In today’s briefing:
- Sea Ltd (SE US): Tencent’s Selldown and Upcoming MSCI Passive Inflow
- China Huarong (2799 HK): Index Inclusion Timeline
- Razer’s Offer Spread Risk/Reward
- Katakura Tender Offer Bump Now Looks Off. It Is Take-The-Loss or Hold-On-For-Later
- KOSDAQ150 Index Rebalance Preview (June 2022): Lots of Changes Early in the Review Period
- Very Large Keiyo (8168 JP) Buyback NOT Necessarily Bullish
- FTSE UK Index Series: Leaderboard for End-December 2021
- Iberdrola/PNM Resources: Longstop Date Extension
- POSCO Announces Partial Cancellation of Treasury Shares
- Adastria to Expand Beyond Fashion with Zetton Acquisition
Sea Ltd (SE US): Tencent’s Selldown and Upcoming MSCI Passive Inflow
- Sea Ltd (SE US) stock was down a lot since the announcement of its Q3 results. Tencent (700 HK) selling a 2.6% stake yesterday took the stock down even further.
- Given the large drawdown and Tencent (700 HK) locking in its remaining Sea Ltd (SE US) holding for the next 6 months, the stock could rally in the short term.
- There will be passive inflow from MSCI trackers in February as a part of the tranched inclusion and then more in May due to an increase in the FIF.
China Huarong (2799 HK): Index Inclusion Timeline
- China Huarong Asset Management (2799 HK) has resumed trading after a 9 month suspension. Core Tier-1 capital was replenished and the plan is for the business to be downsized.
- The stock was deleted from the MSCI and FTSE indices in June 2021 and passive trackers that were long the stock will be selling today to flatten their exposure.
- The stock should be included in the MSCI Standard, FTSE All-World and HSCI later this year. Once included in the HSCI, the stock will become a part of Stock Connect.
Razer’s Offer Spread Risk/Reward
- The gross spread to the HK$2.82 per share offer has retouched the high of 23%. The headcount test is a key challenge as some minorities voice displeasure over the price.
- Based on the unaffected price of HK$1.81 and at the last close of HK$2.30, the deal probability retouched lows of 48.5%. A 65% deal probability would imply HK$2.47 per share.
- In the event of a failed deal, Razer Inc (1337 HK)’s strong fundamentals provide solid valuation support. Our SoTP valuation is HK$2.96 per share, 5% higher than the privatisation price.
Katakura Tender Offer Bump Now Looks Off. It Is Take-The-Loss or Hold-On-For-Later
- The Katakura Industries (3001 JP) MBO was launched in early November at a price which was too light but activist/long-time holder Oasis agreed to sell (with an up-and-out exception).
- Another would-be activist bought Oasis’ shares at a premium to the Tender, encouraging hopes of a bump in the Tender Offer Price.
- Yesterday, the bidder dashed those hopes, and today the shares fell, but not to the TOB Price. This has longer-term designs.
KOSDAQ150 Index Rebalance Preview (June 2022): Lots of Changes Early in the Review Period
- One third of the way through the review period for the June rebalance, we see 14 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX).
- One-Way turnover is estimated at 6.29% and the impact on the expected deletions is a lot higher than the impact on the expected inclusions.
- The potential inclusions have outperformed the potential deletions and are starting to lose some ground now. The potential inclusions are not short sell eligible and could move higher again.
Very Large Keiyo (8168 JP) Buyback NOT Necessarily Bullish
- Keiyo announced a large (9.2% of shares out) ToSTNeT-3 buyback for tomorrow morning at JPY 855/share.
- Normally this would be an occasion for looking at the significant accretion.
- This time there are possible offsets which are less encouraging.
FTSE UK Index Series: Leaderboard for End-December 2021
- The FTSE UK Index Series is a widely tracked family of sub-indices representing the performance of the public equity market in the UK.
- These indices are reviewed on a quarterly basis in March, June, September, and December.
- In this insight, we take a look at the potential constituency changes that can happen in the March 2022 Rebalance for the FTSE 100 and FTSE 250 Indices.
Iberdrola/PNM Resources: Longstop Date Extension
- The deal did not pass muster with the New Mexico PRC (the last hurdle) but still is strategic for Iberdrola, hence the longstop date os extended to 20 April 2023.
- There should be higher chances to obtain the green light. On a standalone basis, my TP for PNM is $50.47/share. Gross spread is 9.2%, with likely a year to closing.
- Recommendation is Long PNM US, underpinned by stand-alone comparables based valuation and a 2.9% dividend yield. There is the possibility of further upside coming from a sweetening of the offer price.
POSCO Announces Partial Cancellation of Treasury Shares
- On 5 January, Posco (005490 KS) announced several shareholder friendly policies including a partial cancellation of its treasury shares.
- Following this announcement, POSCO’s share price climbed 3.1% while KOSPI fell 1.2%.
- All in all, we believe that these shareholder friendly policies (including large scale treasury shares cancellation) could help POSCO’s share price to outperform the market in the next several weeks.
Adastria to Expand Beyond Fashion with Zetton Acquisition
- For a decade Adastria Co Ltd (2685 JP) was the fastest growing fashion retailer but, as it matured and the apparel market stagnated, growth rates declined.
- The company now wants to become a diversified lifestyle retailer with food as a major element so, to speed things along, it will acquire restaurant business Zetton Inc (3057 JP).
- It is also investing in overseas retailers to spearhead expansion abroad, a strategy that will include Zetton’s leading chain, Aloha Table.
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