In today’s briefing:
- Yichang HEC (1558 HK): Absorption Via Speculative Scrip. Avoid
- FSS Head’s Aggressive Remarks for Value-Up at NY Event, Incl. Short Selling Resumption Late June
- HSTECH June 2024 Rebal – No Changes But Big Capping Flows, As Expected; 8% US$1.6bn One-Way
- Last Week in Event SPACE: Japan Post, Great Eastern, Malaysia Airports, L’Occitane
- HK Connect SOUTHBOUND Flows (To 17 May 2024); Banks, Banks, Banks, Tencent, and Big SOEs
- Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- Hang Seng Index (HSI) Rebalance: BYD Electronics Added; Country Garden Services Deleted
- EQD | The Nikkei Can Go Higher From Here
- HSCEI Index Rebalance: Zijin Mining In; Xinyi Solar Out; SenseTime Survives (For Now)
- HSTECH Index Rebalance: Float & Capping Changes Result in 8% Turnover & US$2.5bn Round-Trip Trade
Yichang HEC (1558 HK): Absorption Via Speculative Scrip. Avoid
- A “Privatisation via a Merger by Absorption” is nothing new in Hong Kong. But the Offer consideration for Yichang HEC (1558 HK)‘s minorities is in unlisted scrip – that’s new.
- The Offeror holds 51.41% in Yichang HEC. Founder Guo Meilan and her son Zhang Yushuai control 62.12% of the Offeror. Yichang HEC shareholders are being offered 0.263614 “Offeror H shares”.
- These consideration shares are unlisted. An independent valuer backs out an implied scrip value of HK$18.12-HK$20.60/share. This is a super complicated, overwrought deal. With numerous unknowns. I’d vote this down.
FSS Head’s Aggressive Remarks for Value-Up at NY Event, Incl. Short Selling Resumption Late June
- Lee Bok-hyun hopes for short selling to resume by late June. Given his influence on the Value-up policy, it’s likely to happen.
- Lee expects key tax incentives for the value-up program to be included in the July tax reform bill, showing a market-friendly stance.
- Yesterday’s New York event had a very positive atmosphere with more attendees than expected, showing genuine investor interest, likely ensuring sustained interest in Korea’s Value-up program.
HSTECH June 2024 Rebal – No Changes But Big Capping Flows, As Expected; 8% US$1.6bn One-Way
- The Hang Seng Tech Index is more widely-followed than many think, and it is reasonably concentrated, so outperformance and underperformance by big names means capping and re-capping.
- This time, those flows are worth about 8% of the index in terms of one-way flows. Meituan, Xiaomi, JD.com, Tencent and Kuaishou Tech DOWN. Li Auto back up.
- Those who have pre-positioned on the big buy have recently gotten hurt. There are some FAF changes which are less predictable and may be interesting.
Last Week in Event SPACE: Japan Post, Great Eastern, Malaysia Airports, L’Occitane
- There is Japan Post Bank (7182 JP) buyback risk that might cause Japan Post Holdings (6178 JP)/JPB unwinds; though probably a H2 risk.
- Great Eastern Holdings (GE SP) has consistently traded through OCBC (OCBC SP)‘s Offer terms. Someone appears to be accumulating a stake to block an Exit/Delisting Offer, and force a bump.
- L’Occitane (973 HK)‘s scrip pre-condition has been satisfied. But still the Offeror prevaricates.
HK Connect SOUTHBOUND Flows (To 17 May 2024); Banks, Banks, Banks, Tencent, and Big SOEs
- SOUTHBOUND was again a net buyer for HK$18.6bn on strong two-way volumes. The top three net buys of the week were SOE banks. Some may be Central Huijin.
- Some of this may be driven by the dividend w/h tax cancellation on H divs and by significant H-share discounts, but high-div CNOOC was the biggest net sell.
- No end to the inflows, and HK valuations are not at a place where they would hamper continued flows. Alibaba making HK a Primary will spur more inflows over time.
Merger Arb Mondays (20 May) – L’Occitane, China TCM, SciClone, Malaysia Airports, I’rom, Hollysys
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Hollysys Automation Technologies (HOLI US), QV Equities Ltd (QVE AU), Ansarada Group Ltd (AND AU), Malaysia Airports Holdings (MAHB MK).
- Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Mma Offshore (MRM AU), Great Eastern Holdings (GE SP), Mimasu Semiconductor Industry (8155 JP), Boral Ltd (BLD AU).
Hang Seng Index (HSI) Rebalance: BYD Electronics Added; Country Garden Services Deleted
- BYD Electronics (285 HK) will be added to the Hang Seng Index (HSI INDEX) after market close on 7 June while Country Garden Services (6098 HK) will be deleted.
- Estimated one-way turnover is 1.9% and the estimated round-trip trade is HK$8.46bn (US$1.08bn) with over 1x ADV to trade in the add and delete.
- We remain at 82 index constituents and the road to 100 index members looks to be a long and winding one.
EQD | The Nikkei Can Go Higher From Here
- The Nikkei 225 INDEX has been rallying a bit last week and closed the week up. A rebound from the previous downtrend is underway.
- A temporary bottom may have been established in May, it is not clear if the index is about to go lower or higher, but our pattern model readings suggests higher.
- If the index continues to rally, the first major resistance area will be around 40k.
HSCEI Index Rebalance: Zijin Mining In; Xinyi Solar Out; SenseTime Survives (For Now)
- Zijin Mining Group Co Ltd H (2899 HK) will replace Xinyi Solar Holdings (968 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) after the close on 7 June.
- An increase in the FAF for SenseTime Group (20 HK) results in the stock avoiding deletion at the June rebalance.
- Estimated one-way turnover at the rebalance is 2.9% resulting in a round-trip trade of HK$3.8bn with over 1x ADV to trade on the add and delete.
HSTECH Index Rebalance: Float & Capping Changes Result in 8% Turnover & US$2.5bn Round-Trip Trade
- As expected, there are no constituent changes for the Hang Seng TECH Index (HSTECH INDEX) in June. However, there are float and capping changes.
- Estimated one-way turnover is 8% leading to a round-trip trade of HK$19.2bn (US$2.46bn). There is over 3x ADV to buy in Li Auto (2015 HK).
- Short interest is quite elevated on a lot of stocks both in terms of days of ADV and in terms of free float.
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