In today’s briefing:
- Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
- StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI
- China: Passive Selling Expected Later This Month
- Tata Motors (TTMT IN): Index Impact of DVR Cancellation
- Thoughts On Swire Properties (1972 HK)’s Buyback
- Trading Opportunities from the Rise of Sector Pairs Trading Using SSFs & MM Unwinding at Expiry
- Trend Micro (4704) Up For Sale? Would Be a HUGE Buyout But How Huge? And Who?
- Targeting Spreads by Leveraging the High Predictability of the Celltrion Merger
- Astera Labs: Solid 2Q’FY24, ADTV Jumped As IPO Lock-Up Expired, PT Moves To $39.00
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.
KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
- KKR has announced its previously leaked takeover of Fuji Soft Inc (9749 JP). Two activists with 30+% between them have agreed to tender at ¥8,800.
- Given what the founder, crossholders, and other arbs own, this gets done easily. Congrats on the win to the activists.
- We will see more activism and more pressure on under-earning companies to go private to clean themselves up outside the public eye. Big opportunities for years.
StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI
- Barito Renewables Energy (BREN IJ) is down 19% in the past month. But still accounts for ~730% of parent Barito Pacific (BRPT IJ)‘s market cap. Still unsustainable.
- Preceding my comments on the Barito complex AND the Kyocera Corp (6971 JP) / KDDI Corp (9433 JP) Holdco, are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation (sub/parent) >20%.
China: Passive Selling Expected Later This Month
- The China equity markets have continued to trade lower with the CSI 300 Index outperforming other mainland indices as the National Team continues to pump money into ETFs tracking the index.
- We currently estimate selling of around US$1.39bn across 74 stocks listed on the mainland and in Hong Kong. There could be fewer deletions depending on the review date chosen.
- The potential deletes have dropped a lot since the start of the calendar year with big underperformance versus the HSCEI Index, CSI 300 Index and CSI Smallcap 500 Index.
Tata Motors (TTMT IN): Index Impact of DVR Cancellation
- The Tata Motors Ltd (TTMT IN) / Tata Motors DVR (TTMT/A IN) scheme of arrangement has received shareholder approval and regulatory approvals and should be implemented in the short-term.
- There will be small buying from global passive trackers while there will be much bigger buying from NIFTY Index (NIFTY INDEX) and S&P BSE SENSEX Index (SENSEX INDEX) trackers.
- In total, we estimate passive trackers will need to buy 25.2m shares (US$308m; 1.9x ADV) of Tata Motors Ltd (TTMT IN) with buying coming in at different times.
Thoughts On Swire Properties (1972 HK)’s Buyback
- Swire Pacific (A) (19 HK), 82%-held Swire Properties (1972 HK), and Cathay Pacific Airways (293 HK) all announced interim results this week.
- Of interest was Swire Prop announcing a HK$1.5bn share buyback. Shares popped 12% on the news.
- Swire Pac remains cheap on a look-through P/B of 0.34x. However, the implied stub and simple ratio (Pac/Props) have just rolled over from multi-year peaks.
Trading Opportunities from the Rise of Sector Pairs Trading Using SSFs & MM Unwinding at Expiry
- Trading opportunities arise when overseas traders’ SSF positions face unwinding by local market makers, who enter SSF positions and take opposing spot positions, unwinding at expiry.
- August-Expiry SSF data shows reverse flow impact by local market makers today, with varying degrees of impact per stock but an observable overall trend.
- With ongoing market volatility in Korea, consider setups targeting price impacts from reverse flows of sector pairs trading on the next SSF expiration date.
Trend Micro (4704) Up For Sale? Would Be a HUGE Buyout But How Huge? And Who?
- A Reuters article overnight says Trend Micro might be up for sale. This caused the ADRs to jump 10% overnight. The remaining co-founders are 65 and 70 this year.
- The stock has effectively gone sideways the last few years as Value Act has been activisting. Now one has to exercise one’s imagination to think about a possible sale price.
- On a DCF basis, a PE fund couldn’t reasonably do this. Multiples are too high. That means a strategic buyer would be more likely. But Who? Why? And How much?
Targeting Spreads by Leveraging the High Predictability of the Celltrion Merger
- Local market views Celltrion’s shareholder survey as the start of the merger process, with a decision expected from the boards within two to three months if there’s no major opposition.
- Under Korean law, if Celltrion Pharm’s market cap is under one-tenth of Celltrion’s, the merger can proceed as a small-scale merger, allowing Celltrion to avoid shareholder approval and appraisal rights.
- We should leverage the merger’s high predictability to proactively target merger swap and appraisal rights spreads and build a strategy in advance.
Astera Labs: Solid 2Q’FY24, ADTV Jumped As IPO Lock-Up Expired, PT Moves To $39.00
- Astera Labs reported solid 2Q’FY24. The company beat all key estimates, showed relatively strong demand and operating metrics.
- With the stock trading at 19x EV/2024E Revenue and 13x EV/2025E Revenue I see shares as fairly-valued and expect the stock to trade in-line with peers. PT to $39.00.
- All remaining Astera Labs shares held by stockholders became eligible for sale as IPO lock-up expired following public release of earnings for 2Q’FY24.
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