In today’s briefing:
- PCOMP Index Rebalance Preview Feb 23: Higher Free Float Means Fewer Changes
- SET50 Index Rebalance: CENTEL, COM7, DELTA, RATCH Added; BLA, IRPC, KCE, SAWAD Out
- Another Skyworth (751 HK) Partial Buyback
- Index Rebalance & ETF Flow Recap: SET50, Stock Connect, Kanzhun, Futu, AMFI
- Our Three Best Calls in 2022: Review and Outlook for 2023
- Fengxiang (9977 HK): Offer Doc Out. Tender Now Or Sell In The Market
- Kingsoft Cloud HK Listing: Significant Upside in the Medium Term
- More Profit for Donki as It Expands Private Label, Even Freezers
- China Consumer Discretionary: Reducing The Underweight
- Meituan (3690 HK): Passive Selling Next Week; Plus the Prosus Overhang
PCOMP Index Rebalance Preview Feb 23: Higher Free Float Means Fewer Changes
- From December 2022, the minimum free float requirement to be a part of the Philippines Stock Exchange PSEi Index (PCOMP INDEX) increases from 15% to 20%.
- We see a high probability of DMCI Holdings (DMC PM) replacing Emperador (EMP PM) in the index at the upcoming rebalance.
- There are a few other potential changes to the index and the passive flow on the stocks will be material.
SET50 Index Rebalance: CENTEL, COM7, DELTA, RATCH Added; BLA, IRPC, KCE, SAWAD Out
- Central Plaza Hotel, Com7 PCL, Delta Electronics Thai and Ratch Group will replace Bangkok Life Assurance, IRPC PCL, KCE Electronics PCL and Srisawad Power in the SET 50 Index.
- Passive trackers will need to buy between 2-4 days of ADV on the adds while selling between 0.6-3 days of ADV on the deletes.
- The adds have significantly outperformed the deletes over the last few months. We’d use any big moves over the next couple of days to trim positions.
Another Skyworth (751 HK) Partial Buyback
- Skyworth Group Limited (751 HK) has announced another partial buyback – this time for 100mn shares (3.87% of shares out), at HK$3.80/share, a 20.25% premium to undisturbed.
- On 17 June 2020, Skyworth announced a partial buyback – 12.83% of shares out or 392.8mn shares, at HK$2.80/share, a 32.1% premium to last close.
- Upon successfully completing this partial offer, Stephen Wong & concert parties would hold >50%, prior to the excise of any outstanding options.
Index Rebalance & ETF Flow Recap: SET50, Stock Connect, Kanzhun, Futu, AMFI
- The announcement of the changes to the Stock Exchange of Thailand SET 50 Index was made on 20 December and will be implemented at the close on 30 December.
- There are a lot of review cutoffs for different indices in the coming week with announcements in January and February.
- There were big inflows to Vanguard FTSE Emerging Markets ETF (VWO US) and big outflows from IShares Core MSCI Asia Ex Japan ETF (3010 HK) during the week.
Our Three Best Calls in 2022: Review and Outlook for 2023
- Our positive calls on Fu Shou Yuan (1448 HK) and Air China Ltd (753 HK) and negative call on Conch Environment (587 HK) have generated the best wins in 2022.
- These calls achieved returns of 56.8%, 34.2% and 43.5%, respectively, which we think are remarkable given the losses of 16.3% for HSI and 19.3% for HSCEI YTD.
- In 2023, we expect Fu Shou Yuan continue to do well and Conch Environment to remain under pressure. It may be prudent to take some profit on Air China.
Fengxiang (9977 HK): Offer Doc Out. Tender Now Or Sell In The Market
- The Composite Document for Shandong Fengxiang (9977 HK)‘s unconditional mandatory Offer from PAG Capital is now out.
- Shareholders who tender will be paid within 7 business days.
- An H-class meeting will be held on the 18 January to vote on whether to delist Fengxiang. There is no guarantee this will occur.
Kingsoft Cloud HK Listing: Significant Upside in the Medium Term
- Kingsoft Cloud (KC US) shares will begin trading on the Main Board of the HKEx on Friday, 30th December by way of an introduction.
- The company’s competitive pricing strategy to onboard customers has impacted its profitability, however, KC has begun to shift focus on profitability by raising prices in the medium term.
- Raising prices in the medium term will likely support KC’s profitability and we have valued the company using potential price hikes to non-key customers.
More Profit for Donki as It Expands Private Label, Even Freezers
- Pan Pacific International Holdings (7532 JP)’ Don Quijote stores rebounded strongly from Covid, despite the lack of inbound tourists, reflecting the hard work done to update stores and merchandise.
- This innovation continues and Don Quijote stores recently even began offering several new private brand cosmetics ranges and new electronics, including a new small footprint freezer.
- The company expects 15% of domestic sales from private brands alone but rising to 25% in the near term, with significant upside for operating profits.
China Consumer Discretionary: Reducing The Underweight
- Active China funds are rotating back in to the Consumer Discretionary sector. Holding weights bottomed out in early 2022, with an increasing number of managers re-positioning themselves as overweight
- Large increases in ownership across key stocks underpin the sector rotation. Pinduoduo saw an +8.4% increase in the percentage of funds invested, Trip.com Group +6.7% and NIO Inc +5.88%
- If the rhetoric is that China is oversold here, then Consumer Discretionary stocks appears well placed to benefit from further inflows.
Meituan (3690 HK): Passive Selling Next Week; Plus the Prosus Overhang
- Tencent (700 HK)‘s in-specie distribution of Meituan (3690 HK) shares goes ex-dividend next Thursday. Passive Hang Seng trackers will sell Meituan (3690 HK) stock at the close on 4 January.
- The passive impact is not very large but there could be selling from active investors, both before and after settlement of the shares that is scheduled for 24 March.
- Prosus/Naspers will receive 258.93m shares (HK$47.69bn; 6.5x ADV; 4.18% of shares outstanding) of Meituan (3690 HK) and that will be an overhang on the stock for the near future.
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