In today’s briefing:
- Another Reason To Like China Mobile (941 HK)
- Yuexiu Property (123 HK) Rights Offering
- Index Rebalance & ETF Flow Recap: MSCI STD, Yuanta Div+, ZJLD, Anta
- Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch
- Meituan (3690 HK): Delivery Workers on Strike
- AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote
- KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks
- Rakuten Bank (5838 JP): Premium Growth Neobank Still Trading at Attractive Valuations
- CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete
- KCC: Plans to IPO Its Subsidiary Momentive Performance Materials in the US as Early as 2023
Another Reason To Like China Mobile (941 HK)
- In March, the HK Secretary for Financial Services announced a waiver of stamp duty on dual counter trading market making. In November, the Govt of HK gazetted a bill.
- HKEX launched plans in December. 9 large HK names announced in March they’d apply (Tencent, Kuaishou, Geely, BOC, Anta, AIA, China Resources Beer, Bidu, HKEX). Six more in April.
- All the announcements are similar. But one on 21 April caught my eye because it is a big H/A with strong southbound support. That’s China Mobile (941 HK).
Yuexiu Property (123 HK) Rights Offering
- On Thursday morning, Yuexiu Property (123 HK) halted trading in its shares and then later in the day announced a rights offering. Shares fell hard but gained back a little.
- The rights offering lowers BVPS by about 11.3% so the current price is “about right” for the fundamentals if the price the day before the news was right.
- There are, however, flow dynamics which are of interest. There almost always are.
Index Rebalance & ETF Flow Recap: MSCI STD, Yuanta Div+, ZJLD, Anta
- The review period for the MSCI May QCIR started last week and there were ad hoc changes to the S&P/ASX family and the KOSDAQ 150 Index (KOSDQ150 INDEX).
- The end of the coming week will mark the end of the review period for the upcoming rebalances for a bunch of indices with implementation scheduled in May and June.
- There was inflow to the Tracker Fund of Hong Kong Ltd (2800 HK) ETF for another week.
Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch
- Two pairs of constituent changes marked in squares in INTERNET and GAME may offer meaningful trading opportunities: Seojin System IN / Ahnlab OUT and Com2us IN / Doubleugames OUT.
- Along with TIGER ETF, stealth index funds follow these indices. So, constituent changes in INTERNET and GAME create a flow impact of 0.3~0.6x DTV, even not in the Top 3.
- Also, INTERNET and GAME have less passive flow impact degradation risk due to momentum trading flows compared to BATTERY and BIO.
Meituan (3690 HK): Delivery Workers on Strike
- Meituan’s delivery workers started a strike in Shanwei City of Guangdong Province.
- Meituan called many of its delivery workers from other cities nearby as substitutes.
- We believe the hard job market pushes Meituan to the very font line of industrial relation.
AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote
- Ahead of Aag Energy Holdings (2686 HK)’s vote on 27 April, the gross spread to Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer sits uncomfortably high at 13.5%.
- The key risk remains that minorities vote down the scheme. Retail forums are active with mixed views on the offer. Peers have also modestly re-rated, which helps the NO camp.
- At the last close, the risk-reward profile is unfavourable as the downside to a scheme fail (-16.0%) is greater than the upside to a scheme pass (+13.5%).
KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks
- With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.
- Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS).
- If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.
Rakuten Bank (5838 JP): Premium Growth Neobank Still Trading at Attractive Valuations
- The sharp run-up in the share price since its IPO does not, in our view, mean that Rakuten Bank’s rally is done; there is further fundamental justification for a re-rating
- Rakuten Bank trades on a LTM PE multiple of 14.4x, LTM PBV ratio of 1.6x and an ROE of 13.2%, which is the best return of our neobank peers
- Relative to its peer group, Rakuten Bank has premium long-run growth prospects; conservatively estimating Rakuten Bank’s growth (8% pa), implies a PEG ratio in the range of 1.2x to 1.3x
CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete
- With 4 trading days to go the review period, we see 13 potential index changes at the June rebalance that will be implemented at the close on 9 June.
- We estimate a one-way turnover of 1.94% at the June rebalance leading to a one-way trade of CNY 5.05bn.
- With the review period nearly complete, the gap between the potential adds and deletes could narrow ahead of the announcement of the changes as pre-positions are built.
KCC: Plans to IPO Its Subsidiary Momentive Performance Materials in the US as Early as 2023
- On 24 April, KCC Corp announced that it plans to IPO its subsidiary Momentive Performance Materials Inc. in the US stock market as early as 2023.
- In 2021, KCC raised its stake in MOM Holding from 50% + 1 share to 60%. Momentive EBITDA increased from $300 million in 2018 to $450 million in 2022.
- Our valuation of KCC Corp suggests an NAV of 3.1 trillion won (post 50% discount) or NAV per share of 347,633 won per share, representing 49% higher than current price.
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