In today’s briefing:
- ASX100/200/300 Index Rebalance Preview (March 2022): A Lot Happening From Now to March
- Nippon Paint (4612 JP): Secondary Offering & Index Implications
- LG Chem – Holdco Discount Narrowed Like a Charm… Time to Exit
- MHI (7011 JP): Opportunity or Value Trap?
- Cybersecurity/ Evergrande/ Covid/ Environment/ Hong Kong
ASX100/200/300 Index Rebalance Preview (March 2022): A Lot Happening From Now to March
- There could be 2 changes to the ASX100 and ASX200 prior to the March rebalance due to the acquisitions of Ausnet Services (AST AU) and Sydney Airport (SYD AU).
- There will also be the large BHP Group (BHP AU) upweight and funding trade following unification, and possibly the Afterpay Touch (APT AU) acquisition by Square Inc (SQ US).
- Then there will be more changes to the ASX200 and ASX300 at the March rebalance. There could be a lot of new listings included in the ASX300.
Nippon Paint (4612 JP): Secondary Offering & Index Implications
- Nippon Paint Holdings (4612 JP) will offer up to 140.133m shares in a secondary offering. Six financial institutions will sell shares aimed at lowering ‘strategic holdings’ and improving stock liquidity.
- There will also be an over-allotment option for 17.63m shares. In total, the offering size could reach JPY 198bn. There will be an increase in the stock free float.
- We expect MSCI/FTSE to implement the changes at the time of the event. TOPIX is a wild card since they may not see a 5-6% increase in FFW as significant.
LG Chem – Holdco Discount Narrowed Like a Charm… Time to Exit
- Our enthusiasm for the LG Energy Solutions IPO has been rather muted given a plethora of red flags and demanding valuations.
- However, given market enthusiasm for the name, the underperformance of parent LG Chem created an opportunity.
- A 16% move in four days has corrected most of the discrepancy though and it is time to leave in our view.
MHI (7011 JP): Opportunity or Value Trap?
- MHI is selling at 9.9x EPS guidance and 0.7x book value, with a dividend yield of 3.0%. We see potential upside of at least 25% beyond the New Years bounce.
- The shares have underperformed for several years due to serious managerial errors. But the mess is being cleaned up and new growth opportunities have emerged.
- Risks include limited margins in the energy and aerospace & defense sectors and the possibility of renewed investment in the failed regional jet aircraft project.
Cybersecurity/ Evergrande/ Covid/ Environment/ Hong Kong
- The Cyberspace Administration of China set new rules requiring platform companies with data on more than one million users to undergo a security review before listing their shares overseas.
- Evergrande, the world’s most indebted developer was last week ordered to demolish 39 buildings of its flagship property project on Ocean Islands, for breaching building approval procedures.
- After a spike in Covid cases, China’s tough lockdown of the city of Xi’an has confined 13 million people to their homes and shuttered businesses.
Before it’s here, it’s on Smartkarma
