In today’s briefing:
- Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses
- Index Rebalance & ETF Flow Recap: MSCI KR, S&P/ASX, SSE50, ChiNext, NIFTY, KQ150, AMFI, Rakuten Bank
- Index Rebalance & ETF Flow Recap: Nikkei225, KOSDAQ150, KT Corp
- Rakuten Bank (5838) IPO – New Price Is One To Take (Part 1)
- Khan Bank IPO Is Here – At IPO Price, the Stake Is Worth More than HS Holdings’ Share Price
- Why Will KT’s Foreign Room Stay Above 15% Until MSCI Review Period?
- JCNC’s Logic-Defying Valuation
- Avalon Technologies IPO- Forensic Analysis
- Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2023
- Gigavis IPO Valuation Analysis
Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses
- The review period for the Nikkei 225 (NKY INDEX) September rebalance ends end July. We highlight 3 potential inclusions and exclusions for the index.
- There are a few alternate adds that are interesting and their inclusion in the index could move things around a fair bit.
- Due to the large size difference between the potential adds/deletes, there will be a large funding trade with passive trackers needing to sell over 0.5x ADV on many index constituents.
Index Rebalance & ETF Flow Recap: MSCI KR, S&P/ASX, SSE50, ChiNext, NIFTY, KQ150, AMFI, Rakuten Bank
- There are a bunch of implementations in the coming week, the largest being the Nikkei 225 (NKY INDEX) March rebalance.
- There are some ad hoc changes to the KOSPI2 INDEX and KOSDAQ 150 Index following constituent stocks being designated as Administrative Issues and Investment Attention Issues.
- Inflows to the iShares MSCI Emerging Markets ex China ETF (EMXC US) have continued and has taken AUM to a new high.
Index Rebalance & ETF Flow Recap: Nikkei225, KOSDAQ150, KT Corp
- The March rebalances of the NIFTY indices and the Nikkei 225 (NKY INDEX) were implemented last week. Plus some ad hoc rebalances for the KOSPI2 INDEX and KOSDQ150 INDEX.
- A quieter week coming up with multiple market holidays across markets. We also near the start of the review period for the MSCI May QCIR.
- There were inflows to Tracker Fund of Hong Kong Ltd (2800 HK) and iShares FTSE/Xinhua A50 China (2823 HK) during the week while there were outflows from some Korea ETFs.
Rakuten Bank (5838) IPO – New Price Is One To Take (Part 1)
- Rakuten Bank (5838 JP) has priced at a new range of ¥1,300-1,400/share, down from ¥1,630-1,930/share. That lowers TTM PER and PBR to well below where SBI Sumishin was priced.
- This will now be universally recognised by pre-IPO analysts as a raging buy. Even at the top end. Important considerations: Rakuten parent TAM, growth, index inclusions, etc.
- There are OTHER important considerations going forward which show themselves in the documents.
Khan Bank IPO Is Here – At IPO Price, the Stake Is Worth More than HS Holdings’ Share Price
- Today, it was announced that HS Holdings (8699 JP) subsidiary Khan Bank LLC – Mongolia’s largest bank – would IPO this month.
- This is a big deal. The IPO is for 10% of the bank (US$521mm equivalent). Priced at 4x Dec 2022 earnings for a bank which has ~ 25% ROE.
- There is a reason to expect substantial realisation of this value within 2023 due to a section of Feb 2021 Amended Mongolian Banking Law. Plus there is boatloads of cash.
Why Will KT’s Foreign Room Stay Above 15% Until MSCI Review Period?
- There is only one factor that could have affected KT’s foreign flow in mid-February, and that is the repurchase of its shares.
- If KT continues its buyback at the current pace, which is highly likely, we can bet that the foreign room will not fall below 15% until MSCI’s review period.
- This implies an essential premise for us to set up a more aggressive preemptive position on KT.
JCNC’s Logic-Defying Valuation
- Jardine Cycle & Carriage (JCNC SP)‘s implied stub value is around its highest-ever level, dating back to 2004.
- The simple ratio of JCNC/ Astra International (ASII IJ) is also the highest level outside the brief spikes post-Covid and during the 2008 GFC.
- There is no apparent justification for the current valuation. And a takeover from Jardine Matheson Holdings (JM SP) at these levels appears unrealistic.
Avalon Technologies IPO- Forensic Analysis
- Avalon Technologies (6594468Z IN) has launched its Initial Public Offering.
- The company states to have one of the highest ROCEs in the industry, one of the important reasons of high ROCE is unusual accounting treatment of capital reserve.
- Other forensic concerns include lack of cash generation and some auditor discomforts.
Gap Trades in Korean Prefs Vs Common Share Pairs in 2Q 2023
- In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 2Q 2023.
- The excessive gaps in the preferred and common shares of CJ Corp, Samsung Electronics, and LG Electronics could reverse in the next several months, in our view.
- We see some attractive longer-term opportunities for Amorepacific Corp, Doosan Fuelcell, LG Electronics, and Samsung SDI which have especially high discounts for the preferred shares versus their counterpart common shares.
Gigavis IPO Valuation Analysis
- Our base case valuation of Gigavis IPO is target price of 61,755 won per share, representing 56% higher than the high end of the IPO price range.
- We estimate the company to generate sales of 126.6 billion won (up 27% YoY) in 2023 and 150.9 billion won (up 19.2% YoY) in 2024.
- Our base case valuation is based on 21.8x P/E using our estimated net profit of 35.9 billion won in 2023.
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