In today’s briefing:
- Index Rebalance & ETF Flow Recap: HSTECH, SIG/CWG, KQ150, REPT BATTERO
- Fujitsu General (6755) – Fujitsu Wants Out, May Force the Issue
- Shenzhou Intl (2313 HK): Nike Guidance Cut Presents An Opportunity
- 2024 High Conviction: Air China (753 HK) – Update on Proposed Share Placement
- Kum Yang: Announces Its Shares Will Be Listed on the US Stock Market Through ADRs
- OreCorp: Silvercorp Switches To Off-Market Bid
- Hollysys (HOLI US): Dazheng Consortium “Trumps” Ascendent’s Bid
- Ohayo Japan | Stocks Drift Higher; Japan Wage Hikes +5% in 2024
- Updated NAV on SK Inc Post 660 Billion Pre-IPO Investment in SK Pharmteco
- OreCorp (ORR AU): Silvercorp Switches to a Takeover Offer to Counter Perseus
Index Rebalance & ETF Flow Recap: HSTECH, SIG/CWG, KQ150, REPT BATTERO
- It was a busy week with rebalance implementations at the close of trading on Thursday in Korea and then across the region on Friday.
- The SET 50 Index changes should be announced this week and the Yuanta TW Div+ ETF will continue to implement the changes till Thursday.
- There were inflows to China ETFs during the week while there were big outflows from Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) ETFs.
Fujitsu General (6755) – Fujitsu Wants Out, May Force the Issue
- In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
- In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
- The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.
Shenzhou Intl (2313 HK): Nike Guidance Cut Presents An Opportunity
- Nike (NKE US) reported 2QFY24 results last week with a guidance cut, as the company cut FY24 full-year sales guidance to around +1%, compared to +mid-single-digit in the previous guidance.
- Shenzhou Intl Group Holdings (2313 HK) saw its stock drop by 8% the following day, given that Nike is Shenzhou’s most important customer, making up 30% of Shenzhou’s sales.
- Nike’s inventory is down another 14% yoy, and down high-single-digit compared to the previous quarter 1QFY24.
2024 High Conviction: Air China (753 HK) – Update on Proposed Share Placement
- Air China (H) (753 HK) is proposing a new share placement to raise Rmb6bn and HK$2bn. EPS dilution is manageable at 6% so we view the proposal positively.
- The new equity will enhance book value by 11.5% and lower its gearing by 103pp to 399.8%. The full subscription by the parent is also a vote of confidence.
- Recent share price weakness is due to the overall weakness in the Chinese equity market, but both macro and operating environments are improving. Selldown is unjustified.
Kum Yang: Announces Its Shares Will Be Listed on the US Stock Market Through ADRs
- On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
- The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
- Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued.
OreCorp: Silvercorp Switches To Off-Market Bid
- On the 24 November, Silvercorp Metals (SVM CN) bumped its Scheme Offer for Orecorp Ltd (ORR AU) to A$0.19 in cash and 0.0967 new Silvercorp shares.
- At a 40.1% premium to undisturbed and key shareholder Tim Goyder (5.14%) supportive, this looked done. Then Perseus (PRU AU) built a 19.9% stake and said it would vote no.
- After postponing the Scheme meeting, Silvercorp and Orecorp have now agreed to an off-market takeover, on the same terms. The tendering threshold is 50.1%.
Hollysys (HOLI US): Dazheng Consortium “Trumps” Ascendent’s Bid
- On the 13 December, Bloomberg reported that the Recco-led group consortium was weighing a revised Offer to be “significantly higher than the $26.50-a-share cash offer from Ascendent Capital”
- On the 24 December, a buyer consortium led by Dazheng Group announced an all-cash proposal of US$29.00/share, a 9.4% premium to Ascendent’s Offer. “Credible” financing is in place.
- “The Consortium stands ready to engage with the Board“. The Board should engage. The one curious aspect of this latest Offer is the apparent absence of Recco’s involvement.
Ohayo Japan | Stocks Drift Higher; Japan Wage Hikes +5% in 2024
- Overseas: SPX +0.1%; Stocks drift higher; 10Y Treasury yield at 3.8%; Biotech stocks surge
- Today: NKY Futs -0.5% v cash. JPY141.5; Daihatsu Motor could face over ¥100 billion in losses
- Markets: Japanese business leaders foresee 5% wage hikes in FY24, driving sustained growth.
Updated NAV on SK Inc Post 660 Billion Pre-IPO Investment in SK Pharmteco
- It was reported today that SK Pharmteco completed a 660 billion won in pre-IPO funding valuing the company at 4 trillion won.
- Prior to this investment, SK Inc owned a 100% stake in SK Pharmteco. After this investment, it is estimated that SK Inc will own about 83.5% stake in SK Pharmteco.
- Our base case valuation of SK Inc is NAV of 19.0 trillion won (NAV per share of 258,967 won), representing a 47% upside from current levels.
OreCorp (ORR AU): Silvercorp Switches to a Takeover Offer to Counter Perseus
- Silvercorp Metals (SVM US) has switched to an off-market takeover offer. The Orecorp Ltd (ORR AU) consideration remains unchanged at A$0.19 cash and 0.0967 SVM shares per ORR share.
- The takeover offer is conditional on a 50.1% minimum acceptance condition, achievable in the absence of a superior proposal.
- The crucial question is whether Perseus Mining (PRU AU) is comfortable with SVM effectively controlling ORR. We think that there is a low probability of Perseus launching a competing proposal.
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