In today’s briefing:
- Fancl (4921) TOB – Kirin (2503) Does the Inevitable and Takes Out Minorities. Lightish But…
- Last Week in Event SPACE: Keisei Electric, CMCDI, Sigma Healthcare, Sun Corp, Segantii
- Unexpected Inheritance Tax Rate Reduction Included in July Tax Reform: Impact on Value-Up Trading
- Great Eastern Holdings (GE SP): Playbook as OCBC Offer Declared Final, IFA Opines NOT Fair
- Merger Arb Mondays (17 Jun) – Fancl, Tatsuta, A8, China TCM, GAPack, CPMC, Malaysia Airports, Bapcor
- MV Global Rare Earth/Strategic Metals Index Rebalance: Two Deletions & Other Changes
- MV Global Junior Gold Miners Index Rebalance: Round-Trip Trade of Over US$400m
- Webtoon Entertainment (WBTN US) IPO: The Bear Case
- TSMC (2330.TT; TSM.US): CoWoS Demand Continues to Increase in 2024.
- Ohayo Japan | A Quieter Week Ahead
Fancl (4921) TOB – Kirin (2503) Does the Inevitable and Takes Out Minorities. Lightish But…
- Kirin Holdings (2503 JP) bought a 33% stake from the founder and several others in August 2019. Five years later, they are coming back for the rest.
- The price here is ¥2,690/share which is a 42.7% premium from yesterday’s close. Kirin paid 20+% more in 2019. Earnings fell, but they paid 37x NTM. This is 32x.
- This is lightish… but… this should get done. Activism would be difficult. There are enough shareholders who should be OK getting out. This should trade tight.
Last Week in Event SPACE: Keisei Electric, CMCDI, Sigma Healthcare, Sun Corp, Segantii
- The Palliser/Keisei Electric Railway Co (9009 JP) is an unconvincing trade. Avoid being long Keisei vs Oriental Land (4661 JP) except in short-term impact events. Avoid the drift trade also.
- On the subject of activism, keep an eye on China Merchants China Direct Investments (133 HK)‘s 20th June AGM. If Kan’s re-election is rejected, this stock should gain more momentum.
- A Sigma Healthcare (SIG AU)/Chemist Warehouse merger carried regulatory risk. And now the ACCC has raised a raft of concerns.
Unexpected Inheritance Tax Rate Reduction Included in July Tax Reform: Impact on Value-Up Trading
- Senior Presidential Secretary said this morning that a tax reform, including reducing inheritance tax rates to the OECD average, will be disclosed in late July with the tax reform plan.
- Stocks sensitive to reduced inheritance tax, notably Hyundai Motor Group subsidiaries like Hyundai Glovis and Hyundai Motor, could see significant attention amid governance restructuring efforts under Chung Eui-sun.
- Retroactive application and its extent may impact markets, potentially affecting groups like Samsung, influencing diverse investment strategies based on specifics.
Great Eastern Holdings (GE SP): Playbook as OCBC Offer Declared Final, IFA Opines NOT Fair
- Great Eastern Holdings (GE SP) IFA opines that the OCBC (OCBC SP) S$25.60 offer is NOT fair but reasonable as it is below the valuation range of S$28.87-S$36.19 per share.
- In response, OCBC declared the price final, and the final closing date is 12 July. Great Eastern will likely breach free float requirements and be suspended when the offer closes.
- The offer will likely follow the Boustead Projects/Boustead Singapore blueprint, where SGX RegCo eventually (took seven months) enabled dissenters to receive a fair offer with a 24% uplift.
Merger Arb Mondays (17 Jun) – Fancl, Tatsuta, A8, China TCM, GAPack, CPMC, Malaysia Airports, Bapcor
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), Fancl Corp (4921 JP), Asia Cement China (743 HK), Ansarada Group Ltd (AND AU).
- Lowest spreads: Tatsuta Electric Wire & Cable (5809 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Alumina Ltd (AWC AU), Nagatanien Holdings (2899 JP).
MV Global Rare Earth/Strategic Metals Index Rebalance: Two Deletions & Other Changes
- Core Lithium Ltd (CXO AU) and Piedmont Lithium (PLL US) will be deleted from the VanEck Rare Earth/Strategic Me (REMX US) at the close on 21 June.
- Constituent changes, float changes and capping changes result in an estimated one-way turnover of 6.4% and in a one-way trade of US$28m.
- The largest inflows will be in Sociedad Quimica y Minera de Chile (SQM US), Pilbara Minerals (PLS AU), Arcadium Lithium (ALTM US), Lithium Americas (LAC US) and Sigma Lithium (SGML).
MV Global Junior Gold Miners Index Rebalance: Round-Trip Trade of Over US$400m
- There are no constituent changes for the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in June but there are a lot of float and capping changes.
- Estimated one-way turnover is 3.9% resulting in a round-trip trade of US$418m. There are 17 stocks with over 1x ADV to trade from passive trackers.
- The largest inflows are expected in Cia de Minas Buenaventura SAA (BVN US), Equinox Gold (EQX US) and Red 5 Ltd (RED AU).
Webtoon Entertainment (WBTN US) IPO: The Bear Case
- Webtoon Entertainment (WBTN US), a global storytelling platform, seeks to raise up to US$500 million through a Nasdaq IPO.
- In Webtoon Entertainment IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on declining organic revenue, declining Korean paying ratio, a peaking Japan growth driver, optimistic market sizing, and unsustainable low marketing spending.
TSMC (2330.TT; TSM.US): CoWoS Demand Continues to Increase in 2024.
- The yearly growth target could approach 25% YoY in 2024.
- TSMC’s CoWoS demand continues to rise, with capacity expected to increase by approximately another 5% in 2024.
- TSMC’s stock price has risen by 55% in Taiwan and by 66.3% in US markets this year. We believe it has the potential to continue increasing further.
Ohayo Japan | A Quieter Week Ahead
- Hopes of easing inflation supported a weekly rise of 1.6% for the S&P 500 and 3.2% for the Nasdaq.
- Sakana AI, founded in July 2023 by ex-Google researchers and a former Japanese official, is set to raise $125 million at a $1.1 billion valuation, becoming Japan’s fastest unicorn
- Kirin Holdings plans to acquire additional shares of FANCL Corporation through a tender offer and share warrants to make FANCL a wholly-owned subsidiary
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