In today’s briefing:
- Nikkei 225 Index Rebalance Preview (Sep 2024): Ranking, Capping, Funding & Other Changes
- Perpetual (PPT AU): Shareholders Divided Over Carve Out
- Wuxi XDC Lock-Up – US$300m Lockup Expiry Could See Some Selling Owing to the Regulatory Overhang
- Alibaba (BABA US): Margin Pressure Overstated
- KKR Deal for Alps Logistics (9055) Appears Imminent
- China Traditional Chinese Medicine (570 HK): Evaluating Deal-Break Risks
- Nippon Yusen (9101) – Another Big Buyback Announced, But Details Matter
- Naver: Under Pressure from the Japanese Government To Sell Its Stake in LINE
- Taiwan Dual-Listings: TSMC Spread Slumps Then Fully Rebounds; Shorts Spiking Ahead of IMOS Results
- HD Hyundai Marine Solution (443060 KS): Nearing KOSPI200 Index Inclusion in June
Nikkei 225 Index Rebalance Preview (Sep 2024): Ranking, Capping, Funding & Other Changes
- The review period for the Nikkei 225 (NKY INDEX) September rebalance ends in July. There could be three changes at the rebalance with sector balance in focus for the additions.
- Depending on the changes, passive trackers will need to buy between 5-16x ADV (10.1%-24% of real float) on the inclusions and sell between 4-42x ADV on the deletions.
- Fast Retailing (9983 JP) will be capped to 10% of the index weight while Tokyo Electron (8035 JP) is also close to the 10% cap.
Perpetual (PPT AU): Shareholders Divided Over Carve Out
- Back in December last year, Aussie-listed equities manager Perpetual Ltd (PPT AU) rejected Washington H. Soul Pattinson (SOL AU)‘s $3bn all-scrip non-binding indicative proposal.
- Yet Soul Patt’s proposal was in sync with Perpetual’s previously flagged intentions to explore a potential separation of its corporate trust and wealth management businesses, from its asset management business.
- Perpetual has now entered a Scheme, to carve out the corporate trust and wealth management businesses to KKR for A$2.175bn. A lack of clarity on net proceeds saw shares rollover.
Wuxi XDC Lock-Up – US$300m Lockup Expiry Could See Some Selling Owing to the Regulatory Overhang
- WuXi XDC Cayman (2268 HK) was listed in Hong Kong on 17th Nov 2023 after raising US$470m. Its six-month lockup will expire on 16th May 2024.
- WuXi XDC Cayman (WXDC) is a contract research, development, and manufacturing organization (CRDMO) focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
- In this note, we will talk about the lock-up dynamics and updates since our last note.
Alibaba (BABA US): Margin Pressure Overstated
- We feel consensus overstates margin pressure for Alibaba’s March quarter results. We expect its group adjusted EBITA to deliver single-digit growth vs. investors’ concern about earnings retreat.
- March quarter should mark start of an earnings recovery cycle in our view, as improving China macro and well-executed business revamp plan put Alibaba back on growth track.
- This also means an end to its multiple contraction which lasted for five quarters. We see 50% upside on double-digit earnings growth and multiple expansion over next 12 months.
KKR Deal for Alps Logistics (9055) Appears Imminent
- There was a news article I missed in late February saying Alps Alpine (6770 JP), parent of Alps Logistics (9055 JP) was in the process of selling the logistics unit.
- A deal made sense for a strategic given the upcoming “2024 Problem”. Pre-close, headlines blared, the stock popped 12%, now we’re at double the end-February price.
- Late in the evening,Alps Logistics said it had received a bid from Logisteed but nothing had been decided. This morning we have a few more details, but nothing concrete
China Traditional Chinese Medicine (570 HK): Evaluating Deal-Break Risks
- On 21 February, China Traditional Chinese Medicine (570 HK) announced a privatisation offer from the Sinopharm-led consortium at HK$4.60 per share, a 47.4% premium to the undisturbed price.
- The wide gross spread (7.0%) reflects risks around the re-rating of peers, the slow pace of satisfying the pre-condition, the completion timetable and Ping An’s blocking stake.
- The key risk is the deal close timing due to the slow pace of regulatory approvals, which increases the chance that the vote will held after the August interim.
Nippon Yusen (9101) – Another Big Buyback Announced, But Details Matter
- Last May, Nippon Yusen Kk (9101 JP) announced buybacks of ¥200bn over 2 years. In August, they changed it to say ¥200bn in the next nine months.
- That helped support the stock through early March. It was big, and a decent percentage of ADV. Today, they announced earnings and guidance and another ¥100bn buyback through April 2025.
- Earnings were OK. Guidance is a little low vs the Street. The stock popped 5% from where it was trading. Lower impact vs 2023. More cross-holder overhang consideration.
Naver: Under Pressure from the Japanese Government To Sell Its Stake in LINE
- On 8 May, it was mentioned in numerous local media that Naver is under pressure from the Japanese government to sell its stake in LINE.
- One of the reasons behind Japanese government’s efforts to force Naver to sell its stake in LINE is due a major data breach incident in November 2023.
- Based on our current understanding of this situation, the most likely scenario is for Naver to sell about 20-30% stake in A Holdings (the controlling shareholder of LINE) to SoftBank.
Taiwan Dual-Listings: TSMC Spread Slumps Then Fully Rebounds; Shorts Spiking Ahead of IMOS Results
- TSMC: Premium Fell and Then Rebounded, Now +15.6%; Can Consider Shorting Again
- ASE: Falls to +12.3%; Wait for Higher Level Before Considering a New Short Again
- ChipMOS: -0.6% Discount; Massing of Short Interest Right Ahead of Earnings
HD Hyundai Marine Solution (443060 KS): Nearing KOSPI200 Index Inclusion in June
- After a 96.5% gain on listing day, HD Hyundai Marine Solution (443060 KS) is very close to levels needed for Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) inclusion in June.
- HD Hyundai Marine Solution needs to outperform the 50th ranked stock in the KOSPI2 INDEX by 11.4% on average over the next 15 trading days to be added to the index.
- Retail investors sold 25% of their allocation on listing day while foreign investors sold 22% of their IPO allocation with local institutions mopping up the shares.
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