In today’s briefing:
- BIG ¥500bn Honda (7267) Offering Coming?
- HDFC Bank (HDFCB IN): Foreign Room Crosses 25%; Index Implications & Positioning for US$5bn+ Buying
- China TCM (570.HK) Update – Behind The Share Price Plunge and Prospects for Privatization Progress
- HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September
- Timee (215A JP) IPO: The Bull Case
- HSTECH Index Rebalance Preview: ASM Pacific (522) Could Replace Ping An Health (1833); US$1bn Trade
- Shinko Electric (6967) – Break/Gap Risk Early July 2024 Update
- ESR Group (1821 HK): Consortium’s Expansion Talks Suggest Progress
- StubWorld: Barito Renewables (BREN IJ) – This Too Shall Pop
- Korean Government Announces Corporate and Dividend Tax Incentives Under Corporate Value Up Program
BIG ¥500bn Honda (7267) Offering Coming?
- Today just before the close, Reuters came out with an article saying Japan’s four major insurers and some financial institutions would offer ¥500bn of shares in a secondary offering.
- That implies about 275-280mm shares (insurers hold ~195mm). In May, Honda announced a ¥300bn buyback with earnings, with nothing done so far.
- The supply/demand dynamics here are key. There are a lot of moving parts over time. Honda is cheaper than it looks but there are moving parts there too.
HDFC Bank (HDFCB IN): Foreign Room Crosses 25%; Index Implications & Positioning for US$5bn+ Buying
- Foreign shareholding in HDFC Bank (HDFCB IN) has dropped to 54.83% and that results in foreign room crossing the ‘magical’ 25% mark.
- The increase in foreign room could lead to passive trackers of a global index needing to buy 256m shares (US$5.3bn; 11.5x ADV) at the end of August.
- There will definitely be positioning in the stock but there should still be upside in the stock. The HDFC Bank (ADR) (HDB US) line was up 4.5% overnight.
China TCM (570.HK) Update – Behind The Share Price Plunge and Prospects for Privatization Progress
- The slow progress of privatization is related to recent high-level changes in CNPGC. Decisions on SOE deals with “strategic purpose” require careful considerations, not based on “one leader’s personal preferences”.
- Based on public information, we cannot find convincing reason to prove that CNPGC has changed its mind.There’re rumors that China TCM’s privatization is still considered important project on the agenda.
- China TCM’s has strong fundamentals to support valuation. If there is no announcement, the privatization process is expected to proceed as usual, and we continue to wait for the voting.
HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September
- We see 37 potential adds (including plenty of new listings) and 25 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in September.
- We expect 32 stocks to be added to Southbound Stock Connect following the rebalance while 24 stocks could be deleted from the trading link and become Sell-only.
- There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.
Timee (215A JP) IPO: The Bull Case
- Timee Inc (215A JP), a leading part-time job platform in Japan, is seeking to raise up to US$286 million. Book-building runs from 9 to 23 July.
- Timee’s app allows users to work shifts as short as one hour at restaurants, convenience stores, and hotels, with quick payment for their work.
- The bull case rests on favourable market trends, best-in-class revenue growth, good retention rates, credible growth drivers, and top-quartile EBITDA margins.
HSTECH Index Rebalance Preview: ASM Pacific (522) Could Replace Ping An Health (1833); US$1bn Trade
- ASM Pacific Technology (522 HK) is expected to replace Ping An Healthcare and Technol (1833 HK) in the Hang Seng TECH Index (HSTECH INDEX) at the September rebalance.
- Constituent changes and capping changes will result in a one-way turnover of 3.7% and that will result in a round-trip trade of HK$7.8bn (US$1bn).
- Short interest is near the lows on both stocks but there has been a recent tick higher for ASM Pacific Technology (522 HK).
Shinko Electric (6967) – Break/Gap Risk Early July 2024 Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- Nearly 6mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 16+wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Gross spread is now 4.6% but time is shorter so annualised is 10+% even out to December launch.
ESR Group (1821 HK): Consortium’s Expansion Talks Suggest Progress
- Bloomberg reports that the bidding consortium is in talks to bring in other partners, such as QIA, PIF, and CPP Investment Board, to aid in privatising ESR Group (1821 HK).
- Warburg Pincus and OMERS have blocking stakes for a Cayman scheme. Warburg Pincus is seemingly supportive, and the consortium’s expansion talks suggest confidence in meeting OMERS’ price expectations.
- Our best guess is that an offer is around HK$14.00. ESR’s current valuation is undemanding, with its forward EV/EBITDA multiple at a 40% discount compared to the median peers’ multiple.
StubWorld: Barito Renewables (BREN IJ) – This Too Shall Pop
- Barito Pacific (BRPT IJ)‘s 64.7% stake in Barito Renewables Energy (BREN IJ) (now Indonesia’s largest company by market cap), is worth 8x its market cap. That’s unsustainable.
- Preceding my comments on the Barito complex are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Korean Government Announces Corporate and Dividend Tax Incentives Under Corporate Value Up Program
- The Korean government announced corporate tax incentives for companies that actively increase capital returns to shareholders and also dividend tax incentives and as part of the Corporate Value Up program.
- For companies that provide shareholder returns, a 5% corporate tax amount on the increase will be deducted and the tax burden on increased dividends of the company will be reduced.
- For dividends under 20mn won, the tax rate will be reduced from 14% to 9%. Investor can choose lower rate (25% or comprehensive tax rate) for dividends exceeding 20mn won.
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