In today’s briefing:
- KOSPI Size Indices – Potential Changes in September
- Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises
- Allkem (AKE AU) & Livent (LTHM US) In a Merger of Equals: Index Implications
- CUBox IPO Bookbuilding Results Analysis
- Potential Inclusions & Exclusions for KOSPI 200 and KOSDAQ 150 in May 2023 Highlighted by Locals
- HDFC/HDFCB Merger: Impact on Bank Nifty
- MitCorp (8058 JP) Earnings and Buyback – Shareholder Structure Matters
- Yitai Coal (3948 HK): H-Share Buyback Firmed At HK$17.50
- TOPIX Inclusions: Who Is Ready (May 2023)
- Allkem (AKE AU): Merger of Equals with Livent (LTHM US)
KOSPI Size Indices – Potential Changes in September
- The review period for the September rebalance of the KOSPI Size Indices will run from 1 June to 31 August. The changes will be implemented at the close 7 September.
- We see 6 migrations from MidCap to LargeCap, 56 migrations from LargeCap to MidCap, 2 new adds to MidCap, and 11 migrations from SmallCap to MidCap.
- Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.
Allkem/Livent (AKE AU | LTHM US) Merger Of Lithium Equals Has Index Surprises
- Today, after the close, ASX-listed Allkem Ltd (AKE AU) (formerly known as Orocobre, which merged with Galaxy Resources in 2021) announced it would merge with Livent (LTHM US).
- At US$10bn, this “merger-of-equals” NEWCO (pro-forma US$1.9bn revenue, US$1.2bn EBITDA), with NYSE primary listing and foreign entity listing on the ASX, would be a global lithium player. Deal closing end-2023.
- The doc (243 pages) and presentation (42p) are worth reading. There are interesting index effects, and there may be “Lithium Risk” in this deal for arbs, but it looks good.
Allkem (AKE AU) & Livent (LTHM US) In a Merger of Equals: Index Implications
- Allkem Ltd (AKE AU) and Livent (LTHM US) are combining in an all-stock merger of equals to create a global lithium chemicals producer.
- Allkem Ltd (AKE AU) shareholders will receive 1 NewCo share for each Allkem share held while Livent (LTHM US) shareholders will receive 2.406 NewCo shares for each Livent share held.
- The merger will have implications for the stocks in the MSCI, S&P/ASX, thematic, and other global indices at the time of implementation.
CUBox IPO Bookbuilding Results Analysis
- On 8 May, CUBox (340810 KS) announced its IPO price of 15,000 won, which is 13% lower than the lower end of the IPO price range of 17,200 won.
- Our base case valuation of CUBox is implied target price of 22,719 won per share, which represents 51% higher than the IPO price of 15,000 won.
- CUBox claims that it has one of the world’s best technologies in the field of AI face recognition.
Potential Inclusions & Exclusions for KOSPI 200 and KOSDAQ 150 in May 2023 Highlighted by Locals
- In this insight, we discuss the potential inclusions and exclusions that the locals are highlighting for the KOSPI 200 and KOSDAQ 150 rebalance in May 2023.
- The top five best performing stocks YTD that are expected to be included in either KOSPI200 and KOSDAQ150 include Rainbow Robotics, Kumyang, Cosmo Chemical, Yunsung F&C, and Posco M Tech.
- In the coming weeks, there is a higher probability these five stocks underperform the market on average as many investors sell the news on them getting included in these indices.
HDFC/HDFCB Merger: Impact on Bank Nifty
- The HDFC Bank (HDFCB IN) / HDFC Limited (HDFC IN) merger will result in capping and funding changes on the Nifty Bank Index (NSEBANK INDEX) constituents.
- We estimate one-way turnover of around 8.4% resulting in a one-way trade of INR 21,865m (US$266m) at the time of merger implementation.
- The impact in terms of ADV is less than 1x on all stocks, but the impact in terms of delivery volume is higher than 1x on a few stocks.
MitCorp (8058 JP) Earnings and Buyback – Shareholder Structure Matters
- Mitsubishi Corp (8058 JP) yesterday announced earnings, forecast for FY23, higher dividend guidance, and a buyback. The headline number is 6% of shares and ¥300bn (which is nearer 4% now).
- ¥200bn of that ¥300bn is actually FY2022 “Additional Return” tacked onto a ¥100bn buyback for this year (FY23).
- As is often the case, Shareholder Structure Matters. Because Berkshire Hathaway owns a large chunk of stock (7.4% according to interviews), that carves out a fair chunk not for sale.
Yitai Coal (3948 HK): H-Share Buyback Firmed At HK$17.50
- Timing is everything. Yesterday afternoon I flagged Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s possible H-share buyback at HK$17/share.
- Roughly five hours later a firm HK$17.50/share Offer was announced. The Offer Price is final.
- Other terms and approvals were largely as expected. Payment under the Offer may occur mid-August.
TOPIX Inclusions: Who Is Ready (May 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- CELSYS (3663 JP) (formerly known as “Artspark”) is a name we have been Bullish on in the last few months as it was a high-probability TOPIX Inclusion candidate.
- In the last couple of trading days, the stock has popped more than 30%. In this insight, we take a closer look at this situation.
Allkem (AKE AU): Merger of Equals with Livent (LTHM US)
- Allkem Ltd (AKE AU) and Livent (LTHM US) announced a merger of equals. AKE shareholders receive 1 NewCo share per AKE share, LTHM shareholders get 2.406 NewCo shares per LTHM share.
- The transaction is expected to close by the end of calendar year 2023 subject to shareholder (AKM and LTHM) and regulatory approvals.
- The merger is sensible as NewCo will have scale, synergies and capital efficiency. AKE shareholders benefit from an attractive merger ratio and potential rerating from a US listing.
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