In today’s briefing:
- Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT
- Nikkei 225 Index Rebalance: NRI, Ryohin Keikaku IN; Nippon Paper, DIC OUT; Fast Retailing Capped
- Fuji Soft (9749 JP) – Bain Bids More, The Market Goes Even Higher
- Fuji Soft (9749 JP): KKR’s Cop-Out as It Launches at Unchanged Terms, Next Move Bain
- For Long-Term Investors, Seven & I Is the Better Bet
- Midea A/H Listing – Thoughts on A/H Premium and past A/H Listings
- CPMC (906 HK): Champion Holdings Walks
- Key Things to Watch in Ecopro HN’s Big Rights Offering
- Midea Group H Share Listing: AH Discount Views
- Australia/NZ Real Estate: Stocks With (Large) Passive Flows
Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT
- Today, the Nikkei Index Committee decided to delete Nippon Paper (3863) for low liquidity, and DIC (4631) for sector over-representation, and added Nomura Research Institute (4307) and Ryohin Keikaku (7453).
- The only auto-delete was Nippon Paper. The DIC delete was “discretionary.” But they could have done a third. Why did they not do a third change? I do not know.
- The whole shebang should be ¥350-375bn a side. At current price, Fast Retailing is set for another capping (selling) event in March 2025. And there is one shoo-in then too.
Nikkei 225 Index Rebalance: NRI, Ryohin Keikaku IN; Nippon Paper, DIC OUT; Fast Retailing Capped
- Nomura Research Institute (4307 JP) and Ryohin Keikaku (7453 JP) will replace Nippon Paper Industries Co L (3863 JP) and Dic Corp (4631 JP) in the Nikkei 225 (NKY INDEX).
- Fast Retailing (9983 JP)‘s CPAF will drop from 3 to 2.7 and there will be further selling in March 2025 as the CPAF drops to 2.4 (or possibly even 2.1!)
- Passives will need to buy 7-15x ADV (13-14% of real float) in the adds and sell 2.7-6.5x ADV in the deletes. There is a big reverse funding trade too.
Fuji Soft (9749 JP) – Bain Bids More, The Market Goes Even Higher
- The original Target Opinion Statement for KKR’s bid at ¥8,800/share offered a glimpse at a non-binding, questionably feasible offer at a slightly higher price, which 3DIP might have rejected.
- That was apparently Bain, and now we know Bain has consistently had the higher price. Fuji Soft Inc (9749 JP) handled this whole process badly, perhaps cowed by 3DIP.
- Now the cat is amongst the pigeons. This is less hostile than it looks IMO. The market thinks it will be a bun fight.
Fuji Soft (9749 JP): KKR’s Cop-Out as It Launches at Unchanged Terms, Next Move Bain
- In response to the potential Bain competing offer for Fuji Soft Inc (9749 JP), KKR has waived the precondition and launched its offer at unchanged JPY8,800 per share.
- Bain’s due diligence ends on 20 September, and it aims to submit a binding proposal in October. This timeline will thwart KKR’s offer, which closes on 21 October.
- KKR’s offer launch at unchanged terms is delaying the inevitable and will have to bump to succeed. A potential bidding war is likely to push the offer price to JPY10,500.
For Long-Term Investors, Seven & I Is the Better Bet
- The Couche-Tard “friendly bid” raises more questions than it answers: Is it real? What does CT really want? Can it afford it? Will the Japanese government let it through?
- We remain sceptical about a bid – if it happens – succeeding. Either way, Seven & Eleven Japan looks to be the much better retailer.
- It has been selling 25-40% more than competitors in the world’s toughest CVS market and looks set to extract more value in Japan/overseas than anyone else could so why sell?
Midea A/H Listing – Thoughts on A/H Premium and past A/H Listings
- Midea Group Co Ltd A (000333 CH) aims to raise up to US$3bn in its H-share listing, as per media reports.
- Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
- We have covered the company and deal background in our previous notes. In this note, we talk about the past A/H listing and possible premiums.
CPMC (906 HK): Champion Holdings Walks
- At the first close , SASAC/NCSSF-backed Champion Holdings failed to secure the 50% acceptance condition. No surprises there. What was a surprise was Champion Holdings letting the Offer lapse.
- Champion Holdings could have extended the Offer to the 30th Sept, which would have achieved little. But they could have bumped terms. They did neither.
- That leaves ORG Technology Co., Ltd. A (002701 CH) as the sole bidder for CPMC Holdings (906 HK) . And arguably, an unwilling bidder at that.
Key Things to Watch in Ecopro HN’s Big Rights Offering
- Ecopro HN announced a ₩200 billion rights issue, offering 5.67 million shares (a 40% capital increase) with a stockholder allocation rate of 0.3 per share.
- The extended timeline likely results from the issuer’s 20% discount push, with Daishin, an underdog banker, extending it to boost subscriptions despite risking price stability.
- The strategy is to time entry when the stock rights and subscription costs create a solid spread versus the spot price, despite increased volatility making price predictions harder.
Midea Group H Share Listing: AH Discount Views
- Midea Group Co Ltd A (000333 CH), the world’s biggest home appliances maker, is premarketing an H Share listing to raise US$3 billion.
- In Midea Group H Share Listing: Latest Updates Points to a Business in Rude Health, we noted that Midea is in good health, with strong growth, margins, and cash generation.
- In this note, we examine the likely discount that Midea will offer its H Shares compared to the A Shares.
Australia/NZ Real Estate: Stocks With (Large) Passive Flows
- There will be passive buying in Nextdc Ltd (NXT AU) and Charter Hall (CHC AU) and selling in Vital Healthcare Property Trust (VHP NZ) at the close on 20 September.
- Charter Hall (CHC AU)‘s stock price jumped following announcement of results and that was accompanied by big short covering. There should still be more positioning here.
- Nextdc Ltd (NXT AU)‘s increase in cumulative excess volume came on a drop in the stock price. There could be some covering here as positioning builds up.
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