In today’s briefing:
- Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- HSCEI/HSTECH/HSIII Index Rebalance Preview: Potential Changes, Flow & Positioning
- To Tender Or Not – Gauging The Future of Sun Corp (6736)
- TCM (570 HK): A Spoonful Of Sugar …
- China Traditional Chinese Medicine (570 HK): Relief as Update Favours the Bulls
- Midea Group (000333 CH): Index Implications at US$3bn Issue Size
- Sun Corp (6736) – The Future Is Bright
- Value-Up Flow Trading Opportunities Arising from NPS’s 10% Ownership Ceiling on Banks
- JD.com (JD US): Strong Profitability And Upsized Share Buyback in 2Q24
- Merger Between Celltrion Inc and Celltrion Pharm Is Cancelled
Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
- The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
- Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here.
HSCEI/HSTECH/HSIII Index Rebalance Preview: Potential Changes, Flow & Positioning
- The constituent changes for the Hang Seng China Enterprises Index (HSCEI INDEX), Hang Seng TECH Index (HSTECH INDEX) and HSIII Index will be announced after market close on Friday.
- We forecast 2 changes for the Hang Seng China Enterprises Index (HSCEI INDEX), 1 change for the Hang Seng TECH Index (HSTECH INDEX) and 3 changes for the HSIII Index.
- With same-way and opposing flow on stocks from different passive trackers, the one-way trade is currently estimated at HK$5.2bn (US$672m). That will change with final capping done on 3 September.
To Tender Or Not – Gauging The Future of Sun Corp (6736)
- The revised/final True Wind Tender Offer for up to 19% of Sun Corp (6736 JP) ends this week. With the “excitement” the last two weeks, the SunCorp/CLBT ratio is higher.
- The minimum threshold is relatively low. The Tender will most likely succeed with very high pro-ration.
- For those on the edge, I discuss possibilities on the back end. It will be less liquid, but that may not be bad.
TCM (570 HK): A Spoonful Of Sugar …
- A 14.8% gain month-to-date, including this past Monday’s 6.5% pop – you just knew something positive was taking place behind closed doors. And leaking its way into the public.
- So it was no real surprise to read in the latest monthly update announcement on the HKEx that various regulatory approvals are almost, but not quite, satisfied.
- The wording in the announcement strikes a positive tone. Even remaining conservative on the timeline, this could be wrapped up before year-end.
China Traditional Chinese Medicine (570 HK): Relief as Update Favours the Bulls
- China Traditional Chinese Medicine (570 HK)’s monthly update reinforces the bull case. The gross spread has remained uncomfortably high since falling on no news on 26 June.
- The monthly update will relieve the bulls, as the consortium has finally made the regulatory submissions. The update stresses that the filing delay is due to an unwieldy consortium.
- Potential stumbling blocks remain, which should not be an issue. Nevertheless, the risk (17.7% downside to the undisturbed price)/reward (21.4% gross spread) remains attractive.
Midea Group (000333 CH): Index Implications at US$3bn Issue Size
- Midea Group Co Ltd A (000333 CH) has got approval to list on the HKEX (388 HK) and reports are that the listing could be up to US$3bn.
- That issue size is around half of the maximum that the company can issue. But it would still need cornerstone investors and a nice discount on the H-shares.
- The stock will still get included in some indices even with the scaled down size, and inclusion in Southbound Stock Connect is a given.
Sun Corp (6736) – The Future Is Bright
- The reason why Sun Corp (6736 JP) has traditionally traded at a large discount to its potential outcome is the possibility of inefficient or delayed value realisation.
- Materially ALL of the value of the company is in its holding in Cellebrite DI (CLBT US). True Wind Capital, the SPAC sponsor of CLBT, just bought 19% of SunCorp.
- They bought that for the CLBT, or the value realisation thereof. And now with the slightly surprising Tender Offer result, the chances of a better outcome are now higher.
Value-Up Flow Trading Opportunities Arising from NPS’s 10% Ownership Ceiling on Banks
- NPS is concerned that aggressive value-up measures by bank holding companies and ongoing cancellations might quickly use up their room up to the 10% ownership limit.
- With their stake already at mid-8%, they may not buy as much as the index suggests, creating new trading opportunities in the four major bank holding companies.
- Woori Financial has more room for buying, so as the year ends, NPS’s skewed-buying could give it a better price impact than other bank holding companies.
JD.com (JD US): Strong Profitability And Upsized Share Buyback in 2Q24
- Profitability of the business surprised on the upside, as the net profit margin of JD.com increased from 3% in 2Q23 to 5% in 2Q24.
- Share buyback accelerated in 2Q24, as the company bought USD2.1bn worth of stock in the quarter, up from USD1.2bn in 1Q24.
- The stock is trading at 7x 2024 PE, with a yield of >10% through dividend and buyback.
Merger Between Celltrion Inc and Celltrion Pharm Is Cancelled
- Celltrion Inc announced that its proposed merger with Celltrion Pharm has been cancelled due to disapproval of this deal among an overwhelming percentage of Celltrion Inc shareholders.
- This cancellation of a merger between Celltrion Inc and Celltrion Pharm is likely to continue to have a positive impact on Celltrion Inc and negative impact on Celltrion Pharm.
- The major reason is because Celltrion Pharm trades at high valuation multiples while Celltrion Inc trades at lower valuation multiples. Celltrion Pharm’s P/B valuation is more than 3x Celltrion Inc’s.
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