In today’s briefing:
- TCM (570 HK): Where’s The Floor?
- Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- China TCM (570.HK) Privatization Update – Things Are Still Manageable
- J Tower (4485) – Once Ambitious, Still High Growth, Sells Itself Low/Cheapish.
- China Traditional Chinese Medicine (570 HK): Relief as Update Favours the Bulls
- Midea A/H Listing – Getting Closer to the US$3bn+ Raising, Has a Narrow Window
- Long 7747 Asahi Intec | Short 7733 Olympus
- Examining the September Reshuffle of the KOSPI Size Index Series
- TCM (570 HK): A Spoonful Of Sugar …
- Midea Group (000333 CH): Index Implications at US$3bn Issue Size
TCM (570 HK): Where’s The Floor?
- Just plain ugly. China Traditional Chinese Medicine (570 HK) (“TCM”) fell 11.7% yesterday. It’s down another 7.9%, on large volume, as I type. The stock is now ~35% below terms
- Depending on who you talk to, the sudden move was triggered by a couple of event pods dumping stock; or the incoming CNPGC chairman is not supportive. Or perhaps both.
- Since rumours surfaced early Feb as to an Offer, a basket of TCM’s peers are up 8% on average. The HSI is up 15%. TCM’s downside from here appears limited.
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.
China TCM (570.HK) Privatization Update – Things Are Still Manageable
- What disappoints investors is that privatization progress is slower-than-expected. Since approval is in “advanced stage”, August update is eye-catching. Investors may need more patience with this type of SOE deal.
- The key to the success of this privatization lies in whether CNPGC is willing to abide by its commitments. If yes, CNPGC will take all measures to solve the problems.
- According to our valuation calculation, even without this privatization, HK$3.5/share is fair for China TCM. Reasonable share price is above HK$5/share. Don’t forget, the privatization is still on the agenda.
J Tower (4485) – Once Ambitious, Still High Growth, Sells Itself Low/Cheapish.
- JTower (4485 JP) IPOed itself Dec-2019 at ¥1,600/share. An 8-bagger in a year, fell by half, doubled, fell 70%, then doubled, fell 35%, up 50%. That’s the first 3yrs.
- Since then, the trend has been lower. The stock is down 80+% in 2 years, especially painful after an equity raise at just under ¥5,000 6 months ago.
- But the stock today closed at ¥1,430, and the Tender Offer is at ¥3,600. A 150% premium. That’s big, but it may be “too low.” An interesting case.
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 A/H Listing – Getting Closer to the US$3bn+ Raising, Has a Narrow Window
- Midea Group Co Ltd A (000333 CH) one of the world’s largest home appliance producers, aims to raise up to US$3bn in its H-share listing.
- Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
- We have covered the company and deal background in our previous notes. In this note, we talk about the updates since then.
Long 7747 Asahi Intec | Short 7733 Olympus
- 7747 Asahi Intec announced FY06/25 OP guidance of Y25.2bn, close to street expectations, pointing to substantial upside. GPM guidance has increased and continuation of strong 4Q YoY sales is expected.
- Seven days of short interest outstanding could lead to a short squeeze; Earnings briefing tomorrow reinforcing these trends should be a further catalyst for upside.
- With short interest now low and limited potential for further gains after the recent rebound, 7733 Olympus appears to be losing momentum, especially with China sales continuing to flag.
Examining the September Reshuffle of the KOSPI Size Index Series
- The September KOSPI Size Index rebalancing could bring back the typical price impacts seen over the past decade, unlike the March rebalancing.
- The previous rebalancing had anomalies due to newly listed stocks in LARGE and a stronger downward trend in LARGE-to-MID transitions, disrupting the expected price impact.
- For September’s rebalancing, fewer distortions are expected compared to March. The NPS Mid to Small Cap fund, a key influence, shows no significant changes in benchmark or AUM.
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.
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.
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