In today’s briefing:
- Sembcorp Marine & Keppel O&M: Revised Terms & Index Implications
- How Bad Is Today’s Chip Collapse?
- Fengxiang’s Unconditional MGO at HK$ 1.5132 from PAG
- Softbank Group (9984 JP) – Defying Gravity into 4Q 2022
- JPX-Nikkei 400 Rebal 2023: End-Oct 2022
- SEA EConomy – A Squall in 2022 with Rough Seas Ahead
- Hyundai Elevator: Announces a Major Share Buyback Program
- Bear Market Rally in Progress as DXY, Global Sovereign 10-Yr Yields Fall; Buy Ideas Within Leaders
- Index Rebalance & ETF Flow Recap: S&P/ASX, STAR50, CSI300, SSE50, IDX, GOTO, SMM/KEP
- Suzuki (7269 JT) | Way Too Cheap Ahead of 2Q Earnings – India’s Maruti (MSIL IN) Shows the Way
Sembcorp Marine & Keppel O&M: Revised Terms & Index Implications
- Sembcorp Marine (SMM SP) will now acquire Keppel O&M from Keppel Corp (KEP SP) at an 8% lower consideration at a revised exchange ratio of 46:54 vs 44:56 earlier.
- The simplified transaction structure is expected to reduce consent and approval requirements and could reduce completion time by up to 2 months. Expected completion now is December or Jan.
- At a proforma market cap of S$7bn, there could be selling in Sembcorp Marine from MSCI Singapore and FTSE Straits Times Index (STI) (STI INDEX) trackers at the time of implementation.
How Bad Is Today’s Chip Collapse?
- Semiconductor collapses like today’s are led by memory chips, which are a commodity
- The leading memory manufacturers: Samsung, SK hynix, Micron, and WDC, have announced their 3Q22 earnings, with only Kioxia remaining. All have suffered substantial revenue declines.
- Memory prices are dropping to cost, and should remain at cost until demand catches back up with supply in late 2023
Fengxiang’s Unconditional MGO at HK$ 1.5132 from PAG
- PAG is the successful bidder for Shandong Fengxiang (9977 HK)‘s controlling shareholder’s 70.92% stake at HK$1.5132 per H Share (RMB1.3822 per domestic share).
- As PAG has no compulsory acquisition rights, it will also seek shareholder delisting approval. The MGO is not conditional on the approval of the delisting resolution.
- The share sale transfer requires SAMR approval which will be forthcoming. Our best guess is the MGO completes end-January 2023. At the last close, the gross spread is 14.6%.
Softbank Group (9984 JP) – Defying Gravity into 4Q 2022
- Softbank Group’s share price has been supported by the share buyback programme since late September, but 2Q FY2022 results are likely act as a negative catalyst for Softbank shares
- Alibaba and its core listed holdings in the Vision Funds have seen market values go lower in recent months; see the diverging market price chart trends in this report
- In addition, valuations among the unlisted holdings are also under pressure into October, so 2Q results may not capture the full extent of the down rounds
JPX-Nikkei 400 Rebal 2023: End-Oct 2022
- JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
- A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
- Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2023 based on trading data as of end-October 2022.
SEA EConomy – A Squall in 2022 with Rough Seas Ahead
- Google, Temasek, and Bain&Co just released their much-anticipated eConomy SEA 2022 report outlining recent trends and future expectations for South-East Asia’s digital economy.
- No doubt post-pandemic growth has been tapering but the long-term growth story remains intact. The key focus has switched to the path to profitability versus headline growth.
- Major digital players in South-East Asia will release 3Q results next month with all eyes focused on take rates, contribution margins, and Adjusted EBITDA margins rather than headline growth.
Hyundai Elevator: Announces a Major Share Buyback Program
- On 28 October, Hyundai Elevator Co (017800 KS) announced a major share buyback program worth 2.1 million shares, representing 5.1% of outstanding shares or about 50 billion won.
- Hyundai Elevator Co Ltd makes excellent elevators and it is the number one player in the elevator industry in Korea with a 41% market share as of 2Q 2022.
- Despite the company’s valuations trading at lower levels than its recent historical levels, the negative factors impacting the company are much bigger in scale than the share buyback program.
Bear Market Rally in Progress as DXY, Global Sovereign 10-Yr Yields Fall; Buy Ideas Within Leaders
- We continue to believe that a bearish intermediate-term outlook is appropriate as long as the YTD downtrends remain intact on MSCI ACWI (ACWI-US), MSCI ACWI ex-US (ACWX-US), and EAFE (EFA-US).
- We would turn bullish only on reversals of those downtrends. With that said, a bear market rally has officially begun, something that we have discussed since our Sept.29 Int’l Compass
- We expect to see rallies to their respective YTD downtrends (ACWX, EFA, etc.). We highlight buys that are likely to outperform on this bear market rally.
Index Rebalance & ETF Flow Recap: S&P/ASX, STAR50, CSI300, SSE50, IDX, GOTO, SMM/KEP
- The review period for the MSCI Nov SAIR, Kospi 200 Index, KOSDAQ 150 Index, S&P BSE SENSEX Index and a bunch of mainland China indices ends on 31 October.
- The minor rebalancing of the IDX30, LQ45 and IDX80 indices takes place at the close on 31 October, while the KOSDAQ 150 Index ad hoc rebalance is on 2 November.
- There were outflows from IShares Core MSCI Asia Ex Japan ETF (3010 HK) and inflows to Tracker Fund (2800 HK) and Hang Seng H Share Index ETF (2828 HK).
Suzuki (7269 JT) | Way Too Cheap Ahead of 2Q Earnings – India’s Maruti (MSIL IN) Shows the Way
- Maruti Suzuki reported above Consensus 2Q driven by strong volumes and improved margins
- Earnings bode well for Suzuki’s 2Q earnings on Nov 8. Also, Maruti indicated significant easing of semi-driven supply constraints. Positive readacross for Suzuki.
- Suzuki’s ex-Maruti operations are now cheaper than ever at under 2.5x PER. We see upside to earnings vs. Consensus and keep our bullish stance on the stock.
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