In today’s briefing:
- Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
- Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help
- Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
- Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip
- ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
- P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
- Spotlight on Trading Prospects Arising from ETFs as Short Selling Workarounds in Korea
- Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095
- Wuxi XDC IPO: Forecasts and Valuation
- [Li Auto Inc. (LI US, BUY, TP US$47) Target Price Change]: Li’s MEGA Can Change the MPV Landscape
Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
- Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
- A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
- Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.
Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help
- INCJ aims to raise around US$1.8bn via a secondary sell-down in Renesas Electronics (6723 JP). This will be a clean-up trade as INCJ has been paring down its stake.
- The deal is a slightly large one to digest at 12 days of three month ADV and around 6% of current mcap.
- In this note, we will talk about the placement and run the deal through our ECM framework.
Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
- INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
- Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
- The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-
Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip
- Trend Micro Inc (4704 JP) has been under pressure to improve capital allocation after Value Act bought in 2022. In February 2023, Trend announced a weak sauce capital return policy.
- They promised a 100% payout ratio with 70% div payout ratio. But with huge piles of cash and securities, it wasn’t going to be enough, and shareholder structure ALWAYS matters.
- Here it meant Trend Micro was vulnerable to further attack. Today, Trend announced a HUGE capital return with buyback, and a special div and this will excite Nikkei 225 arbs.
ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
- With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
- Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
- The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.
P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
- Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
- The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
- Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.
Spotlight on Trading Prospects Arising from ETFs as Short Selling Workarounds in Korea
- During the previous period of short-selling restrictions, a pattern was observed in which ETFs were utilized as a workaround for short-selling.
- We should anticipate more substantial price impacts this time. Of particular significance is the possibility of utilizing not only the MSCI Korea ETF but also sector ETFs for similar purposes.
- This calls for our attention to the possibility that this short-selling workaround could generate a significantly wider range of trading opportunities in the spot market compared to three years ago.
Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095
- Cybernet Systems Co (4312 JP) has recommended Fuji Soft Inc (9749 JP)’s tender offer of JPY1,095 per share, a 31.8% premium to the undisturbed price (8 November).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 12.28% ownership ratio.
- The offer price is attractive and marginally below the ten-year share price high. The minimum acceptance condition (lower limit) requires a 26.9% minority acceptance rate, which is doable.
Wuxi XDC IPO: Forecasts and Valuation
- Wuxi plans to issue 178.4m shares at an indicative IPO price range of HK$19.9-20.6 per share and will raise net proceeds of US$479m at the midpoint of the IPO price.
- The company’s revenues have seen robust growth during the last 3-years driven by growth in ADC outsourcing market while margins have continued to decline.
- We have valued WuXi XDC Cayman (1877628D HK) using a DCF valuation which offers price per share of HK$23.44, 15.7% higher than the midpoint of the IPO price of HK$20.25.
[Li Auto Inc. (LI US, BUY, TP US$47) Target Price Change]: Li’s MEGA Can Change the MPV Landscape
- Two days before Huawei and Chery releasing their Luxeed S7 sedan to rival Model 3, LI unveiled the technical details of its MPV entry MEGA;
- We see MEGA taking a meaningful market share from BYD’s Denza D9, GM’s GL8, GAC’s Trumpchi M8, all selling ~10K a month. We raise MEGA’s 2024 shipment to 57K;
- We raise LI’s TP from US$40 to US$47 and maintain BUY.
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