In today’s briefing:
- Nikkei 225 Index Rebalance Preview (Sep 2023): Final Look as Review Period Ends
- Offshore China ETFs Rebalance Preview: Two Changes in September
- Itochu To Take Over Itochu Techno Solutions (CTC (4739 JP)) Just As Growth Jumps
- Huge Change at Sekisui Jushi (4212) – 20% Buyback from Erstwhile Controlling Shareholder
- Insiders Selling at Ecopro BM and Kum Yang
- Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – August 2023
- ITOCHU Techno-Solutions (4739 JP): ITOCHU’s JPY4,325 Tender Offer
- KLINE (9107) Ups Shareholder Return – Fun & Games May Ensue
- E-Guardian (6050 JP): CHANGE Holdings’ Partial Tender Offer
- Capitaland Ascott Trust – Another One to Add to Its Latest Spree of Acquisitions
Nikkei 225 Index Rebalance Preview (Sep 2023): Final Look as Review Period Ends
- The review period for the Nikkei 225 (NKY) September rebalance ended yesterday. There should be three index changes, potential stepwise inclusion, no Fast Retailing capping and a big funding trade.
- There appears to be decent positioning on the potential adds, while it is the close adds that are spiking along with a big increase in traded volumes.
- If the three changes are on expected lines, estimated one-way turnover at the rebalance is 2.01% resulting in a one-way trade of JPY 461bn (US$3.24bn).
Offshore China ETFs Rebalance Preview: Two Changes in September
- As of 1 August, there could be two changes for the iShares A50 China (2823 HK)/ CSOP A50 (2822 HK) in September.
- There should be over 1x ADV to buy on NARI Technology Co Ltd A (600406 CH) and over 1x ADV to sell on Shaanxi Coal Industry (601225 CH).
- There are a few stocks bunched around similar market caps among the potential adds and there could be changes to the list over the next few weeks.
Itochu To Take Over Itochu Techno Solutions (CTC (4739 JP)) Just As Growth Jumps
- Itochu Corp (8001 JP) today announced it had agreed with 61%-owned Itochu Techno Solutions (4739 JP) sub to take over CTC and squeeze out minorities.
- The stock released earnings mid-day, somehow, but not on TDNet until post-close. The stock jumped in the last two hours. The Tender Offer is at a 10% premium to close.
- Growth will be up, and there are lots of financial assets and net receivables so this is 8+x March 2025. Itochu is not overpaying. But there will be no counter.
Huge Change at Sekisui Jushi (4212) – 20% Buyback from Erstwhile Controlling Shareholder
- In April, Sekisui Jushi (4212 JP) announced lackluster earnings and unsurprising guidance after a year marked by higher costs. It also announced a small (2.5%) buyback, likely for cross-holdings.
- Yesterday, the company announced Q1 results, and a revision to their buyback programme (to buy 20.2% of shares out). This morning their 22+% (#1) shareholder Sekisui Chemical sold 18%.
- Forward PER dropped nearly 20%. The stock is still outrageously cash/securities-rich and if “re-levered” to zero net leverage would get a high 20s ROE. Hmmm…
Insiders Selling at Ecopro BM and Kum Yang
- Ecopro BM (247540 KS) and Kum Yang (001570 KS)’s shares are down 2.5% and 4.5%, respectively today, driven by news of insiders at these companies selling their shares.
- It is estimated that the total amount of Ecopro BM shares sold by insiders and related parties was about 20 billion won in July by more than 12 insiders/related parties.
- We are increasingly concerned about insiders selling at Ecopro BM and Kum Yang. Coupled with lofty valuations, we think there is a higher probability of downside risk on these names.
Shortlist Of High Conviction Ideas: Income, Value, and Margin of Safety – August 2023
- We compile our selection of small and mid-cap names with our desired characteristics of high dividend yields, value, and margin of safety.
- Our top picks are Perfect Medical Health (1830 HK), Water Oasis (1161 HK), Taste Gourmet (8371 HK), Uchi Technologies (UCHI MK), and The Keepers Holdings (KEEPR PM).
- We expand our list coverage into Multi Bintang Indonesia (MLBI IJ), Delta Djakarta (DLTA IJ), and Sheng Siong (SSG SP) as quality high ROCE names worth looking at.
ITOCHU Techno-Solutions (4739 JP): ITOCHU’s JPY4,325 Tender Offer
- Itochu Techno Solutions (4739 JP) has recommended Itochu Corp (8001 JP)’s tender offer of JPY4,325 per share, an 18.7% premium to the undisturbed price (1 August).
- 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 5.43% ownership ratio.
- The minimum acceptance condition requires a 14% minority acceptance rate. This is doable as the tender price is attractive and equals the 20-year share price high.
KLINE (9107) Ups Shareholder Return – Fun & Games May Ensue
- Today, Kawasaki Kisen Kaisha (9107 JP) announced Q1 earnings. As expected, net was WAY down on weak container business. But the company revised up H1 and Full-Year.
- KLINE increased its FY2023 payout, upping its expected buyback plan from ¥50bn to ¥60bn. This is still cheap at 8.5x and 0.7x book, and there is non-container growth.
- The structure of the buyback deserves attention. It may deserve a very short-term trade. The buyback construct has the possibility of “fun and games.”
E-Guardian (6050 JP): CHANGE Holdings’ Partial Tender Offer
- E Guardian Inc (6050 JP) has announced a partial tender offer and third-party allotment with Change Inc (3962 JP). CHANGE will subscribe for 1.5 million shares at JPY2,099 per share.
- The tender offer is for a minimum of 3.7 million and a maximum of 4.3 million shares at JPY3,000 per share, a 42.9% premium to the undisturbed price.
- The tender offer is reasonable. The minimum acceptance condition requires a 37% minority acceptance rate. A 100% minority participation rate implies a minimum proration is 42.39%.
Capitaland Ascott Trust – Another One to Add to Its Latest Spree of Acquisitions
- CapitaLand Ascott Trust (CLAS SP) is looking to raise around S$200m from its primary follow-on. Included in the deal is another S$100m preferential offering to existing shareholders.
- Proceeds will be used towards acquiring three new properties, and for asset enhancement initiatives.
- The deal would be a relatively large one for the REIT to digest, at 31.6 days of three month ADV.
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