In today’s briefing:
- HSCEI Index Rebalance Preview: Deletions Fairly Certain; Uncertainty Among the Adds
- SF Holdings A/H Listing – Early Look – Front Running
- CSI500 Index Rebalance Preview: Potential Adds Outperforming Potential Deletes
- Hang Seng Index Rebalance Preview: 80 Member Target Achieved; What Next?
- Costa Group (CGC AU): Paine Schwartz Wants It Back
- Arteria Networks (4423) Tender Launches 5 July.
- HDFC/HDFC Bank Merger: Foreigners Sell HDFC; LTIM in NIFTY; JSP in NEXT50
- Toyo Construction (1890) Plans Governance Review, Promises Neutrality on a YFO TOB Proposal Decision
- Rakuten: An Attractive Value Opportunity After 80% Value Decline in 8 Years
- Ohayo Japan| US Out – Quiet; “Thread” To Face off Vs “Twitter”; NUGGET: Lawson – Gunning for Growth
HSCEI Index Rebalance Preview: Deletions Fairly Certain; Uncertainty Among the Adds
- Country Garden Services Holdings (6098 HK) and Zhongsheng Group (881 HK) are high probability deletions in September, while Trip.com (9961 HK) is a high probability inclusion.
- The second add could be BeiGene Ltd (6160 HK) if it passes the velocity test. If not, Chow Tai Fook Jewellery (1929 HK) will be added.
- With the exception of Zhongsheng Group (881 HK), short interest has been rising on all the other stocks and could affect how the stocks trade close to implementation date.
SF Holdings A/H Listing – Early Look – Front Running
- S.F. Holding (002352 CH) (SFH), China’s largest express delivery company, aims to raise around US$2-3bn in its H-share listing in Hong Kong.
- SFH is the largest integrated express logistics service provider in China and the fourth largest in the world. It has been listed on the Shenzhen Stock Exchange since 2017
- In this note, we look at its past performance and other deal dynamics that might impact the listing.
CSI500 Index Rebalance Preview: Potential Adds Outperforming Potential Deletes
- Two thirds of the way through the review period for the June rebalance of the CSI500 Index, we forecast 50 changes (the maximum permitted) at the close on 8 December.
- There is a big sector skew in the potential changes. We estimate a one-way turnover of 10.1% at the December rebalance resulting in a one-way trade of CNY 6.75bn.
- The potential adds have outperformed the potential deletes and the CSI500 Index over the last six weeks. There could be more outperformance till nearer the end of the review period.
Hang Seng Index Rebalance Preview: 80 Member Target Achieved; What Next?
- We finally got to 80 Hang Seng Index constituents in June. Now comes the next step of moving up to 100 index constituents though there is no timeline for completion.
- The conclusions of the market consultation on the inclusion of foreign stocks in the Hang Seng Index should be announced soon though implementation could start only in December.
- We highlight 10 potential inclusions to the index with passive trading impact varying from 1.5-5.6 days of ADV. There are large shorts on some of the stocks.
Costa Group (CGC AU): Paine Schwartz Wants It Back
- Costa Group Holdings (CGC AU) listed in 2015 when Paine & Partners sold 40% of its stake in the company.
- Paine Schwartz Partners bought a 13.84% stake last year, increased it in March, and has now made an offer to buy out the remaining shares at A$3.5/share in cash.
- Short interest was over nearly 11 days of ADV to cover and short covering could take the stock higher sooner. This is a buy here.
Arteria Networks (4423) Tender Launches 5 July.
- Seven weeks ago, Marubeni Corp (8002 JP) and Secom Co Ltd (9735 JP) announced a joint deal to acquire the rest of ARTERIA Networks Corp (4423 JP).
- As I wrote in the previous piece, the premium was good, but the price was not great. The Board rejected the price, then agreed when the bidders wouldn’t go further.
- Now we have a deal and the Tender Offer starts 5 July. It was cheap to start. It’s still too cheap. But this one is tough to block.
HDFC/HDFC Bank Merger: Foreigners Sell HDFC; LTIM in NIFTY; JSP in NEXT50
- HDFC Limited (HDFC IN) will stop trading at the close on 12 July and will be deleted from all indices at the close on that day.
- As expected, LTIMindtree (LTIM IN) will be added to the NIFTY Index while Jindal Steel & Power (JSP IN) will be added to the NSE Nifty Next 50 Index.
- Importantly, HDFC Limited (HDFC IN)‘s foreign shareholding has dropped over the quarter ended 30 June and that has index implications for future passive flows to HDFC Bank (HDFCB IN).
Toyo Construction (1890) Plans Governance Review, Promises Neutrality on a YFO TOB Proposal Decision
- The Nikkei has an article today with details of an interview with new Toyo Construction (1890 JP) Chairman Yoshida and President Obayashi. There will be a 2-3 month governance review.
- It will review decision-making process, “profit management” (利益管理), and business investment decisions (事業への投資判断). Chairman Yoshida had a quote on neutrality on a YFO proposal. My wording there was carefully chosen.
- The President also said they expect ongoing synergies with Infroneer, and will maintain MTMP/Mitsui OSK Partnership management plans. Their words were chosen carefully too.
Rakuten: An Attractive Value Opportunity After 80% Value Decline in 8 Years
- Rakuten Group (4755 JP), having experienced an 80% decline in value over the last 8 years, now emerges as an enticing prospect for value investors.
- The combined fair value of Rakuten’s Cards, Bank, and Mobile businesses now surpasses 100% of the company’s market capitalization.
- Rakuten Ichiba, valued at ¥600bn, appears significantly undervalued when compared to ZOZO Inc (3092 JP) and MonotaRO Co Ltd (3064 JP), which hold approximately 2.0x Rakuten Ichiba’s valuation.
Ohayo Japan| US Out – Quiet; “Thread” To Face off Vs “Twitter”; NUGGET: Lawson – Gunning for Growth
- OVERSEAS. US out for Independence Day – not a lot to report; European Stocks gain, and volumes 1/3 of normal; META to Launch “Thread”, to compete with Twitter
- JAPAN. NKY Futs -0.8% vs Cash; USDJPY 144.5; NKY -1% as JP succumbs to profit taking; Toyota to cut Solid State battery costs by 50%; Rakuten to list Securities biz
- NUGGET. Lawson – if management can execute on their MTP, the stock is super cheap. Potential growth, Yield, Take out play ?
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