In today’s briefing:
- CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
- Kokusai Electric (6525 JP): The US$4.8 Billion Lock up Expiry
- HSTECH Index Rebalance Preview: Round-Trip Trade of US$1.5bn in June
- Suruga Bank (8358 JP) – New Div, New Buyback, New KPIs, New 6yr High Price
- Hanwha Group’s Restructuring to Positively Benefit Hanwha Corp but Negatively Impact Hanwha Ocean
- Backstory on the Hanmi Science Showdown & KKR’s Likely Tender Offer
- L’Occitane (973 HK): Two Good Moves, Though Rerating Has Been Fast And Furious
- Best World (BEST SP): Exit Stage Left
- Jastec (9717 JP): NTT Data (9613 JP)’s Tender Offer at JPY1,940
- Global Emerging Markets: Reporting Season Summary, 1Q2024
CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
- With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
- We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
- The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.
Kokusai Electric (6525 JP): The US$4.8 Billion Lock up Expiry
- Kokusai Electric (6525 JP)’s 180-day IPO lock-up period for 71% of outstanding shares expires on 22 April. The shares exiting the lock-up period are worth US$4.8 billion.
- The likely seller will be KKR & (KKR US) as it was the sole selling shareholder in the IPO. The shares are currently trading at 2.4x the IPO price.
- Kokusai anticipates a return to growth and margin improvement in FY24. However, Kokusai trades at a material premium to peer multiples and is fully priced.
HSTECH Index Rebalance Preview: Round-Trip Trade of US$1.5bn in June
- With no stocks in outright inclusion or deletion zone, we do not expect any constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June.
- Capping changes will result in a one-way turnover of 5.3% leading to a round-trip trade of US$1.51bn.
- Li Auto (2015 HK) is expected to be the largest buy in June following the stock being the largest sell at the March rebalance (also due to capping).
Suruga Bank (8358 JP) – New Div, New Buyback, New KPIs, New 6yr High Price
- 10+ Months ago, Suruga Bank Ltd (8358 JP) announced it would sell a large chunk of its treasury shares to Credit Saison and would then buy back ¥22bn of stock.
- I liked the odds in Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key. They spent the ¥22bn. The stock rose a lot.
- Today, we get a div hike for H2 (implying a div hike for this year too), another buyback, a huge share cancellation, and new KPIs. As always, details matter.
Hanwha Group’s Restructuring to Positively Benefit Hanwha Corp but Negatively Impact Hanwha Ocean
- We believe the new restructuring plan of the Hanwha Group is likely to have a positive impact on Hanwha Corp but could negatively impact Hanwha Ocean.
- Our NAV analysis of Hanwha Corp suggests NAV of 3.2 trillion won or NAV per share of 43,168 won, which is 50% higher than current share price.
- The biggest component of the valuation is Hanwha Corp’s 34% stake in Hanwha Aerospace which is worth 4.1 trillion won. (187% of Hanwha Corp’s market cap).
Backstory on the Hanmi Science Showdown & KKR’s Likely Tender Offer
- The victorious brothers plan to join forces with KKR to secure over 51% ownership of Hanmi Science. They aim to persuade the mother and daughter to part with their shares.
- Should this negotiation fail, KKR is prepared to initiate a tender offer in the open market, intending to acquire an additional 10-15% of Hanmi Science’s shares.
- KKR can target a maximum of 16%. With 10-15% aimed for, this tender offer will cause significant price impact.
L’Occitane (973 HK): Two Good Moves, Though Rerating Has Been Fast And Furious
- L’Occitane (973 HK) announced two solid moves this week: 1) Disposing the 70% stake in Grown Alchemist;
- And 2) granting additional call options to Sol de Janeiro CEO Heela Yang of up to 7%.
- The stock is trading at 19x FY25 PE (fiscal year ending March), up from just 14x six months ago.
Best World (BEST SP): Exit Stage Left
- After flagging a proposed delisting exercise last month, direct seller Best World International (BEST SP) has announced an Exit Offer lead by Best World founders Dora Hoan and Doreen Tan.
- The Offer Price is S$2.50/share, a 42.86% premium to undisturbed. The Offer requires approval from 75% of disinterested shareholders. Hoan, Tan and concert parties holding 65.12%, are required to abstain.
- Best World shares resumed trading on November 2022 after 42 months of suspension, subsequent to media reports and a short seller raising regulatory concerns over its Chinese business model.
Jastec (9717 JP): NTT Data (9613 JP)’s Tender Offer at JPY1,940
- Jastec Co Ltd (9717 JP) has recommended a tender offer from NTT Data Corp (9613 JP) at JPY1,940 per share, a 37.6% premium to the undisturbed price (5 April).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.67% ownership ratio.
- Based on the irrevocables, the minimum acceptance condition requires a 56.4% minority acceptance rate. The acceptance condition is achievable as the offer represents a 22-year high.
Global Emerging Markets: Reporting Season Summary, 1Q2024
- During 1Q2024, the 200 largest weighted companies in the GEM index reported average EPS growth of +8.7%y/y, down slightly from the +10.1% reported during 4Q2023.
- Only 47% of companies delivered positive EPS surprises, and only 44% delivered positive Sales surprises, a sharp correction from the positive trend witnessed during 2023.
- Historically, there has been a significant difference in relative share price performance between the largest positive versus negative surprise generators, for 3 months after the reporting date.
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