In today’s briefing:
- Liontown Resources (LTR AU): Passive Selling on Lower Float
- Kenedix Merger: Significant Passive Inflows Expected in Three Weeks
- HSTECH Index Rebalance Preview: Round-Trip Trade of US$556m in December
- JMDC (4483) Partial Offer Results – Tough Tender, I’d Watch For “THE Block” (Maybe)
- EOFlow’s Suspension Is Not (All) Negative
- Rakuten Bank IPO Lock-Up – Parent and Company Will Come Out of Lockup
- EOFLOW/Medtronic Tender: On Life Support
- Eoflow: Temporary Trading Suspension
- Kokusai Electric IPO: Lower Price Range Is Reasonable
- POSCO DX (022100 KS): Index Impact of KOSDAQ to KOSPI Transfer
Liontown Resources (LTR AU): Passive Selling on Lower Float
- Liontown Resources (LTR AU) is trading near A$3/share, the level of Albemarle Corp (ALB US)‘s revised offer and where Hancock Prospecting has been buying recently.
- With Hancock Prospecting accumulating a stake of nearly 17% over the last month, there will be a float reduction for Liontown Resources (LTR AU) in the next few months.
- Short interest has been increasing and the passive selling could provide an exit for the shorts. But Hancock Prospecting could also use the opportunity to buy more Liontown Resources stock.
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.
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.
JMDC (4483) Partial Offer Results – Tough Tender, I’d Watch For “THE Block” (Maybe)
- Results for the Omron Corp (6645 JP) Partial Tender Offer for JMDC (4483 JP) are out.
- The Pro-Ration was 51.63%, at the lower end of my initial estimate of 50-58% range, and at the higher end of my revised range (42-56%).
- The pro-ration, the nature of the shapes (technical term) tendered, and what that suggests for Noritsu Koki’s position suggests the back end could be more squeezy than not.
EOFlow’s Suspension Is Not (All) Negative
- On the 6th of October, a US district court judge entered a preliminary injunction (PI) against EOFlow (294090 KS), pending a trial. This development should have been expected.
- Less expected was the suspension of EOFlow shares today, and the cessation of sales globally.
- The latter measure appears extreme, noting the PI addresses only sales in the US, which EOFlow is not permitted anyway, without FDA approval. There’s clearly more than meets the eye.
Rakuten Bank IPO Lock-Up – Parent and Company Will Come Out of Lockup
- Rakuten Bank (5838 JP) (RB), the online banking arm of Rakuten Group (4755 JP), raised around US$630m in its Japan IPO. Its IPO linked lockup will expire soon.
- RB is the largest internet bank in Japan, by number of accounts. As of Jun 23, it had 14.0m deposit accounts with a total deposit base of JPY9.4tn.
- In this note, we will talk about the lock-up dynamics and updates since our last note.
EOFLOW/Medtronic Tender: On Life Support
- In reaction to the preliminary injunction, Eoflow (294090 KS) shares were suspended as it is reviewing whether it is subject to a substantive review for KOSDAQ listing eligibility.
- Medtronic Plc (MDT US) is in an unprecedented situation of potentially acquiring a company whose shares are suspended, has a preliminary injunction against it and exposure to possible liabilities.
- Medtronic could have prevented this development by reaffirming its commitment to the deal. The transaction is on increasingly shaky grounds, which is reflected in the 38.2% gross spread.
Eoflow: Temporary Trading Suspension
- On 10 October, the Korea Exchange announced a temporary suspension of trading of Eoflow (294090 KS) shares starting 11 October.
- Eoflow decided at its board of directors meeting the previous day (10th) to suspend production and sales of Eoflow patches until the outcome of the lawsuit is resolved.
- In this insight, we provide various scenario analysis including the worst case, best case, and in-between cases of the Eoflow M&A tender offer process.
Kokusai Electric IPO: Lower Price Range Is Reasonable
- Kokusai Electric (6525 JP) has trimmed its IPO price from JPY1,890 to JPY1,830-1,840 per share to raise up to US$727 million. The IPO price will be determined on 16 October.
- We previously discussed the IPO in Kokusai Electric IPO: The Bull Case, Kokusai Electric IPO: The Bear Case and Kokusai Electric IPO: Valuation Insights.
- Our base-case DCF valuation is JPY2,058 per share. Peers have modestly re-rated, and a lower IPO price range helps increase the IPO’s attractiveness.
POSCO DX (022100 KS): Index Impact of KOSDAQ to KOSPI Transfer
- Posco DX (022100 KS) has applied to the KRX for a transfer from the KOSDAQ market to the KOSPI market.
- Based on history, the approval for the transfer and the listing change could take place in the next two months.
- That means a deletion from the KOSDAQ 150 Index (KOSDQ150 INDEX) and inclusion in the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX). But the timeline is important.
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