In today’s briefing:
- MSCI Korea May QCIR: Potential Adds, Deletes & ‘Extreme Price Increase’ Triggers
- Japan’s Governance Changes I – The PBR 1.0 Target
- Tencent (700 HK) – This Is Not the Selldown You Are Looking For
- Hang Seng Index Rebalance Preview: A Year Later Than Planned – 80 Members at Last?
- StubWorld: Ecopro’s Spike Makes No Sense
- An Alternative Flow Trading Angle for K200 Rebalancing in June
- Lian Beng: Family Takeout At <50% of NAV
- Good Morning Japan |Fed Minutes Sinks Equities; NUGGET:Japan Post－Capital Mgmt, DX, Drones; Low PBR
- Enchem: Block Deal Sale of 14% of Outstanding Shares
- Fast Retailing: Inflated Earnings Expectations & Stretched Multiples, A Cause for Concern
MSCI Korea May QCIR: Potential Adds, Deletes & ‘Extreme Price Increase’ Triggers
- Based on closing price from 3 April, we forecast 5 adds and 4 deletes for the MSCI Korea Index at the May QCIR.
- Three of the adds are close to triggering the extreme price increase criteria – if triggered, index inclusion could be deferred to a subsequent index review.
- Retail investors have been buying three of the potential adds, while foreign investors have taken the lead on two. Foreign investors have been sellers on all the potential deletions.
Japan’s Governance Changes I – The PBR 1.0 Target
- The TSE went through a multi-year period of planning a “Market Restructuring” which ended on 4 April 2022 as the TSE split into three Sections, TSE Prime, Standard, and Growth.
- After that, the TSE formed a “Council of Experts” (some very senior people) that would follow up on the changes, and recommend new measures. In January, new rule proposals dropped.
- There was talk of a hard end to the transition period. Also, the Council harped on Awareness of Capital Cost and Efficiency. Most notably, for companies with PBR < 1.
Tencent (700 HK) – This Is Not the Selldown You Are Looking For
- On April 11, Prosus (PRX NA) made an Update on Repurchase Programme that it had repurchased shares in the market from the 3-7 April. They do so every week.
- This one said they would move 96 million shares of Tencent (700 HK) currently held in non-transferrable shares into CCASS so they could be sold.
- The ADRs dropped in New York time. Tencent shares fell hard today. If the share price fell because of a block offering, that would be unwarranted.
Hang Seng Index Rebalance Preview: A Year Later Than Planned – 80 Members at Last?
- With no changes made at the March rebalance, we are still stuck at 76 index constituents. And it’s been a year later than originally planned to reach 80 index constituents.
- We list 10 potential inclusions in June. Adding all 10 stocks will lead to around 5% one-way turnover, so there could be a mix of larger and smaller stocks added.
- There will be at least 1x ADV to trade on nearly all inclusions. Short interest is over 4% of float on some stocks and there has been a recent jump.
StubWorld: Ecopro’s Spike Makes No Sense
- Ecopro (086520 KS) is up an eye-watering 590% in the past three months, primarily on Ecopro BM (247540 KS)‘s outperformance, together with sentiment towards soon-to-be-listed 52.8% held Ecopro Materials.
- Preceding my comments on Ecopro are the weekly setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
An Alternative Flow Trading Angle for K200 Rebalancing in June
- In KOSPI 200 IT Sector Index rebalancing in June, we should consider using Samsung SDS as a hedge for short positions on KakaoPay from a day trading perspective.
- The expected performance of traditional flow trading based on passive impact has become uncertain due to flexible rebalancing trading by local pensions and short selling resumption on K200 new entrants.
- As such, flow events on these sector indices that are still pretty much under the radar in the market could be a meaningful alternative for us.
Lian Beng: Family Takeout At <50% of NAV
- Singaporean construction firm Lian Beng (LBG SP) has announced a voluntary unconditional cash Offer from the controlling Ong family, via investment holding company OSC Capital.
- The Offer Price of S$0.62/share (not declared final) is a mediocre 8.8% premium to last close and a 59.7% discount to the 30 November 2022 NAV of S$1.538/share.
- The announcement fails to mention the NAV/share. The IFA considered the 2021 Mandatory Offer of S$0.50/share not fair and not reasonable. Expect a similar conclusion
Good Morning Japan |Fed Minutes Sinks Equities; NUGGET:Japan Post－Capital Mgmt, DX, Drones; Low PBR
- OVERSEAS. Inflation Benign but Fed Minutes point to (mild) recession with Hawkish bent for addl rate hikes; US Equities close in the red, giving up early CPI driven gains
- JAPAN. NKY Futs -0.6% vs CASH; USDJPY 133.1; Japan Population falls below 125 million in 2022 – increases worries on low birthrate/aging society; Activists gear up ahead of Japan AGM
- NUGGET. Japan Post (6178) – this low pbr stock is undergoing transformation in many areas – from balance sheet to operations. If they can execute….
Enchem: Block Deal Sale of 14% of Outstanding Shares
- Chosun Business Daily reported today that Enchem is considering on conducting a block deal sale of nearly 14% of its outstanding shares, representing about 160 billion won.
- Brahman PS Investment is the likely seller in this block deal sale. If the block deal sale is successful, Brahman will have gained more than 6x on its original investment.
- We would not be buyers of the block deal sale mainly due to unattractive valuations, volatile profitability, and not enough block deal sale discount.
Fast Retailing: Inflated Earnings Expectations & Stretched Multiples, A Cause for Concern
- Consensus FY+2 EBIT seems inflated by around 16%, driven by optimistic assumptions of recovery in China and growth in North America and Europe.
- However, apparel demand in China was lower than expected, while wage hikes and a potential US recession could negatively impact profitability in the short-medium term.
- As risks are skewed to the downside, we remain short Fast Retailing (9983 JP) leading up to 2QFY23 results.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
