In today’s briefing:
- Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain
- The Hunt for the Japanese Laggards, Here Are 47 Attractive Companies
- Index Rebalance & ETF Flow Recap: ASX, KS200, KQ150, HSIII, STTF, L&F, Costa Group, Japan, Bud APAC
- Ping An A/H Premium: Blow Out Could Lead to Sharp Reversal
- Merger Arb Mondays (22 Jan) – JSR, Benefit One, T&K Toka, Guppy’s, Genetron, Weiqiao, Probiotec
- Last Week in Event SPACE: Benefit One, China Unicom, Zhejiang Expressway/ Zheshang Sec, Hollysys
- Activia Properties (3279) – Short-Term Higher-Impact Buyback on Better Fundamental Results
- Ohayo Japan | Stocks Surge; Japan’s Seven-Year Streak of Prosperity
- KRX Introduces Market Orders for Single Stock Futures: Potential Trading Impacts
- A/H Premium Tracker (To 19 Jan 2024): Hs Shellacked Vs As. Near Multi-Year High Average AH Premia
Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain
- The JIC Deal for Shinko Electric Industries (6967 JP) started trading wide when announced five weeks ago. It is still at 9% for perhaps 9 months.
- There is FUD. There are Flows. Just like JSR (4185). Some of that FUD can be explained by “gap risk” on deal break…. or can it? We look at risks.
- 5 weeks ago, there was more positioning risk than fundamental risk. But now main comp Ibiden has outperformed Shinko by 17%. Gap risk is fundamentally lower now. Bump risk exists.
The Hunt for the Japanese Laggards, Here Are 47 Attractive Companies
- Tokyo Stock Exchange (TSE) has published the list of companies that are conscious of stock capital and share price; this will be a recurring monthly feat
- The initial compliance rate is encouraging and should continue to grow as peer pressure is relentless and doing nothing is not an option. The shake-up is happening
- We narrow down a list of companies that are the most compelling laggard opportunities based on their low price to book ratio (PBR) and strong balance sheet
Index Rebalance & ETF Flow Recap: ASX, KS200, KQ150, HSIII, STTF, L&F, Costa Group, Japan, Bud APAC
- The review period for a global index commenced last week and will run through this week as well.
- The announcement of the changes for the LQ45 Index should be announced in the coming week and will be implemented at the close on 31 January.
- Huge inflows to CSI 300 Index trackers during the week while there was a big outflow from Tracker Fund of Hong Kong (2800 HK).
Ping An A/H Premium: Blow Out Could Lead to Sharp Reversal
- Ping An Insurance (601318 CH) trades at a 40% premium to Ping An Insurance (2318 HK). The premium has blown out the last week and there could be a reversal.
- The difference in Ping An’s AH premium versus the HSAHP Index has shrunk to its narrowest level in the last 10 years.
- Shareholding in Ping An Insurance Group of (601318 CH) via Northbound Connect has dropped and shareholding in Ping An Insurance (H) (2318 HK) via Southbound Connect has increased steadily.
Merger Arb Mondays (22 Jan) – JSR, Benefit One, T&K Toka, Guppy’s, Genetron, Weiqiao, Probiotec
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – GUPPY’s Inc (5127 JP), Hollysys Automation Technologies (HOLI US), Shinko Electric Industries (6967 JP), Probiotec Ltd (PBP AU), Irc Ltd (1029 HK), Genetron Holdings Ltd (GTH US).
- Lowest spreads – T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Benesse Holdings (9783 JP), Benefit One Inc (2412 JP), Orecorp Ltd (ORR AU).
Last Week in Event SPACE: Benefit One, China Unicom, Zhejiang Expressway/ Zheshang Sec, Hollysys
- Dai Ichi Life (8750 JP) has the wherewithal, and probably the synergies to make a bump for Benefit One (2412 JP) work. M3 is clearly not in the driver’s seat.
- China United Network (600050 CH) is, for all intent and purpose, a pseudo-A to China Unicom (762 HK). Go long Unicom, short United due to Unicom’s significantly cheaper valuation.
- Zhejiang Expressway (576 HK) has had a stonking run since its rights issue. Look to unwind this set-up and take the other side: short Expressway, long Zheshang Securities (601878 CH).
Activia Properties (3279) – Short-Term Higher-Impact Buyback on Better Fundamental Results
- Activia Properties (3279 JP) announced results Wednesday. Higher DPU on better rental income looks to continue next period, but an asset disposal will produce some drag ahead.
- Activia Properties also announced a buyback of 10% of ADV for the next four months.
- The REIT is slightly cheap to peers. Yield spread to JGBs is high which is good. It needs to be 10% higher to restart accretive equity offerings.
Ohayo Japan | Stocks Surge; Japan’s Seven-Year Streak of Prosperity
- Last week, stocks surged, propelling the S&P 500 and Dow Jones to record highs. Positive economic data and consumer sentiment overshadowed a decline in existing home sales.
- This week, CB meetings in the eurozone, Canada, and BoJ (Tues) will shape market expectations. US earnings will further contribute to a dynamic week.
- Japan’s equity market remains popular, but divergence from the PMI output index raises concerns of overheating. A flash PMI (Wed) report will provide insight into Japan’s growth conditions.
KRX Introduces Market Orders for Single Stock Futures: Potential Trading Impacts
- KRX notified local brokerages last week about allowing market orders for single stock futures (SSF) from April. Currently, 192 SSFs are listed.
- Anticipating short-term effects, heightened frequency and impact of erroneous orders may cause spot market confusion. KRX plans real-time bid disclosure for SSFs to prevent price distortions.
- Nonetheless, we will likely observe SSF price volatility surges. Real-time bid exposure could exacerbate volatility due to premature information revelation. Preemptive position setups considering these factors are advised.
A/H Premium Tracker (To 19 Jan 2024): Hs Shellacked Vs As. Near Multi-Year High Average AH Premia
- The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc. But that didn’t help.
- SOUTHBOUND flows were bigly positive and NORTHBOUND flows a large net sell. Nevertheless AH Premia had their best week in ages as HK large caps, mid-caps, small-caps got shellacked.
- Now at new 52wk wides on A premia. Now within 3% of 5+ year highs.
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