In today’s briefing:
- MSCI Feb 2023 QCIR: Mostly In-Line; Couple of Surprises
- Adani Group – MSCI Will Treat Very Adani Funds as a Very Special Case
- Haw Par Corp Is Still Trading Cheap
- Korea Spin-Offs: Details and KOSPI200 Index Impact
- HYBE to Acquire a 39.8% Stake in SM Entertainment
- Critical Details of Regulatory Filing for the SM Ent Tender Event
- Standard Chartered: Has FAB Gone Cold Or Just Cooling Off?
- Renesas – Good Results, Great Cashflow, Another Buyback, But Drift.
- Dai Nippon Printing – Activism On Easy Street
- Big Link REIT (823 HK) Rights Offering
MSCI Feb 2023 QCIR: Mostly In-Line; Couple of Surprises
- MSCI has announced the changes for the February QCIR. For Asia Pacific, there are 20 adds and 14 deletes for the MSCI Standard Index with the most changes in China.
- There are no surprises on the adds or deletes. However, there are a couple of stocks that are surprises on not being added to or deleted from the index.
- The largest impact will be on Ebos Group Ltd (EBO NZ) – though there will be pre-positioning on the stock.
Adani Group – MSCI Will Treat Very Adani Funds as a Very Special Case
- Shortly after the Hindenburg Report came out, MSCI said it was seeking feedback from clients. They got it, and last night announced they would conduct a special review.
- They concluded some holders heretofore in the float might not be float. They announce results tonight. That can only be bad news for Adani Group companies.
- We don’t know numbers yet, but passive inclusion was one reason why stocks skyrocketed. Few of the companies will be unaffected. Some could be heavily affected.
Haw Par Corp Is Still Trading Cheap
- Last November I highlighted Haw Par Corp (HPAR SP)‘s multi-year trough levels on an implied stub valuation, and on an HPAR/UOB (UOB SP) ratio.
- That trade has panned out well as the ratio steadily increased. But it remains below the 200 MDA.
- A recovery in Tiger Balm sales is expected in Haw Par’s full-year results later this month. UOB’s financials, and UOL (UOL SP)‘s, are also due out this month.
Korea Spin-Offs: Details and KOSPI200 Index Impact
- Hyundai Dept Store Co (069960 KS), Hyundai Greenfood (005440 KS) and Oci Co Ltd (010060 KS) will spin-off divisions and list them prior to the next rebalance in June.
- The equity spin-offs will result in passive flows prior to the trading suspension as well as on relisting of the stocks post the spin-off.
- We expect one change to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in April as one stock will be deleted due to low market cap following the spin-off.
HYBE to Acquire a 39.8% Stake in SM Entertainment
- On 10 February (prior to market open), Seoul Economic Daily reported that HYBE will conduct a tender offer of SM Entertainment shares taking over the controlling ownership of the company.
- HYBE agreed to acquire a 14.8% stake from SM Entertainment’s founder Lee Soo-Man at 120,000 won per share, which represents a 21.8% premium to the closing price on 9 February.
- HYBE is also conducting a tender offer to minority shareholders and it plans to acquire up to 25% additional shares at 120,000 won per share, representing 717 billion won.
Critical Details of Regulatory Filing for the SM Ent Tender Event
- There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.
- Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.
- SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn’t completely dead, given the uncertainties surrounding the current proxy battle.
Standard Chartered: Has FAB Gone Cold Or Just Cooling Off?
- Back on the 5 January, First Abu Dhabi Bank (FAB DH) said it had considered a bid for Standard Chartered (STAN LN/2888 HK), but was no longer evaluating an Offer.
- Such a statement kickstarts a six-month cooling-off period whereby FAB is restricted from reloading. This means all deal work must cease. Unless another bidder emerges or STAN’s board approves.
- In a curious development, STAN’s shares popped ~11% yesterday, on no apparent news.
Renesas – Good Results, Great Cashflow, Another Buyback, But Drift.
- Renesas Electronics (6723 JP) today reported full-year 2022 earnings with revenues 0.032% higher than the high end of guidance, which was better than consensus. OP was not as good.
- They have guided Q1 only, with revenues up 0.2-4.6%, and non-GAAP GPM -3.9% to 54.5%, and OPM -6.6% to 32.5%. But they also announced a Tender Offer Buyback.
- The buyback is smaller than I’d like, but the company has added cash despite last year’s tender offer and repaying bank borrowings. Lots to like here.
Dai Nippon Printing – Activism On Easy Street
- Dai Nippon Printing’s announcement that it would double its RoE target in its next MTP was a pleasant surprise.
- Together with saucy hints that future buybacks could be the biggest in its history this has propelled the stock to a post-2007 high.
- We think Elliott has found an easy win here and consider this likely to end as a standout success for activism in Japan.
Big Link REIT (823 HK) Rights Offering
- After being halted this morning before the start of trade, post-close, Link REIT (823 HK) announced a fully-underwritten Rights Offering.
- The Rights Offering intends to raise HK$18.8bn issuing 1 Right for every 5 Shares held, at a subscription price of HK$44.20, a 26% discount to TERP.
- This will take an already under-levered REIT and add more capital to it. And there is going to be selling pressure at some point.
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