Weekly Top Ten Event-Driven and Index Rebalance – Mar 17, 2024

1. Keisei Electric (9009) Share Buyback – Interesting Dynamics & Opportunity

By Travis Lundy, Quiddity Advisors

• In late February, Keisei Electric Railway Co (9009 JP) announced a 5.0mm share (2.96%) ¥33bn buyback, to be executed in the following 3 months. That meant likely ToSTNeT-3.
• I thought that mildly bullish. Shares rose 0.05% the next day. Then we got an OLC offering announcement. I thought that bearish. The stock popped early but fell hard.
• Today the announcement. It IS a ToSTNeT-3. tomorrow. At ¥6,320/share. But it is an Accelerated Share Repurchase. Which changes things. Or it doesn’t. But it bears watching closely, maybe acting.

2. MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade

By Brian Freitas, Periscope Analytics

• Emerald Resources Nl (EMR AU) will be added to the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in March while there are 3 deletions for the index.
• The constituent changes along with float and capping changes result in an estimated one-way turnover of 6.4% and a one-way trade of US$263m.
• There are 9 stocks with more than US$10m to trade and 9 stocks with over 2x ADV to trade.

3. Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux

By Travis Lundy, Quiddity Advisors

• At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
• I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
• I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24. 

4. WisdomTree Indexes Special Rebalance: ESG Considerations Dropped

By Brian Freitas, Periscope Analytics

• WisdomTree has dropped ESG considerations while selecting stocks for the EMXSOE, CHXSOE and WTEMXC indices.
• That results in a lot of inclusions and fewer deletions across indices that will be implemented at the close on 15 March.
• The round-trip trade across the indices will exceed US$500m with Tencent (700 HK) as the largest buy.

5. Outsourcing (2427) – The OTHER Arb – That One Neat Trick And Its Weird Risks

By Travis Lundy, Quiddity Advisors

• Outsourcing Inc (2427 JP) has been an “interesting” risk arb situation. It was launched as a Cheeky, Opportunistic, Low-Priced MBO. Some bumps after launch turned out to be BAU.
• The stock has not traded above terms since early on in the trade. I expect people are happy to get out. But there is ANOTHER ARB to do here.
• The OTHER ARB is something quite particular to high float, low activism risk arb trades. In some ways better than the traditional arb, but it has some risks.

6. Li Ning (2331 HK): Value Trap Play?

By David Blennerhassett, Quiddity Advisors

• As the Hong Kong bourse languishes, recent Hong Kong privatisation include mainland Chinese firms such as Vinda International (3331 HK) and China Traditional Chinese Medicine (570 HK) . 
• Reportedly (Reuters) Li Ning (2331 HK) is now in the crosshairs.  Shares are up 7.8% as I type.
• Olympic champion Li Ning holds ~10.5% in his self-named company, which was recently in the news after acquiring a HK$2.2bn commercial building from Henderson Land (12 HK)  as its headquarters.

7. MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow

By Brian Freitas, Periscope Analytics

• There are no constituent changes for the MVIS Australia Equal Weight Index at the March rebalance. 
• Float and capping changes will result in a one-way turnover of 4.4% and in a round-trip trade of A$195m.
• We had Lendlease Group (LLC AU), IDP Education (IEL AU) and nib holdings (NHF AU) as close deletes and they will now have inflows due to capping.

8. Nippon Express (9147 JP) – Buying the Overhang

By Travis Lundy, Quiddity Advisors

• The Offering priced today at ¥7,338/share vs ¥8,039/share traded at the close on the day of the announcement. That’s an 8.7% discount for no dilution. 
• Compared to a broad basket of Peer Baskets (yes, a basket of baskets), the stock has underperformed by 4.2%, and the 3% discount today puts it at 7+% move.
• Given the relative cheapness, one should be comfortable putting this on if it gets sold off. This is not different to my initial opinion.

9. New Information on Korea Value-Up Index Scoring System & Constituent Weighting

By Sanghyun Park, Clepsydra Capital

• KRX considers a comprehensive change to the Value-up Index scoring system. Weightings emphasize ROE, PER, and FCF while reducing PBR weight.
• KRX considers adopting scoring-based constituent weighting to prevent JPX Prime 150’s issues, but NPS opposes. Float market cap weighting like JPX Prime 150 is contemplated to address concerns.
• Momentum trading in the Value-up initiative will favor low PER and high ROE stocks over low PBR. The semiconductor sector is anticipated to benefit significantly from float market cap-based weighting.

10. Roland DG (6789) – Brother (6448) Launches Hostile Overbid to Taiyo MBO – You Love To See It

By Travis Lundy, Quiddity Advisors

• A month ago, Engagement Investor Taiyo Pacific Partners launched an MBO on Roland DG Corp (6789 JP) after having done a takeover of their former sub years ago.
• I said it was too cheap. Machinery company Brother Industries (6448 JP) has decided the same, and has announced a hostile/unsolicited overbid 3.3% higher. Tender to start in May. Fun!!!
• This will almost certainly get bid even higher as people would expect the MBO bidders won’t simply give up. More below.