In today’s briefing:
- Nikkei 225 Index Rebalance Preview (March): Potential Changes as Review Period Nears End
- Solactive Global Uranium & Nuclear Components Index Rebalance: 6 Adds, 5 Deletes
- Sea Ltd: Game Over
- KRX New Deal Index Rebalance Preview: Some Big Impact Names
- KLINE (9107) – Chances for an Additional Buyback At Q3 Earnings?
- The Olympus Peer-Relative Crash – Due to ADR Cancellation Overhang?
- China Internet Investment (810 HK): 98% Downside
- Detailing Maekyung Report on MBK’s Tender Offer to Osstem Implant Shareholders at a 20% Premium
- MBK/Unison Capital Korea Do a Deal for Osstem Implant (048260 KS) Thwarting Activist KCGI
- Samsung Electronics 1P Pushed to a Substantial Diversion (Below -2σ) Today
Nikkei 225 Index Rebalance Preview (March): Potential Changes as Review Period Nears End
- The review period for the Nikkei 225 (NKY INDEX) March rebalance ends next week. We highlight the 3 potential inclusions and exclusions for the index.
- Lasertec Corp (6920), Oriental Land (4661) and Renesas Electronics (6723) remain our top inclusions, while Toyobo Co Ltd (3101), Nippon Light Metal (5703) and Toho Zinc (5707) could be deleted.
- 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 1x ADV on many index constituents.
Solactive Global Uranium & Nuclear Components Index Rebalance: 6 Adds, 5 Deletes
- Solactive has announced the constituent changes for the Global Uranium & Nuclear Components Index. There are 6 adds and 5 deletes with implementation at the close on 31 January.
- Estimated one-way turnover is in excess of 12% and will result in a one-way trade of US$207m. There are 11 stocks with estimated passive flows greater than 5x ADV.
- Some of the inclusions have had BIG rallies over the last couple of months and there could be profit taking on those names in the next few days.
Sea Ltd: Game Over
- We don’t see a way for Sea Ltd (SE US)’s e-commerce business to turn profitable in the next few years.
- For the moment, the Digital-Entertainment segment is capable of absorbing most of e-commerce losses, but we are expecting the segment profitability to fall 70% to $135m per-quarter over the-next two-years.
- Once that happens, we think it will be game over for Sea Ltd.
KRX New Deal Index Rebalance Preview: Some Big Impact Names
- The review period for the March rebalance ends on 31 January, the changes will be announced towards end February and implemented at the close of trading on 9 March.
- We forecast one add/delete for the Game Index, and a couple of adds/deletes for the BBIG Index. There will be a lot of capping changes.
- The largest inflows are expected on Posco Chemical (003670 KS) and Douzone Bizon (012510 KS); the largest outflows are expected on SK Innovation (096770 KS) and KMW (032500 KS).
KLINE (9107) – Chances for an Additional Buyback At Q3 Earnings?
- KLine is the cheapest of the three Japan majors in terms of forward consensus PER. And forward EPS ratios are improving as the company buys back shares.
- The CEO mentioned in December the possibility of additional shareholder return this fiscal year based on cashflow.
- In this insight, we look at what he knew then, and what he might know now, and the chances for an additional buyback (and how it might work).
The Olympus Peer-Relative Crash – Due to ADR Cancellation Overhang?
- Olympus has been sold down relatively hard in the last couple of months. At the same time, we are at crunch time for the cancellation of the US ADR.
- This may create short-term overhang, but the medium-term overhang from substantial foreign net buying in H1 when USDJPY was going up may be larger.
- This insight looks at the relative performance vs Peers, vs forward earnings expectations, USDJPY, etc.
China Internet Investment (810 HK): 98% Downside
- Bubble-Stock China Internet Investment Finance Holdings (810 HK) (CIIFH) was suspended on the 10 January pursuant to the Hong Kong Code on Takeovers and Mergers.
- It has now announced a possible voluntary conditional takeover. No price was mentioned and terms remain indeterminate.
- CIIFH, which invests primarily in listed Hong Kong securities, is trading at an eye-watering 59.5x NAV. 98% downside from here is conceivable.
Detailing Maekyung Report on MBK’s Tender Offer to Osstem Implant Shareholders at a 20% Premium
- Maekyung exclusively reports MBK will do a tender offer to Osstem Implant shareholders at a 20% premium to buy a 15% stake.
- As Maekyung is a first-tier news outlet in Korea, we have to see enough credibility in this report. We should expect to see it in an official regulatory filing soon.
- We should design a play that actively utilizes the tender offer event very elaborately. Here, we need to consider immediate offerings and potential delisting from a longer-term perspective.
MBK/Unison Capital Korea Do a Deal for Osstem Implant (048260 KS) Thwarting Activist KCGI
- Just over a year ago, leading Korean dental implant and dentistry supply company Osstem Implant (048260 KS) announced the largest-ever embezzlement case in Korea. The stock was suspended.
- There were fears about forced selling by the founder, and PE funds circled. Activist KCGI probably bought in Q3 but built a 5+% stake by end-December 2022.
- Korean PE Firms MBK and Unison Capital have now launched an MBO-style Tender Offer to buy 2.4-11.2mm shares in the company at a sharp premium to the pre-activism undisturbed price.
Samsung Electronics 1P Pushed to a Substantial Diversion (Below -2σ) Today
- SamE PREF’s relative underperformance compared to ORD has been getting a bit worse lately. And finally, today, it went down below -2.0σ on a 20-day moving average.
- This much diversion is the first in recent months, and the pref discount is close to last year’s peak. The dividend yield difference is also the widest in recent years.
- The current diversion appears to be a byproduct of the SamE overbuying amid the recent market rally, and we should expect a quick reversion.
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