In today’s briefing:
- March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD
- Concerns About A Major Accounting Fraud at Kakao Mobility
- Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”
- NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover
- Celltrion Merger: Appraisal Rights & Passive Flows
- Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
- Pre-IPO WuXi XDC (PHIP Updates) – Some Points Worth the Attention
- Symbio Backs ABB’s Reduced Terms
- AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet
- WuXi XDC IPO: The Bear Case
March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD
- In March 2024 Nikkei 225 Rebal – Look for Zozo, Ryohin Keikaku, and Maybe a Socionext Split I suggested Socionext (6526 JP) needed a stock split to get in.
- Today after the close, Socionext reported H1, guided up full-year earnings (still too conservative), raised its div, and announced a 5:1 stock split for Jan1 2024.
- DISCO Corp (6146 JP) is now likely to be a top 75, which leaves the question of which Consumer Goods stock would likely be added.
Concerns About A Major Accounting Fraud at Kakao Mobility
- It was reported in numerous local media in Korea that FSS is investigating Kakao Mobility for a potential accounting fraud.
- There are suspicions that Kakao Mobility may have artificially inflated its sales from 2020 to 2023 to enhance the value of the company prior to its IPO listing.
- Given that the regulators are unlikely to make a final decision on this matter until next year, this is likely to be negative on both Kakao Mobility and Kakao Corp.
Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”
- In July the BOJ lifted the YCC range to allow flexibility at 0.5% and a red line at 1.0%. Today it moved the “reference” to 1.0% with no red line.
- This allows 10yr yields to move higher, but the Board’s insistence on negative rates and YCC staying in place tells you steeper for longer makes shorting long JGBs tough.
- The move today helps encourage the market mechanism to take control of dampening volatility, the same way it did when the BOJ stepped away from ETF buying in 2021.
NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover
- Halfway through the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
- Estimated one-way turnover is 15.26% and that will result in a one-way trade of INR 24bn. There will be more than 2x ADV to sell on nearly all deletes.
- There is a possibility of an index methodology change, but no news for the last 4 months could indicate pushback from users or more stocks added to the F&O market.
Celltrion Merger: Appraisal Rights & Passive Flows
- The Appraisal rights exercise period ends on 13 November. If the NPS and other large shareholders exercise their rights in Celltrion Inc (068270 KS), the merger could be in trouble.
- Both stocks are trading close to their exercise price and could be supported due to the companies buying back their shares.
- There will be passive flows from local and global trackers and there does not appear to be pre-positioning. That is likely due to the risk of potential merger cancellation.
Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
- 40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.
- 92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.
- Big tables with data, reasons for guidance changes, and buyback history of each presented below.
Pre-IPO WuXi XDC (PHIP Updates) – Some Points Worth the Attention
- We’ve seen increasing global cooperation for ADC pipelines. However, licensing deals alone cannot be used as the only basis for judgment. We still need to wait for solid clinical evidence.
- ADCs are far less “general and popularized” than PD-1. If compare ADC with GLP-1s, the difference is more obvious.How big the real market is for ADC is a question mark.
- WuXi XDC’s share price could perform well after IPO due to positive sentiments towards ADC, but whether its long-term valuation would be higher than peers remains to be seen.
Symbio Backs ABB’s Reduced Terms
- Back on the 22 September, Superloop Ltd (SLC AU) lobbed a best and final cash/scrip NBIO for Symbio Holdings (SYM AU) with an implied price of A$2.85/share.
- Aussie Broadband Pty Ltd (ABB AU) then tabled a cash/scrip Offer, with an implied price of A$3.151/share. Symbio was supportive, if terms were firmed. Superloop’s Offer subsequently lapsed.
- ABB returned with a reduced cash/scrip Offer of A$2.99-$3.04/share. Symbio has unanimously recommended the Offer (at A$3.011/share) and they entered into a Scheme agreement. A partially/fully franked dividend is permitted.
AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet
- We see 8 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 13 stocks from SmallCap to MidCap, and 14 stocks from MidCap to SmallCap.
- Some stocks are expected to be inclusions to global indices later this month while others are potential NIFTY Index and/or Nifty Next 50 Index changes in March.
- On average, the upward migrating stocks have outperformed the downward migrating stocks by close to 100% over the last 8 months. The passive flow can be used as an exit.
WuXi XDC IPO: The Bear Case
- WuXi XDC Cayman Inc (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.
- In WuXi XDC IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on margins on a downward trend, large customer concentration, high related party transactions and volatile FCF generation.
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