In today’s briefing:
- Japan – Increase in Shorts on Some Interesting* Stocks
- EOFLOW/Medtronic Tender: Pretrial Timetable and Latest Court Filings
- India – Positioning on Some Interesting* Names
- J&T Global Express (1519 HK): Index Inclusion Possibility & Timelines
- Hana Microelectronics Placement – Stock Has Been Doing Well, Unclear if Deal Is Well Flagged
- Trading Angles Using Severely Backwardated Hanwha Ocean’s SSFs Ahead of the Rights Trading
- J&T Global Express Pre-IPO, Part 6 | How We Could Potentially Get Closer To US$13 Bn Valuation
- J&T Global Express IPO – Team Effort for Some Heavy Lifting
- Nikkei 225 Index Rebalance Preview (Mar 2024): Ranking, Capping, Funding & Other Changes
- WisdomTree Oct ’23 Rebalance: Estimated Flows for All Adds and Deletes in DEM, XSOE & DGS
Japan – Increase in Shorts on Some Interesting* Stocks
- CyberAgent, Lixil Group, Hakuhodo Dy Holdings, Kobayashi Pharmaceutical, Welcia Holdings, Persol Holdings, GMO Payment Gateway, Kurita Water Industries and Open House have all underperformed the Nikkei 225 over the recent past.
- The underperformance could lead to adjustments in global passive portfolios and liquidity events on some of the stocks.
- Short interest has increased on some stocks and there could be more pre-positioning to come over the next few weeks.
EOFLOW/Medtronic Tender: Pretrial Timetable and Latest Court Filings
- Latest filings on Insulet Corp (PODD US)’s voluntary dismissal without prejudice only to Flex (FLEX US), Eoflow (294090 KS)’s motion to restart Korean sales, dismiss a count and a timetable.
- Examining the court filings suggests Medtronic Plc (MDT US)’s access to court unredacted documents is restricted. Medtronic’s limited access makes evaluating the transaction’s potential litigation risk challenging.
- Eoflow’s defence in the court documents is based on reverse engineering and procedural arguments. The KRX will rule on Eoflow’s share trading suspension by 1 November.
India – Positioning on Some Interesting* Names
- Polycab India, Macrotech Developers, Paytm, Tata Communications, Tata Motors DVR, Apl Apollo Tubes, Persistent Systems and Suzlon Energy have run up over the recent past and have heightened investor attention.
- The increase in market cap has put the stocks on active manager radars and could also result in the stocks being added to global indices in the near future.
- We take a look at the positioning on the stocks and recommend pair trades to reduce market risk while trying to capture alpha.
J&T Global Express (1519 HK): Index Inclusion Possibility & Timelines
- J&T Global Express (1936374D CH) is looking to raise HK$3.92bn (US$501m) in its IPO by selling 326.55m shares at HK$12/share, valuing the company at HK$105.75bn (US$13.52bn).
- J&T Global Express (1936374D CH) will not get Fast Entry to any indices but should be added to the HSCI in March. Inclusion to Southbound Stock Connect will take longer.
- Inclusion in other indices will take longer with the highest probability of index inclusion in September 2024.
Hana Microelectronics Placement – Stock Has Been Doing Well, Unclear if Deal Is Well Flagged
- Hana Microelectronics (HANA TB) aims to raise up to US$105m to finance expansion of Hana’s silicon carbide strategy including PMS (Power Master Semiconductor).
- The deal scores well on our framework given the company’s strong recent performance and decent long term track record
- In this note, we will talk about the deal dynamics.
Trading Angles Using Severely Backwardated Hanwha Ocean’s SSFs Ahead of the Rights Trading
- First, we can take on some risk and build up a short position using SSFs from now, aiming for an aggressively low price (likely Day 1) during the rights trading.
- If this approach seems somewhat risky, the second is to wait until the rights trading and, although accepting some sacrifice in the spread, build positions relatively risk-free.
- We can also actively build up a long position in the significantly backwardated SSFs from now and, instead, set up an aggressive short on the underlying shares.
J&T Global Express Pre-IPO, Part 6 | How We Could Potentially Get Closer To US$13 Bn Valuation
- In this insight we consider what it would take to pull our valuation up closer to US$13 bn
- Such a valuation would require solid revenue growth (+17-18% Y/Y or better), plus sustained progress on raising China and ‘Other’ EBITDA margins, which are currently negative
- Even with these optimistic assumptions, J&T would trade at 20x EV/2025 Adj EBITDA & at historical EV/Revenue multiples far above more profitable Chinese express names
J&T Global Express IPO – Team Effort for Some Heavy Lifting
- J&T Global Express, a global logistics service provider, is looking to raise about US$500m in its Hong Kong IPO.
- As per Frost & Sullivan (F&S), the firm is the leading express delivery business in Southeast Asia, with a 22.5% market share as per 2022 parcel volume.
- We have looked at the company’s past performance and undertaken a peer comparison in our earlier notes. In this note, we talk about valuations.
Nikkei 225 Index Rebalance Preview (Mar 2024): Ranking, Capping, Funding & Other Changes
- The review period for the Nikkei 225 (NKY INDEX) March rebalance ends end January. There could be three changes at the rebalance with sector balance in focus.
- Depending on the changes, passive trackers will need to buy between 6-28x ADV (11-50% of real float) on the inclusions and sell between 2.8-44x ADV on the deletions.
- Fast Retailing (9983 JP) could be capped at 11% of the index weight and there will be buying in Nitori Holdings (9843 JP) due to the stepwise addition.
WisdomTree Oct ’23 Rebalance: Estimated Flows for All Adds and Deletes in DEM, XSOE & DGS
- HDFC Bank (HDFCB IN) is the largest buy (XSOE) – estimated flow $44m. Grupo Financiero Banorte SAB d (GFNORTEO MF) is the 2nd largest buy – estimated flow $40m.
- Wistron Corp (3231 TT) is the largest sell – estimated flow $68m. POSCO Holdings (005490 KS) is the 2nd largest sell – estimated flow $59m.
- Our estimate for the total value of new constituent buys is $1.38bn. We expect deletions to the value of $1.41bn to be sold down across the 3 funds.