In today’s briefing:
- Shinko Electric (6967) – Break/Gap Risk Update
- JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters
- Locals Driving Corporate Reforms and 10 Korean Companies Recently Announcing Share Cancellations
- Perfect Medical: Post Card From HK, Yield of 11.5%
- ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices
- Azure Min’s (AZS AU)’s “Boost” As Gina Ups Stake in Lynas
- What Is TSMC Telling Us About Semi Supply Chain Stories at Its Investor Conference?
- Shinko Electric (6967 JP): Widening Spread Is an Opportunity
- Inageya (8182 JP): Share Exchange Offer from USMH (3222 JP)
- SoftBank (9984 JP): Arm Out-Stretched (On Valuation) And Is JPY Depreciation Largely Done?
Shinko Electric (6967) – Break/Gap Risk Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- 12wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5wks ago, reco’d trimming.
- Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.
JSR (4185) – Deal Done, Now Back End Arbs Need To Be Card Counters
- Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer.
- That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence.
- News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been.
Locals Driving Corporate Reforms and 10 Korean Companies Recently Announcing Share Cancellations
- In a recent discussion with a client, one of the questions that was raised was regarding the impact the local investors are having on the corporate governance reforms in Korea.
- The number of local investors in the Korean stock market has jumped in the past few years from 5.3 million in 2017 to 14.4 million in 2022.
- All in all, I think Korea is about 3-5 years behind Japan in various corporate governance reforms. So it has a lot of catching up to do.
Perfect Medical: Post Card From HK, Yield of 11.5%
- Perfect Medical Health (1830 HK), post a correction of consumer discretionary stocks in HK, now trades at a yield of 11.5%, with cash&investments representing 24% of the market cap.
- HK is experiencing a dip in consumer sentiment, and the company isn’t immune to it, but flat sales/profitability, a 24% net margin, and >40% ROE provide great margin of safety.
- The stock trades at 9.3x FY24 PE and 11.5% yield (assuming a 110% payout average across company history) with a growth option once the HK economy kickstarts.
ChiNext/ChiNext50 Index Rebalance Preview: Plenty of Overlap Between the Indices
- Nearing the end of the review period, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
- There are overlapping names for the two indices and some of the stocks will also have flows from the CSI Smallcap 500 Index – Shang (SH000905 INDEX) trackers.
- The potential adds have outperformed the potential deletes between 9-10% for both indices over the last month with the deletes dropping a lot more than the adds.
Azure Min’s (AZS AU)’s “Boost” As Gina Ups Stake in Lynas
- On the 8th April, Azure Minerals (AZS AU) shareholders overwhelmingly approved the Sociedad Quimica y Minera (SQM US)/Gina Rhinehart’s Hancock transaction. Shares promptly closed down 7% on regulatory approval fears.
- Those fears are unwarranted. China’s Tianqi Lithium would indirectly own just ~11% in Azure post-deal. China has recently lifted anti-dumping tariffs on a range of Aussie products. FIRB won’t block.
- An expected approval may have spurred Gina to buy more shares in Lynas (LYC AU). Why buy now if FIRB dings Azure; that outcome would push the whole sector lower.
What Is TSMC Telling Us About Semi Supply Chain Stories at Its Investor Conference?
- TSMC reiterates 2024 sales y/y growth of 20-25% but revises down 2024 global semiconductor y/y sales from over 10% to 10% and global foundry sales growth from 20% to 15-19%.
- No more Moore’s Law: After 3 years ramp up gap between N5-N3, TSMC confirms 10-11 quarters of ramp up gap between N3 and N2 due to longer production cycle.
- Driven by stronger digital consumer (33% q/q), HPC (3% q/q), IoT (5% q/q) sales but weaker smartphone IC (-16% q/q), TSMC reports 1Q24 sales decline of only 5% q/q.
Shinko Electric (6967 JP): Widening Spread Is an Opportunity
- Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread widened from a low of 3.1% on 14 March to 7.0%.
- The widening spread can be attributed to China SAMR approval timing, earnings risk, Ibiden Co Ltd (4062 JP)’s material underperformance lowering the break price and a large fund liquidating positions.
- The deal break risks remain low with the timing remaining the key risk. The current 7.0% spread is an attractive opportunity to add.
Inageya (8182 JP): Share Exchange Offer from USMH (3222 JP)
- Inageya Co Ltd (8182 JP) announced a share exchange offer by United Super Markets (3222 JP) at 1.46 USMH shares per Inageya share.
- The share exchange aligns with Aeon Co Ltd (8267 JP)’s well-flagged intention of making Inageya a wholly-owned subsidiary of USMH.
- Aeon’s 50%+ shareholding in Inageya and USMH facilitates the two EGM votes. The deal metrics are broadly fair for both sets of shareholders.
SoftBank (9984 JP): Arm Out-Stretched (On Valuation) And Is JPY Depreciation Largely Done?
- Arm – which we estimate accounts for 45% of SoftBank group’s equity value – is experiencing limits to its “growth at any price” stock status; the shares fell 12% yesterday
- The JPY’s depreciation is supportive of the group NAV, but with the Fed’s hawkish stance well known and BoJ expected to raise interest rates, JPY weakness may be largely done
- SoftBank shares trade at a wide 53%+ discount to the estimated NAV; yet we see downside risks to Arm’s valuation, along with the potential for JPY weakness to reverse
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