In today’s briefing:
- Thinking About The Toyota Tender Offer Buyback
- China TCM (570.HK) Privatization Update – Things Are Still Manageable
- How Has the Index Rebalance Strategy Performed During Market Turmoil?
- JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade
- Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled
- Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk
- Fuji Soft (9749 JP): A Rumoured KKR-Sponsored MBO
- JPX-Nikkei 400 Rebal Aug 2024 – 44 IN, 41 OUT, ¥500bn of Capping, Just Under ¥1trn to Trade
- China: Passive Selling Expected Later This Month
Thinking About The Toyota Tender Offer Buyback
- In May when shares were trading near ¥3,500-3,600, Toyota announced a ¥1trln buyback. When shares fell, they announced a Tender Offer Buyback at a large discount (¥2,781/share).
- Subsequently, the shares fell very sharply on Thursday 1 August, then again Friday and yesterday. That put shares WELL below the Tender Offer Price. That creates possible opportunity.
- This insight discusses modalities (talk to your advisor for specific advice/info) who might do what and why. It sets parameters. But I think Toyota is cheap here.
China TCM (570.HK) Privatization Update – Things Are Still Manageable
- What disappoints investors is that privatization progress is slower-than-expected. Since approval is in “advanced stage”, August update is eye-catching. Investors may need more patience with this type of SOE deal.
- The key to the success of this privatization lies in whether CNPGC is willing to abide by its commitments. If yes, CNPGC will take all measures to solve the problems.
- According to our valuation calculation, even without this privatization, HK$3.5/share is fair for China TCM. Reasonable share price is above HK$5/share. Don’t forget, the privatization is still on the agenda.
How Has the Index Rebalance Strategy Performed During Market Turmoil?
- The market turmoil over the last few trading sessions has not been kind to a simple index rebalance strategy of buying the forecast adds and selling the forecast deletes.
- The overall returns and stock specific returns indicate that trades are more crowded in some indices as compared to others and traders should consider that when position sizing.
- Anecdotally, periods of negative returns are followed by periods of strong returns for the strategy as weak hands are shaken out of their positions.
JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade
- There are 44 adds/41 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. There are stocks with multiple days ADV to trade.
- Based on the adds, deletes and capping changes, we estimate one way turnover of 7.9% and a round-trip trade of JPY 880bn (US$6bn).
- The adds have outperformed the deletes over the last year though that has been faded over the last couple of months. Breaking with history, there could be outperformance near-term.
Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled
- On 6 August, the Doosan Group announced a revised merger report. Despite some changes in the merger report, there was no change the merger ratios.
- Many minority shareholders of Doosan Enerbility and Doosan Bobcat are likely to oppose this merger. The net result is an increasing probability that this merger gets cancelled, in our view.
- Doosan Enerbility has set aside about 600 billion won for exercise of appraisal rights and if it exceeds this amount, the merger may be cancelled.
Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
- In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
- The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
- Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here.
GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk
- To say Greatview Aseptic Packaging (468 HK)‘s management and Shandong Xinjufeng (301296 CH) (XJF) don’t get along is an understatement. GAPack has labelled XJF’s pre-conditional Offer hostile and unwelcome.
- Last night (6th August), co-founders Jeff Bi and Gang Hong tabled a non-binding Offer. No price was mentioned. Collectively they hold 14.72% of shares out compared to XJF’s 26.8%.
- A firm Offer (and price) would have been welcome, and this probably reflects on-going funding negotiations. But the announcement will give minorities pause if/when tendering into XJF’s Offer.
Fuji Soft (9749 JP): A Rumoured KKR-Sponsored MBO
- Nikkei and Bloomberg report that Fuji Soft Inc (9749 JP) will be privatised through a KKR-sponsored MBO at a price just below JPY9,000, a 21.8% premium to the last close.
- The rumoured privatisation proposal is the culmination of a sale process initiated by 3D Investment Partners, the largest shareholder, in September 2023.
- The Board will meet tomorrow to discuss the proposal. The rumoured offer represents an all-time high and a knockout bid, suggesting a done deal if a binding proposal materialises.
JPX-Nikkei 400 Rebal Aug 2024 – 44 IN, 41 OUT, ¥500bn of Capping, Just Under ¥1trn to Trade
- Janaghan Jeyakumar, CFA who does the predictions for this index got 10/10 of his high conviction names, 8/10 of his medium conviction, and 50% of low conviction ADDs.
- This year, there are fewer caps but some big ones. Nearly ¥500bn of capping flow to sell.
- I see just over $6.3bn in buying and selling to be done. A half dozen names with both high ADV impact to buy and decent size.
China: Passive Selling Expected Later This Month
- The China equity markets have continued to trade lower with the CSI 300 Index outperforming other mainland indices as the National Team continues to pump money into ETFs tracking the index.
- We currently estimate selling of around US$1.39bn across 74 stocks listed on the mainland and in Hong Kong. There could be fewer deletions depending on the review date chosen.
- The potential deletes have dropped a lot since the start of the calendar year with big underperformance versus the HSCEI Index, CSI 300 Index and CSI Smallcap 500 Index.
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