of the accumulated trade volume during these five trading days and a 30-day ADTV of +₩3B.
- And another additional condition was an increase in the loan balance during the same period. As a result, six names came up as having a high potential of price decline.
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