In today’s briefing:
- Index Rebalance Strategy YTD Performance: Not Many Places to Hide in Asia
- 7&I (3382) – Artisan Writes (Again) And 7&I Updates (Again) – More Positive Outlook Now
- Sparx Launches Another Offensively Underpriced Takeover at a Fat Premium – SNT (6319) +94%
- 7&I (3382) Update – Couche-Tard Responds
- CSI300 Index Rebalance Preview: 7 Changes a Side as Market Trades in a Range
- JX Advanced Metals (5016 JP) IPO: Big Retail Allocation Means No Fast Entry
- Makino Milling Machine (6135 JP): A White Knight Bidder Is Emerging
- SET50 Index: Market Moves Adjust for Consultation Proposal; DELTA in the Crosshairs (Again)
- ESR (1821 HK) Chips Away At Pre-Cons
- Properly Interpreting Korea’s Stock Borrow Data for Short Selling
Index Rebalance Strategy YTD Performance: Not Many Places to Hide in Asia
- We look at the performance of the index rebalance strategy over the year using weekly forecasts. In short, it has been a mixed bag for Asia.
- India and China have been among the worst performing markets in the region while Australia and Korea have been among the better performers.
- A lot of the outperformance appears to be front loaded, so getting the forecasts right early in the review period is of paramount importance.
7&I (3382) – Artisan Writes (Again) And 7&I Updates (Again) – More Positive Outlook Now
- On Thursday 6 March we got a Nikkei article then a company announcement for Seven & I Holdings (3382 JP)‘s proposed management measures and update on ACT Bid Process.
- It involved Isaka-san stepping down, Stephen Dacus stepping up, selling York to Bain for ¥814.7bn, IPOing 7-Eleven US, a ¥2trln share buyback over 5yrs, and ACT process update.
- It was OK. Good, bad, and ugly. But Artisan wrote a letter over the weekend and 7&i responded and suddenly, their concerns are mostly addressed and the outlook is different.
Sparx Launches Another Offensively Underpriced Takeover at a Fat Premium – SNT (6319) +94%
- Sparx on Friday announced a Tender Offer at 0.55x book and an EV of less than inventory (<20% of revenue) for Snt Corp (6319 JP) – another metal monozukuri company.
- Last year they did it on IJTT Co., Ltd. (7315 JP). That one got bumped. This one could too, but cross-holders own nearly 60%.
- This kind of company has skill-sets which may be portable but the product line is tied to old Japan. The takeover
7&I (3382) Update – Couche-Tard Responds
- On 10 March, Alimentation Couche-Tard (ATD CN) issued a release “UPDATE ON PROPOSAL FOR A COMBINATION WITH SEVEN & i“.
- They felt obliged to be transparent in the wake of the 7&i Letter To Shareholders released yesterday. The content/nuance of the two letters differ significantly.
- Two parties competing to get a truth which cannot be both could be problematic. We are still many months away from any kind of ACT/7-11 deal.
CSI300 Index Rebalance Preview: 7 Changes a Side as Market Trades in a Range
- There could be 7 changes at the June rebalance with the Information Technology sector gaining 3 index spots and the Materials sector losing 3 spots.
- We estimate one-way turnover of 1.45% at the rebalance leading to a round-trip trade of CNY 28.1bn (US$3.9bn). There are 6 stocks with over 2x ADV to trade.
- There have been redemptions in mainland China ETFs over the last couple of months and that leads to a lower impact on the stocks compared to the last rebalance.
JX Advanced Metals (5016 JP) IPO: Big Retail Allocation Means No Fast Entry
- JX Advanced Metals (5016 JP) has priced its IPO at ¥820/share, at the top end of the IPO range but lower than the initial indication of ¥862/share.
- With the bulk of the domestic offering going to retail investors, there is no chance of Fast Entry for the stock in global indices.
- TOPIX INDEX inclusion will take place at the close on 28 April, while inclusion in major global indices is likely to take place in August and September.
Makino Milling Machine (6135 JP): A White Knight Bidder Is Emerging
- Makino Milling Machine Co (6135 JP) has disclosed that it has received initial letters of intent from multiple third parties, reportedly private equity funds, to launch a competing tender offer.
- My analysis suggests that a white knight bid could be as high as JPY13,284, 20.8% higher than Nidec’s JPY11,000 offer and 10.2% higher than the last close price of JPY12,050.
- Nidec Corp (6594 JP) will take a wait-and-see approach. However, regardless of whether a white knight bidder emerges, Nidec will eventually have to bump.
SET50 Index: Market Moves Adjust for Consultation Proposal; DELTA in the Crosshairs (Again)
- On 4 February, the SET floated a consultation paper on capping stocks in the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) at 10%.
- The move was aimed at Delta Electronics Thailand (DELTA TB) since it was the only stock with an index weight higher than 10%.
- Delta Electronics Thailand (DELTA TB) has slid since then and at the current weight of 9.27% will not need to be capped. The market has adjusted for it.
ESR (1821 HK) Chips Away At Pre-Cons
- When the Starwood/Warburg Pincus Consortium announced a firm offer on the 4th December, it was pre-conditional on a raft of regulatory approvals from no less than eight countries/jurisdictions.
- We’re half way there, with four approvals now squared away, leaving Australia, China, Hong Kong and New Zealand still to give the go ahead.
- Irrevocables comprising 34.26% of the register (and 57.01% of disinterested shares) are now in the bag. This is a done deal. It’s just a question of timing.
Properly Interpreting Korea’s Stock Borrow Data for Short Selling
- Local instos borrow from brokers or peers, KSD collects and cleans the data, then KOFIA reports stock borrow balances daily with a two-day lag.
- Offshore borrows via EquiLend or PB deals don’t show up—KSD reporting only covers local institution-to-institution stock loans.
- Assume 60% of reported borrow balance is real shortable ammo—adjusting for this helps filter out noise in short positioning.
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