In today’s briefing:
- Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
- JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan
- Sompo Holdings Cross-Shareholding – At Least US$8bn of Cross-Shareholding to Sell
- Spending on Customers Precedes Customer Spending
- EM Watch: China is preparing something BIG!
- SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
- CGN New Energy (1811 HK): Evaluating a Potential Privatisation
- Fast Retailing(9983) | Not So Fast
- Bharti Hexacom IPO: Index Inclusion Timeline
- StubWorld: Melco Gains As Lawrence Ho Buys
Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
- The changes to the Nikkei 225 Average for the March 2024 Review were announced today after the close. A little earlier than I expected.
- Socionext, Disco, Zozo IN; Takara Hldgs, Sumi Osaka Cement, Pacific Metals OUT. Nitori PAF increase. US$4bn+ to trade one way on 29Mar close. One interesting surprise.
- Overall more impactful than it looks. And it changes the front-end arithmetic on Fast Retailing (9983 JP). There may be fun on the DELETEs.
JAPAN ACTIVISM: Mitsui Fudosan (8801) Responds to Elliott with Buyback, Amended Long-Term Plan
- 9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback.
- The stock popped 7% the next day to ¥1302, on the highest volume since the covid crash, hesitated a day, then powered almost 20% higher through the end of March.
- Today, Mitsui Fudosan responded with an Amendment to their Plan out to 2030. It has a higher dividend, a share buyback, higher EPS target growth, and higher ROE target. But…
Sompo Holdings Cross-Shareholding – At Least US$8bn of Cross-Shareholding to Sell
- The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
- Sompo Holdings (8630 JP) had a stake over US$100m in at least 16 listed Japanese stocks, amounting to a total of around US$6bn.
- In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.
Spending on Customers Precedes Customer Spending
- We expect Alibaba to report CY1Q24 top-line, non-GAAP EBITA and non-GAAP net income in-line, (14.2%) and (7.4%) vs. consensus. We cut non-GAAP EBITA by 10% and kept topline unchanged;
- BABA is prioritizing growth of both AliCloud and cross-border ecommerce (AliExpress), which will weaken profitability in the near-term but is the right thing to do.
- BABA is transforming itself into Chinese Microsoft with hopes of e-commerce mainly pinned on overseas. We maintain BUY and US$ 85 TP, implying 9.5x CY24 P/E.
EM Watch: China is preparing something BIG!
- The below chart of ours have made the rounds in recent days and weeks as China seems to be preparing for something big given the heavy restocking efforts in Copper space.
- As the price trends are diverging in copper versus steel and iron ore, the strategic initiatives of China are becoming increasingly evident in price action across the commodity complex, but we are yet to fully understand and accept the ramifications for global rates.
- We have read plenty of bad takes on why China is building up copper reserves and the most obvious reason seems to be neglected by many.
SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade
- With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
- The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.
CGN New Energy (1811 HK): Evaluating a Potential Privatisation
- Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking CGN New Energy Holdings (1811 HK) private.
- CGN New Energy shares have underperformed the median peer’s shares since the announcement of CGN’s previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.
- The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.
Fast Retailing(9983) | Not So Fast
- Fast Retail missed analyst estimates for Q2 sales and operating profit. Revenue growth slowed to 5% YoY
- Full year operating profit guidance maintained at Y450 billion, just slightly below the street
- The stock is trading at 27x EV/EBIT, in-line with historical averages, but still expensive in absolute terms and versus global peers
Bharti Hexacom IPO: Index Inclusion Timeline
- Telecommunications Consultants India Limited (TCIL) raised US$513m by selling 15% of the shares outstanding in Bharti Hexacom (6597372Z IN). Post the sale, they still hold 15% of the company.
- Bharti Hexacom (6597372Z IN) will start trading on 12 April and the grey market indicates the stock will open at INR 664/share, 16.5% higher than the IPO price.
- Bharti Hexacom should be added to one smallcap index in August and another smallcap index in December. A move above INR 700/share could result in midcap inclusion in December.
StubWorld: Melco Gains As Lawrence Ho Buys
- Melco International (200 HK) gains as Lawrence Ho increases his position. Melco and 51.1%-held Melco Resorts (MLCO US) are the two worst performing gaming stocks over the past year.
- Preceding my comments on Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
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