In today’s briefing:
- Hang Seng Index Rebalance Preview: Foreign Companies Eligible from December
- Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
- SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
- Hollysys: Court Injunction Hearing Is Key
- Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline
- WuXi XDC IPO: Valuation Insights
- CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…
- StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results
- Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging
- 5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company
Hang Seng Index Rebalance Preview: Foreign Companies Eligible from December
- The move from 80 index constituents to 100 could take most of next year (and possibly even the year after that) to manage turnover and add profitable companies.
- Foreign companies will be eligible for inclusion in the index from the December rebalance. That makes Samsonite (1910 HK) a high probability inclusion candidate.
- We highlight 8 potential inclusions to the index with passive trading impact varying from 1.6-4.3 days of ADV. There are large shorts on some of the stocks.
Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
- Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
- A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
- Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.
SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
- With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
- Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.
Hollysys: Court Injunction Hearing Is Key
- Talk about your never-ending story. I count at least seven non-binding Offers for Hollysys Automation Technologies (HOLI US) since December 2020, three of which are still on the table.
- The latest, at US$26/share, was pitched earlier this week from Ascendent Capital Partners; who along with Changli Wang, Hollysys’ founder, previously made an US$23/share Offer in August 2021.
- However, all these Offers are largely moot until we get closure at the court injunction hearing. If that occurs. Separately, I had a solid discussion with Hollysys’ IR.
Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline
- Alchip Technologies (3661 TT) is looking to raise around US$375m in its upcoming global deposit receipts (GDRs) offering.
- Similar to previous GDR listings, the deal is a very well flagged one, with a drawn out process of regulatory/approval loops the firm has to jump through up till issuance.
- Based on its board’s approval to issue up to 4m new shares in its GDR offering, the deal is a relatively small one at just 5.4% of Alchip’s current mcap.
WuXi XDC IPO: Valuation Insights
- WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), has launched an HKEx IPO to raise up to US$470 million.
- We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
- Blue-Chip cornerstones will purchase US$300 million of the offer. Our base-case DCF valuation is HK$22.84 per share, 12.8% above the midpoint of the IPO price range.
CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…
- CMIC Holdings (2309 JP) decided to “change its business model” this past spring, transferring control of a consolidated JV and other subs to DNP.
- The result changed the accounting, and the business model, capitalising future cashflow and net income in a “hidden” asset which may or may not be in the Financial Advisor’s valuation.
- My read is this is being done too cheaply, and the price should be 30-60% higher. But, it would be tough to block this.
StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results
- Digital Garage (4819 JP) is coming up “cheap” versus Kakaku.com Inc (2371 JP); and Melco International Development (200 HK) is trading “rich” to Melco Resorts & Entertainment (MLCO US).
- Preceding my comments on DG and Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging
- Recruit Holdings (6098 JP) reported 2QFY03/2024 results today. Revenues decreased YoY due to decline in HR Tech revenues, while operating profit for the quarter increased YoY. OP missed consensus marginally.
- As we expected, the new pricing model has negatively impacted HR Tech revenues, and the segment’s earnings are forecast to decline further going into the second half.
- There is further downside to earnings and the company’s share price has moved up during the last few days, and we are set to nicely gain on the Short side.
5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company
- In this insight, we discuss the five important factors impacting potential regulations changes of shorting stocks in Korea.
- The Korean regulators are actively considering a plan to limit the short selling repayment period for foreign and institutional investors to 90 days (same as the individual retail investors).
- More than 400 years ago in 1609, a Dutch businessman called Issac Le Maire started to short shares in the Dutch East India Company.
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