In today’s briefing:
- KRX New Deal Index Rebalance Preview: Changes with Flow & Impact
- March 2024 Nikkei 225 Rebal: Socionext, Disco, and a Consumer Goods Stock, Still
- Bud APAC (1876 HK): Nursing a Hangover; Now Comes a Passive Overhang
- Why Is APR IPO Getting Delayed?
- 44% of Korean Stocks Are Trading Below Book Value – FSC Wants to Improve This (Following Japan)
- 2024 High Conviction: TSMC (2330 TT) Is Perfectly Poised for Revenue and FCF Growth Acceleration
- TSMC. Roaring Into Year Of The Dragon
- Identifying Specific Implementation Plans for Korea’s Low-PBR Improvement Policy
- Genetron Holdings (GTH US): Clear Diagnosis
- ASMedia Placement – Momentum Has Been Strong, but an Overhang Exists
KRX New Deal Index Rebalance Preview: Changes with Flow & Impact
- The review period for the March rebalance ends on 31 January, the changes will be announced early March and implemented at the close of trading on 14 March.
- There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. There are two changes for the BBIG Index.
- There will be big flow on Ecopro BM (247540 KS) and Posco Future M (003670 KS) and big impact on Douzone Bizon (012510 KS) and DearU (376300 KS).
March 2024 Nikkei 225 Rebal: Socionext, Disco, and a Consumer Goods Stock, Still
- No changes in the rankings since last time. Socionext (6526), Disco (6146), and a Consumer Goods stock (Zozo (3092) top-ranked, Ryohin Keikaku (7453) a better choice) are ADDs.
- The DELETEs are still Takara Holdings (2531), Pacific Metals (5541), Sumitomo Osaka Cement (5232) with a dark horse candidate in Hitachi Zosen (7004) to replace Takara.
- There is the upweight to Nitori (9843) but now less funkiness with Fast Retailing (9983). But it will continue being an interesting Nikkei 225 influence (for years to come).
Bud APAC (1876 HK): Nursing a Hangover; Now Comes a Passive Overhang
- Budweiser Brewing APAC (1876 HK) has seen investors run for the hills over the last year. The halving of the stock price could mean deletion from passive portfolios.
- Other Hong Kong listed brewers, China Resources Beer Holdings (291 HK) and Tsingtao Brewery Co Ltd H (168 HK) have been beaten down too and have underperformed their Asian peers.
- The deletion from passive portfolios could provide a buying opportunity in Budweiser Brewing APAC (1876 HK) at the end of February (or earlier if the stock drops due to positioning).
Why Is APR IPO Getting Delayed?
- APR announced it will delay its IPO. Now, APR’s book building has been postponed to 2 to 8 February. The IPO price range remains the same.
- The company has provided updated preliminary sales and operating profits for 2023 in the revised IPO prospectus. Revenue was a bit light but OP was better than expected in 4Q23.
- Our base case valuation of APR is 370,809 won per share which represents an 85% upside from the high end of the bankers’ valuation range (200,000 won).
44% of Korean Stocks Are Trading Below Book Value – FSC Wants to Improve This (Following Japan)
- FSC Chairman Kim Joo-hyun mentioned that too many companies in Korea are trading below book value and the FSC plans to implement changes to improve upon this issue.
- According to Korea Exchange, 1,111 companies out of total listed in KOSPI and KOSDAQ in Korea (2,538) are trading at below 1x book value (PBR) (liquidation value).
- According to the Capital Group, about 39% of companies in the TOPIX trade below book value, compared to just 5% for companies in the S&P 500 Index.
2024 High Conviction: TSMC (2330 TT) Is Perfectly Poised for Revenue and FCF Growth Acceleration
- TSMC looks set for a significant recovery in top-line growth in 2024F, driven by continued faster-than-expected demand for its 3nm volume production leading to significantly improved overall ASP.
- This should be supported by a concurrent improvement in the inventory cycle at major clients, helping recover TSMC’s utilisation back to historic norms.
- Lower capital intensity, improving internal inventory levels, and accelerating top-line growth should all combine to drive record levels of Free Cash Flow generation during 2024F.
TSMC. Roaring Into Year Of The Dragon
- Q423 revenues of $19.62 billion, at the high end of guidance, up 13.8% QoQ and down 1.5% YoY. Net profit margin of 38.2% results in net income of ~$7.5 billion.
- FY23 revenues of $69.3 billion, down 8.7% YoY, only the second such down year since 2005
- Bullish FY24 forecast for >20% YoY growth sends share price soaring in overnight trading.
Identifying Specific Implementation Plans for Korea’s Low-PBR Improvement Policy
- The Korean government has introduced policies ahead of April’s elections, with a recent notable announcement addressing the “Korea Discount” by enhancing low PBR stock valuations.
- A leading proposal involves creating an index of low PBR companies. There are hints of listing ETFs tracking this index, with potential directives compelling pension funds to invest.
- Identifying early inclusions is vital. High-likelihood candidates are low PBR large caps with maintained earnings, dividends/share buyback potential, including Hyundai Dept, E-Mart, Hyundai Steel, IBK, Korean Re, & DL E&C.
Genetron Holdings (GTH US): Clear Diagnosis
- Back on the 11th October 2023, Genetron Holdings Ltd (GTH US), a precision oncology platform, entered into a definitive take-private transaction, at $4.08/ADS, a 15% premium to undisturbed.
- The EGM for shareholders to vote on the transaction will be held on the 21 February. The record date is the 9 Feb.
- This merger requires approval from at least two-thirds of the votes cast, and 59.7% are supportive. Trading at a gross spread of 7.7%. This is a clean deal.
ASMedia Placement – Momentum Has Been Strong, but an Overhang Exists
- WT Microelectronics (3036 TT) is looking to raise US$256m from selling half of its stake in Asmedia Technology (5269 TT).
- The deal wouldn’t be a very large one to process at just 3.4 days of ASMedia’s ADV.
- Although, the selldown doesn’t appear to be particularly well flagged. The remaining WT Microelectronics’ stake will also create an overhang on ASMedia’s share price as well.
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