In today’s briefing:
- October 2023 TOPIX Free Float Review – $22.6bn to Trade and JPB (7182) The Biggie
- Korea – Positioning in Stocks That Could Have Global Passive Flows
- Kokusai Electric IPO – Weaker Demand Than We Expected
- NWS (659 HK): Pre-Cons Done. Now, About That Final Divvie …
- Origin/Brookfield: ACCC Rubber Stamped. Now Shareholders Will Have Their Say
- Kokusai Electric IPO – Not Wholly Convinced, One Needs to Look past the Cycle
- TOPIX October 2023 Rebalance: Round Trip Trade of US$20bn; Upweights Outperform Downweights
- HSTECH Index Rebalance Preview: Round-Trip Trade of US$556m in December
- Kenedix Merger: Significant Passive Inflows Expected in Three Weeks
- Origin Energy (ORG AU): ACCC Approves, Shareholders Justifiably Want a Bump
October 2023 TOPIX Free Float Review – $22.6bn to Trade and JPB (7182) The Biggie
- The TOPIX October Free Float Weight Review details are out. This is the biggest FFW review of the year. This year, it’s $11.3bn a side.
- As discussed in Japan Post Bank (7182) – The October TOPIX FFW Adjustment, JPB is the big buy. $2bn/23d of ADV. There is $2bn to buy of trading cos too.
- There are lots of large names to trade in both directions. If you have interests to sell the buys and vice versa, it is good to know the flows.
Korea – Positioning in Stocks That Could Have Global Passive Flows
- Posco DX (022100), Kum Yang (001570), SK Telecom (017670), Lotte Energy Materials (020150), Kakao Games (293490), Pan Ocean (028670), BGF retail (282330), Netmarble (251270) have been on investors/traders radars recently.
- There could be liquidity events in some of the stocks next month as passive index trackers look to buy/sell the stocks.
- Foreign investors have sold Lotte Energy Materials (020150 KS), Kakao Games (293490 KS), Pan Ocean (028670 KS) and Netmarble (251270 KS) while buying BGF retail (282330 KS).
Kokusai Electric IPO – Weaker Demand Than We Expected
- Kokusai Electric announced its pricing range today, setting it rather tightly at ¥1,830-1,840.
- This is slightly below the initial indicative price of ¥1,890 pointing to modest demand.
- That is a rather more tepid response than we initially expected given that this is the first sizable offering in some time.
NWS (659 HK): Pre-Cons Done. Now, About That Final Divvie …
- Back on the 26 June, Chow Tai Fook (CTFE) made a pre-conditional voluntary Offer for New World (17 HK)‘s 60.88%-held NWS (659 HK) at HK$9.15/share, a 22.2% premium to undisturbed.
- The Cheng-family-backed CTFE and connected parties held 45.24% of NWD, therefore the parent was effectively injecting ~US$2.75bn of cash into NWD for its NWS stake.
- The pre-cons are now done, with a 13 October despatch date for the Composite Document. Technically, this could be wrapped up before NWS’ final dividend ex-date. That’s worth exploring further.
Origin/Brookfield: ACCC Rubber Stamped. Now Shareholders Will Have Their Say
- Brookfield Asset Management/MidOcean Energy’s tilt for Origin Energy (ORG AU), faced two major hurdles.
- The first was ACCC approval. Not just over competition issues, but also the perceived/apparent public benefit from Brookfield’s future commitment to renewable generation. ACCC has now cleared the transaction.
- The second is currying favour with shareholders, several of whom, including AustralianSuper (13.68% stake), reckon the Offer is substantially below long-term value. This needs a bump.
Kokusai Electric IPO – Not Wholly Convinced, One Needs to Look past the Cycle
- KKR is looking to raise around US$730m via selling a stake in Kokusai Electric (6525 JP) (KE) in its Japan IPO.
- KE main business activities consist of the manufacturing, sales and maintenance service of semiconductor manufacturing equipment.
- In our previous notes we have looked at the company’s past performance and undertook a peer comparison. In this note, we talk about valuations.
TOPIX October 2023 Rebalance: Round Trip Trade of US$20bn; Upweights Outperform Downweights
- At the October rebalance, Free Float Weight (FFW) will be reduced on 284 stocks and increased on 458 stocks. 43 stocks will be removed from Phased Weight Reduction.
- Estimated one-way turnover is 1.77% resulting in a one-way trade of ¥1.45tn. 364 stocks have over 4 days ADV to trade, 97 stocks have over 8 days ADV to trade.
- Over the last 6 months, the stocks with inflows (>US$25m) have outperformed the stocks with outflows (>US$25m) with most of the outperformance coming in the last three months.
HSTECH Index Rebalance Preview: Round-Trip Trade of US$556m in December
- With no stocks in inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in December.
- Capping changes will result in a one-way turnover of 2.16% and that will result in a round-trip trade of US$556m.
- The impact of capping changes has doubled over the last month and there will be more changes from now till the official capping is done on 28 November.
Kenedix Merger: Significant Passive Inflows Expected in Three Weeks
- The three-way merger of Kenedix Office Investment Co (8972 JP), Kenedix Residential Investment (3278 JP) and Kenedix Retail REIT (3453 JP) will be implemented in less than 3 weeks.
- With the market cap of the merged entity at US$4.85bn, there will be upgrades to indices with larger tracking assets and significant passive buying at the time of merger implementation.
- All three stocks have outperformed their peers since merger announcement and over the last month and at least part of the upcoming passive flow is baked into the price.
Origin Energy (ORG AU): ACCC Approves, Shareholders Justifiably Want a Bump
- The ACCC has approved Brookfield/EIG’s proposed acquisition of Origin Energy (ORG AU). The Brookfield/EIG offer is A$5.78 and US$2.19 per share, worth A$8.83 at the last close.
- The bidders now face the challenge of convincing shareholders to accept the offer and avoid incurring ticking fees. The scheme booklet will be despatched in the coming weeks.
- Several shareholders have justifiably argued that the offer is light. Our SoTP valuation is A$9.46 per share, 7.1% above the implied offer price of A$8.83.
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