This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. China TCM (570.HK) Update – Behind The Share Price Plunge and Prospects for Privatization Progress
- The slow progress of privatization is related to recent high-level changes in CNPGC. Decisions on SOE deals with “strategic purpose” require careful considerations, not based on “one leader’s personal preferences”.
- Based on public information, we cannot find convincing reason to prove that CNPGC has changed its mind.There’re rumors that China TCM’s privatization is still considered important project on the agenda.
- China TCM’s has strong fundamentals to support valuation. If there is no announcement, the privatization process is expected to proceed as usual, and we continue to wait for the voting.
2. BIG ¥500bn Honda (7267) Offering Coming?
- Today just before the close, Reuters came out with an article saying Japan’s four major insurers and some financial institutions would offer ¥500bn of shares in a secondary offering.
- That implies about 275-280mm shares (insurers hold ~195mm). In May, Honda announced a ¥300bn buyback with earnings, with nothing done so far.
- The supply/demand dynamics here are key. There are a lot of moving parts over time. Honda is cheaper than it looks but there are moving parts there too.
3. HDFC Bank (HDFCB IN): Foreign Room Crosses 25%; Index Implications & Positioning for US$5bn+ Buying
- Foreign shareholding in HDFC Bank (HDFCB IN) has dropped to 54.83% and that results in foreign room crossing the ‘magical’ 25% mark.
- The increase in foreign room could lead to passive trackers of a global index needing to buy 256m shares (US$5.3bn; 11.5x ADV) at the end of August.
- There will definitely be positioning in the stock but there should still be upside in the stock. The HDFC Bank (ADR) (HDB US) line was up 4.5% overnight.
4. TIP Taiwan Technology Dividend Highlight Index Rebalance: 12 Changes & US$4bn Round-Trip Trade
- There are 12 changes for the TIP Taiwan Technology Dividend Highlight Index in June/July. The Fuh Hwa Taiwan Technology Dividend Highlight ETF (00929 TW) has an AUM of US$7.16bn.
- One-Way turnover is estimated at 35% and that will result in a round-trip trade of TWD 134.7bn (US$4.1bn). There are 8 stocks that could have over 5x ADV to trade.
- The ETF started rebalancing their portfolio on Friday and will continue to trade the stock over the next 7 trading days.
5. JAPAN ACTIVISM: Strategic Capital Target Daido (3205) Now A Murakami Target Too
- Small cap Japanese manufacturer and purveyor of apparel Daidoh Ltd (3205 JP) has consistently been a target for value investors. In late 2022, Strategic Capital went over 5%.
- They have bought more, and as of end-March, they declared 24.85% of TSO (28% of voting rights), but they have 33%. They made proposals for the AGM. They won one.
- Now Murakami-san has bought in, going over 5%. This gets interesting. Together they have 39.4% as of last week, and probably more now. That should get them 50+% next AGM/EGM.
6. HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September
- We see 37 potential adds (including plenty of new listings) and 25 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in September.
- We expect 32 stocks to be added to Southbound Stock Connect following the rebalance while 24 stocks could be deleted from the trading link and become Sell-only.
- There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.
7. ESR Group (1821 HK): Consortium’s Expansion Talks Suggest Progress
- Bloomberg reports that the bidding consortium is in talks to bring in other partners, such as QIA, PIF, and CPP Investment Board, to aid in privatising ESR Group (1821 HK).
- Warburg Pincus and OMERS have blocking stakes for a Cayman scheme. Warburg Pincus is seemingly supportive, and the consortium’s expansion talks suggest confidence in meeting OMERS’ price expectations.
- Our best guess is that an offer is around HK$14.00. ESR’s current valuation is undemanding, with its forward EV/EBITDA multiple at a 40% discount compared to the median peers’ multiple.
8. Shinko Electric (6967) – Break/Gap Risk Early July 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.
- Nearly 6mos 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 16+wks ago, recommended taking profits.
- Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Gross spread is now 4.6% but time is shorter so annualised is 10+% even out to December launch.
9. HSCEI Index Rebalance Preview: Two Changes Likely in September
- SenseTime Group (20 HK) and JD Logistics (2618 HK) are potential deletions while PICC Property & Casualty (2328 HK) and New Oriental Education & Techn (9901 HK) are potential adds.
- Estimated one-way turnover at the rebalance is 1.8% resulting in a one-way trade of HK$950m. Official capping will be based off the close of trading on 3 September.
- There will be 1-2x ADV to buy on the adds and over 2x ADV to sell in JD Logistics. The impact on SenseTime is lower given the recent surge in volume.
10. Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Jul24)
- This month (June) saw 1,673 Corporate Governance Reports filed and 5 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed.
- We created a tool show every report, provide links to every document, and now a new diff file tool. Put in a name, see the difference between the Old/New Reports.
- We hope this took will help. It is designed to be a shelf reference. We update the tool once a month, a couple of weeks ahead of the TSE.
