In today’s briefing:
- ESR Group (1821 HK): A Rumoured Offer Price Surfaces
- Shin Kong (2888.TW) And Taishin (2887.TW) Agree to Merge, But It Isn’t Clean, And It’s A Bad Price
- Korea FSS Chief Calls for 10% Premium/Discount on Doosan Merger, Boosting Swap Spread to 30%
- NIFTY50 Index Rebalance: Trent, BEL to Replace Divi’s Lab, LTIMindtree
- NIFTY MIDCAP150 Index Rebalance: 19 Changes a Side; Lots of Overlap with Other Index Flow
- Shift (3697): Profitability Rebound Underway
- Quiddity NIFTY Sep 24 Rebal: US$647mn One-Way Capping for NIFTY Next 50; All Changes Were Predicted
- NIFTY NEXT50 Index Rebalance: 7 Changes on Expected Lines
- Zomato: Index Inclusions & Passive Impact (Once Added to F&O)
- Yamaha Motors Placement – A Relatively Small Cross-Shareholding Unwind
ESR Group (1821 HK): A Rumoured Offer Price Surfaces
- A media outlet that Reports on Deals reported that the consortium will offer HK$14.50 per share, a 22.1% and 61.8% premium to the last close (HK$11.88) and undisturbed price (HK$8.96).
- While not a knockout offer, the consortium’s impending binding proposal suggests confidence that the offer price and structure would gain the support of the substantial shareholders.
- The downside to a deal break is low as ESR’s valuation is undemanding. Its forward EV/EBITDA multiple is at a 30% discount to the median peers’ multiple.
Shin Kong (2888.TW) And Taishin (2887.TW) Agree to Merge, But It Isn’t Clean, And It’s A Bad Price
- After rumours were rekindled a week earlier, on 22 August 2024, Taishin Financial Holding (2887 TT) and Shin Kong Financial Holding (2888 TT) announced they would merge.
- The ratio is 0.6022 shares of Taishin for every share of Shin Kong putting NEWCO assets at about the level of Taiwan #3 CTBC Financial. That’s bad.
- There’s history here. LOTS of history. This would need approvals from the FSC and FTC, but CTBC is already a spoiner, and the SKFH Board Meeting was anything but clean.
Korea FSS Chief Calls for 10% Premium/Discount on Doosan Merger, Boosting Swap Spread to 30%
- FSS Governor Lee challenged the legality of the Robotics-Bobcat merger ratio, citing Article 176-5 of the Capital Markets Act, allowing a 10% premium or discount.
- Following the FSS Governor’s statements, Doosan must likely apply a 10% premium/discount to the Robotics-Bobcat merger, creating a 30% spread based on current stock prices.
- Doosan may still revise or cancel the merger, but the FSS Governor’s comments might boost Bobcat short-term. Given the uncertainty, aggressive trading is risky.
NIFTY50 Index Rebalance: Trent, BEL to Replace Divi’s Lab, LTIMindtree
- Trent (TRENT IN) and Bharat Electronics (BHE IN) will replace LTIMindtree (LTIM IN) and Divi’s Laboratories (DIVI IN) in the NIFTY Index (NIFTY INDEX) at the close on 27 September.
- Passive trackers will need to trade at least 5 days of ADV and over 11 days of delivery volume in the stocks.
- All the index changes are also changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) and there will be opposing flows (though much smaller in size) for the stocks.
NIFTY MIDCAP150 Index Rebalance: 19 Changes a Side; Lots of Overlap with Other Index Flow
- There are 19 changes a side for the NIFTY Midcap 150 Index at the September rebalance. There are many stocks with same-way flows from passive trackers of other indices.
- Estimated one-way turnover is 9.8% resulting in a one-way trade of INR 8.2bn (US$98m). With US$40.1bn tracking the index actively, the impact on the stocks will be much larger.
- The adds have outperformed the deletes this year, though near-term performance has been meh. There was a similar trend in March and the adds could outperform nearer to implementation.
Shift (3697): Profitability Rebound Underway
- A massive shortage of IT professionals combined with Shift’s overwhelming dominance of the labor market should drive 20% annual revenue growth through 2030.
- But Shift missed consensus profitability estimates 3 consecutive quarters, and the share price is down 67% in 12 months, compared to an 18% rise in the median peer.
- In our view, a recovery in profitability is already underway, and shares are at least 45% undervalued
Quiddity NIFTY Sep 24 Rebal: US$647mn One-Way Capping for NIFTY Next 50; All Changes Were Predicted
- The September 2024 Rebalance results for the NIFTY broad market Indices were announced after the close on Friday 23rd August 2024.
- There will be two changes for NIFTY 50 and five changes for NIFTY 100 during the September 2024 index rebal event. All of these changes were as predicted.
- All NIFTY 50 and NIFTY 100 changes will also be reflected in the NIFTY Next 50 index which could see US$647mn one-way capping flows.
NIFTY NEXT50 Index Rebalance: 7 Changes on Expected Lines
- There are 7 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) that will be implemented at the close on 27 September. Changes are on expected lines.
- Estimated one-way turnover for the Nifty Next 50 Index (NIFTYJR INDEX) is 19.6% resulting in a one-way trade of INR 63.64bn (US$759m). Many stocks have over 1x ADV to trade.
- The adds have outperformed the deletes this year but there has been big underperformance over the last month as stocks expected to benefit from rural spending have rallied.
Zomato: Index Inclusions & Passive Impact (Once Added to F&O)
- Zomato (ZOMATO IN) has a market cap of over US$27bn but is not a member of the NIFTY Index and S&P BSE SENSEX Index since it is not an F&O member.
- Once SEBI’s proposed and enhanced stock inclusion thresholds are implemented, Zomato (ZOMATO IN) should be added to the F&O segment of the market.
- Passive NIFTY Index and S&P BSE SENSEX Index will have to buy a lot of Zomato stock at subsequent rebalances. The impact will be higher given the lower real float.
Yamaha Motors Placement – A Relatively Small Cross-Shareholding Unwind
- A group of shareholders aims to raise around US$330m via selling around 3.6% of Yamaha Motor (7272 JP).
- This will be another cross-shareholding unwind and hence, won’t be a huge surprise, although the stock hasn’t been doing particularly well lately.
- In this note, we will talk about the deal dynamics and run the deal through our ECM framework.
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