In today’s briefing:
- SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
- Shinko Electric (6967) – Break/Gap Risk Update
- What Is TSMC Telling Us About Semi Supply Chain Stories at Its Investor Conference?
- Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments
- Shinko Electric (6967 JP): Widening Spread Is an Opportunity
- Inageya (8182 JP): Share Exchange Offer from USMH (3222 JP)
- Hollysys (HOLI US): This Is A Buy
- Quiddity Leaderboard S&P 500 June 2024 – Minimal Changes Expected but Intrareview Changes Possible
- Quiddity Leaderboard KOSPI 200 Jun 24: Four Changes Likely
- Will the Hyundai Marine Solution IPO Follow in Ecopro Materials’ Footsteps After It Goes Public?
SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
- With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
- The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.
Shinko Electric (6967) – Break/Gap Risk Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- 12wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5wks ago, reco’d trimming.
- Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.
What Is TSMC Telling Us About Semi Supply Chain Stories at Its Investor Conference?
- TSMC reiterates 2024 sales y/y growth of 20-25% but revises down 2024 global semiconductor y/y sales from over 10% to 10% and global foundry sales growth from 20% to 15-19%.
- No more Moore’s Law: After 3 years ramp up gap between N5-N3, TSMC confirms 10-11 quarters of ramp up gap between N3 and N2 due to longer production cycle.
- Driven by stronger digital consumer (33% q/q), HPC (3% q/q), IoT (5% q/q) sales but weaker smartphone IC (-16% q/q), TSMC reports 1Q24 sales decline of only 5% q/q.
Imminent Block Deals Involving Hanmi Science Shares Due to Inheritance Tax Payments
- The local market anxiously awaits the family’s ability to pay by early May. Failure could prompt the Tax Service to sell their pledged stocks, including Hanmi Science shares.
- Preventing Tax Service from selling Hanmi Science shares requires additional collateral, unlikely due to existing pledges. Rumor suggests mother and daughter may sell shares before May, followed by Tax Service.
- Given negotiation uncertainty with KKR, it’s crucial to prepare for potential failure rather than solely relying on success, necessitating a pragmatic approach.
Shinko Electric (6967 JP): Widening Spread Is an Opportunity
- Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread widened from a low of 3.1% on 14 March to 7.0%.
- The widening spread can be attributed to China SAMR approval timing, earnings risk, Ibiden Co Ltd (4062 JP)’s material underperformance lowering the break price and a large fund liquidating positions.
- The deal break risks remain low with the timing remaining the key risk. The current 7.0% spread is an attractive opportunity to add.
Inageya (8182 JP): Share Exchange Offer from USMH (3222 JP)
- Inageya Co Ltd (8182 JP) announced a share exchange offer by United Super Markets (3222 JP) at 1.46 USMH shares per Inageya share.
- The share exchange aligns with Aeon Co Ltd (8267 JP)’s well-flagged intention of making Inageya a wholly-owned subsidiary of USMH.
- Aeon’s 50%+ shareholding in Inageya and USMH facilitates the two EGM votes. The deal metrics are broadly fair for both sets of shareholders.
Hollysys (HOLI US): This Is A Buy
- On the 8th February 2024, 85% of Hollysys Automation (HOLI US) shareholders present and via proxy, voted for Ascendent Capital’s Offer. After three-plus years, the end was finally in sight.
- Then crickets. The merger was to complete in the 1Q. On the 15th April, HOLI released an accountant resignation notice. No word on dissenters or regulatory approvals. Shares sold off.
- The accountant resignation is a nothing burger. HOLI should lift their game and provide more transparency on the outstanding merger conditions. Still, the spread is attractive. This is a buy.
Quiddity Leaderboard S&P 500 June 2024 – Minimal Changes Expected but Intrareview Changes Possible
- The S&P 500 index tracks the 500 largest names listed in the US and it is one of the most highly-tracked indices in the world.
- The index is reviewed quarterly. The next review will be in June 2024 and the evaluation date for the rankings for the constituent selection process is 6th June 2024.
- In this insight, we take a look at the Potential ADDs and Potential DELs for the June 2024 index rebal event and the intra-review ADDs/DELs.
Quiddity Leaderboard KOSPI 200 Jun 24: Four Changes Likely
- KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
- In this insight, we take a look at the names leading the race to become ADDs and DELs during the upcoming semiannual review in June 2024.
- We expect up to four changes in the KOSPI 200 index during the June 2024 index rebal event (down from 5 expected last month) based on the latest available data.
Will the Hyundai Marine Solution IPO Follow in Ecopro Materials’ Footsteps After It Goes Public?
- The prospect of this IPO mirroring the post-listing rallies seen with Ecopro Materials is what keeps local institutions fixated on this IPO despite valuation issues.
- The key factors are speculative trading frenzy among local retail investors and subsequent passive inflows through early entry into KOSPI 200/MSCI Standard.
- Considering two factors is vital. Hyundai Marine Solution’s IPO size is twice Ecopro Materials’, potentially limiting speculative buying. Sector-wide rallies, crucial for Ecopro Materials, haven’t been as prominent in shipbuilding.
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