In today’s briefing:
- S&P/ASX Index Rebalance Preview: A Busy March (Maybe January and February Too)
- Southbound Stock Connect Expansion: Potential Adds in 2023
- SET50 Index Rebalance: CENTEL, COM7, DELTA, RATCH Added; BLA, IRPC, KCE, SAWAD Out
- Overview of My Winners and Losers in 2022…And 5 High Conviction Ideas Going into 2023
- Northbound Stock Connect Expansion: Potential Changes in 2023
- Appier (4180) – Down But Not Out; Shareholder Structure Still The Biggest Risk
- JAFCO (8595) Succumbs to Even Worse Greenmail – SPECTACULARLY BAD Governance
- Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium
- ENEOS to Buy Out Tatsuta Electric (5809) At 74% Premium
- Toshiba (6502 JP): Sanctions on YMTC Help Kioxia
S&P/ASX Index Rebalance Preview: A Busy March (Maybe January and February Too)
- We currently see one change each for the ASX20 and ASX100 indices, 4 changes for the S&P/ASX 200 and 10 adds/ 6 deletes for the ASX300 Index in March.
- There could be an addition to the S&P/ASX 200 (AS51 INDEX) in January following Pendal Group (PDL AU)‘s acquisition by Perpetual Ltd (PPT AU).
- PEXA Group (PXA AU) is a potential inclusion to the S&P/ASX 200 (AS51 INDEX) if Link Administration (LNK AU)‘s in-specie distribution of PEXA shares to its shareholders is approved.
Southbound Stock Connect Expansion: Potential Adds in 2023
- Last evening, the CSRC and the SFC agreed to further deepen mutual stock market access between the Mainland and Hong Kong and promote the development of both capital markets.
- For Southbound Stock Connect, eligible foreign companies primary-listed in Hong Kong will become eligible. That could mean 5 additions to Stock Connect.
- Additionally, Southbound access via Shanghai Stock Connect will be expanded to being it in alignment with Shenzhen Stock Connect. That could see 131 stocks added to Shanghai Stock Connect.
SET50 Index Rebalance: CENTEL, COM7, DELTA, RATCH Added; BLA, IRPC, KCE, SAWAD Out
- Central Plaza Hotel, Com7 PCL, Delta Electronics Thai and Ratch Group will replace Bangkok Life Assurance, IRPC PCL, KCE Electronics PCL and Srisawad Power in the SET 50 Index.
- Passive trackers will need to buy between 2-4 days of ADV on the adds while selling between 0.6-3 days of ADV on the deletes.
- The adds have significantly outperformed the deletes over the last few months. We’d use any big moves over the next couple of days to trim positions.
Overview of My Winners and Losers in 2022…And 5 High Conviction Ideas Going into 2023
- The 2022 vintage of “5 High Conviction Ideas” had the weakest performance since 2017, with only China Shineway posting a positive return
- Olam, Rex and Starhub all declined approximately 16% in FY22
- Our 2023 vintage will hopefully perform better with 4 out of 5 favorites in the commodity space
Northbound Stock Connect Expansion: Potential Changes in 2023
- On Monday, the CSRC and the SFC agreed to further deepen mutual stock market access between the Mainland and Hong Kong and promote the development of both capital markets.
- For Northbound Stock Connect, the eligible universe has been widely expanded to include constituents of the SSE A Share Index and the SZSE Composite Index.
- There are 1,112 stocks that join the eligible universe, and 938 stocks currently meet the criteria for Northbound Stock Connect inclusion. There are implications for inclusion in global indices.
Appier (4180) – Down But Not Out; Shareholder Structure Still The Biggest Risk
- Appier Group (4180 JP) had been among our picks for TSE Prime promotion and we had recommended positioning for it. That worked. On 8 Dec they announced the promotion.
- The company is now part of TSE Prime which means a TOPIX Inclusion at end-January and an upweight in April. More than 20% of TSE float to buy by end-April.
- Share price performance has not kept pace with potential, and yesterday’s BOJ decision saw a flurry of volume selling (bailing). Pre-IPO holder overhang may be the biggest “risk” here.
JAFCO (8595) Succumbs to Even Worse Greenmail – SPECTACULARLY BAD Governance
- Jafco Co Ltd (8595 JP) was the target of activist Murakami-san in August 2022. They threatened a poison pill. Murakami-san sold, then bought to 19.5%. They negotiated. He won.
- His result excluded others. The market did not take it well. Murakami-san rejected taking a 1% hit to original terms (vs reference NAV). JAFCO went back to the drawing board.
- Then submitted to greenmail at a higher price. The first buyback was agreed at ¥2,500 vs ¥2,651 NAV. The new one? ¥2,730-2,840 vs ¥2,513 NAV. Inexplicable – Spectacularly Bad Governance.
Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium
- Nippon Steel Corporation (5401 JP) and Mitsui & Co Ltd (8031 JP) today announced they would buy out Nippon Steel & Sumikin Bussan (9810 JP), their steel-trading subsidiary.
- The shares trade near an all-time high, but Nippon Steel is paying an 87% premium. (Interestingly, the high end of the DCF ranges suggest a 280% premium)
- On fundamentals, this could have been higher, but given the shareholder structure, I expect it is a done deal as-is. The Tender Offer should start in February 2023.
ENEOS to Buy Out Tatsuta Electric (5809) At 74% Premium
- ENEOS Holdings (5020 JP) and subsidiary JX Nippon Mining & Metals Corporation announced today it would buy out minorities in miner and refiner Tatsuta Elec Wire & Cable (5809 JP).
- The Tender Offer comes at a 74% premium for their 37% sub. 5% off a 2yr high, 10% off a 20-year high. This is likely to be a “done deal”.
- JX probably starts with ~55% in the bag out of the 66.7% minimum. But the tender doesn’t start for ~ 6 months. Separately, importantly, there is a precedent here.
Toshiba (6502 JP): Sanctions on YMTC Help Kioxia
- The U.S. government put YMTC on its Entity List in early December, effectively cutting it off from U.S. semiconductor equipment companies and other U.S. technology.
- YMTC’s Xtacking architecture was good enough for Apple, but it will now have trouble maintaining its 5% market share, let alone ramping up production of its new 232-layer device.
- This will take some of the competitive pressure off Kioxia and benefit Toshiba, which owns 41% of its shares.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
