In today’s briefing:
- ZEEKR (ZK US) IPO: Valuation Insights
- Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update
- CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- L’Occitane (973 HK): The Rollover Option, And Alternate Listing Valuations
- China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- Sigma Healthcare (SIG AU): ASX200 Inclusion Now, MUCH More Squeezy Fun Later. Maybe…
- HSCEI Dividend Futures: Sell the 2024/25 Steepener
- Tencent (700 HK): 1Q24 Preview, EPS Up by 40%, But Upside Narrowed by Significant Price Rise
- SSE50 Index Rebalance Preview: Financials Continue to Outperform
- L’Occitane (973.HK) Privatization – The Offer Price Is Good Enough
ZEEKR (ZK US) IPO: Valuation Insights
- ZEEKR (ZK US), a premium Chinese BEV manufacturer and a subsidiary of Geely Auto (175 HK), has launched an IPO to raise up to US$368 million.
- We previously discussed the IPO in ZEEKR IPO: The Bull Case, ZEEKR IPO: The Bear Case and ZEEKR IPO: Latest Updates as the IPO Process Restarts.
- The IPO price range values ZEEKR at a material discount to peers’ multiples. We would be inclined to participate in the IPO.
Shinko Electric (6967) – Break/Gap Risk Early May 2024 Update
- When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
- 15wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 8wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 3.6% wider than at narrowest, but gap risk has widened as Shinko outperforms, Ibiden.
CSI300 Index Rebalance Preview: Bounce in the Potential Deletes Could Be Short Lived
- The review period for the June rebalance is complete and we expect 11 changes to the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).
- We estimate one-way turnover of 1.4% at the rebalance leading to a one-way trade of CNY 8.82bn (US$1.22bn). There are a lot of stocks with multiple days ADV to trade.
- The potential deletes have bounced off their lows as the market has recovered. But the potential passive selling could see them underperform over the next month.
L’Occitane (973 HK): The Rollover Option, And Alternate Listing Valuations
- Concurrent with its HK$34/share VGO, L’Occitane (973 HK)‘s disinterested shareholders may be entitled to a share scrip alternative. IF afforded, up to 5% of shares out can participate.
- The big unknown is whether you receive shares of the levered-up Bidco, at some as yet undetermined scrip ratio; or keep shares of L’Occitane as-is.
- To trigger the rollover option, 10% of disinterested shareholders need to express interest by the 15th May (a Hong Kong holiday btw). A deadline without details.
China TCM (570.HK) Update – Despite Doubts, This Privatization Seems “Mandatory”
- Some investors have concerns that the privatization may fail. We also noticed that Morgan Stanley raised China TCM’s target price to HK$5.4. However, the privatization of China TCM seems “mandatory”.
- At this stage, some background information is worth the attention, which will help investors better understand the logic behind this privatization and thus resolve the “confusion”.
- According to regulatory requirements, it’s expected that both CNPGC and Taiji will integrate resources in pharmaceutical manufacturing and distribution sectors, so as to solve horizontal competition issue between the two.
Sigma Healthcare (SIG AU): ASX200 Inclusion Now, MUCH More Squeezy Fun Later. Maybe…
- In early December, pharmacy distributor Sigma Healthcare (SIG AU) arranged a “transformational merger” with mega chain Chemist Warehouse (CWG). Effectively a reverse takeover designed to get CWG listed.
- SIG issued shares, raising cash, enabling it so NEWCO had high enough minimum float upon merging. Financial engineering for the win. SIG popped – a kind of IPO premium trade.
- But plenty of people are against the deal, and ACCC hasn’t yet opined (13 June is the provisional date), but on Thursday, S&P announced SIG would join ASX200 despite risks.
HSCEI Dividend Futures: Sell the 2024/25 Steepener
- The HSCEI 2024 dividend futures have moved higher following mainland China banks announcing that they will pay out interim dividends starting this year.
- The HSCEI 2025 dividend futures have moved higher too, though they have lagged the HSCEI 2024 dividend futures.
- Even though the HSCEI 2024/25 dividend steepener has dropped by around 10 points in the last few weeks, we see further downside in the near-term.
Tencent (700 HK): 1Q24 Preview, EPS Up by 40%, But Upside Narrowed by Significant Price Rise
- We believe total revenue will grow by 7% YoY in 1Q24 and faster in the remaining three quarters of 2024.
- We believe EPS will grow by 41% to HK$3.80, which is higher than the market consensus.
- The stock has risen by 26% since our last Buy rating, but there is still an upside of 9% till the end of 2024.
SSE50 Index Rebalance Preview: Financials Continue to Outperform
- With the review period nearing completion, 6 stocks are in inclusion zone and 9 are in deletion zone. However, there can be a maximum of 5 changes at a review.
- We estimate a one-way turnover of 7.1% at the June rebalance leading to a one-way trade of CNY 9.9bn (US$1.37bn). Index arb balances should increase the impact on the stocks.
- The potential inclusions (of which four are Financials) have continued to outperform the mixed bag of potential deletions. With pretty big impact on the deletes, expect further divergence.
L’Occitane (973.HK) Privatization – The Offer Price Is Good Enough
- The HK$34/share offer price is final, which exceeds all-time high closing price of HK$33.60/share since IPO in 2010. EUR6 billion is equivalent to a PE of 52.17x, higher than peers.
- Deploying China’s sinking market is “a good story full of imagination”. However, it may fail to bring expected profits considering increasing competition/potential price war, leading to uncertain future performance growth.
- For minority shareholders, this privatization provides an attractive opportunity to monetise their investments at a premium over market price. We don’t think the current “technical bull market” to be lasting.
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