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Last Week in Event SPACE: Haier, Tokyo Dome, Cowell, Infratil, Link Admin, Sapporo/Asahi, Mcdonald's

347 Views13 Dec 2020 07:54
SUMMARY

Last Week in Event SPACE ...

  • Plus, other events, CCASS movements, and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)

M&A - ASIA-PAC

Cowell E Holdings (1415 HK) (Mkt Cap: $0.6bn; Liquidity: $5mn)

Camera modules for mobile devices player Cowell has announced Kwak Joung Hwan, founder and current Executive Chairman of the company, has entered into a SPA with Luxvision Innovation to sell his 44.87% stake. Should the SPA complete - and the SPA has limited conditions - a mandatory general offer (MGO) would be triggered at the same price under the SPA, or HK$5.87/share, a 2.98% premium to last close, but a 52.2% premium to the average close over the past three months. The key condition to the MGO is Luxvision holding 50% of the voting rights of Cowell at the close of the Offer. No irrevocables have been given. It is not Luxvision's intention to delist the company.

  • Luxvision Innovation is owned as to 90% by Mr. Wang Laixi and as to 10% by Lite On Technology (2301 TT). Wang Laixi is the chairman of Luxvision, a company that generated revenue of RMB12bn in FY19. Revenue for the 9M20 was RMB8.43bn.
  • Re: the SPA conditions, the announcement mentions no decision, order or judgment having been issued or made by any Authority in Hong Kong or the PRC at any time. No specific authority is mentioned. The long-stop date for the SPA is 4 Feb - if SAMR was involved, the long-stop date would be at least 3 months based on recent takeover transactions. In any event, either party to the SPA can waive this specific SPA condition.
  • This SPA could be wrapped up in matter of days, not weeks. But even assuming 1 month to complete, and allowing another 21 days to despatch the Composite Document, and a further two weeks for shareholders to tender and the Offer to turn unconditional, payment is feasible late Feb. Buy close to terms. This deal could potentially turn unconditional before the SPA long-stop, but you theoretically have upside optionality too.

Tokyo Dome Corp (9681 JP) (Mkt Cap: $1.2bn; Liquidity: $11mn)

In a move where the headline surprised Travis Lundy somewhat, Mitsui Fudosan (8801 JP) announced that it had met with Oasis Management - the largest shareholder in Tokyo Dome upon which it is conducting a Tender Offer - and Yomiuri Shinbun Holdings (Mitsui Fudosan's future ownership partner) on the 7th of December and had asked for the support of Oasis in making the Tender Offer successful.

  • Oasis indicates they will tender. The agreement appears to have involved Mitsui Fudosan and Yomiuri Shinbun in the meeting. It is not clear Tokyo Dome was present or represented. If Oasis has agreed to tender, they have their reasons, one watches for details, and it does not preclude someone else from having a shot at it.
  • If one is long, and the shares drop to the ¥1300/share area tomorrow, one option would be to sell them. Travis would not do that. He would want to continue to own the shares at ¥1300/share. He would want to buy more at or just below ¥1300/share (or even possibly a yen or three above).
    • Whatever announcement may show up will certainly show facts, but may not show all the facts. Be wary of jumping to conclusions.
    • A priori, this is a disappointment to some shareholders and speculators, but assuming that the shares move to match the Tender Offer Price first thing. Travis remains bullish.

(link to Travis' insight: Oasis Agrees To Tender Tokyo Dome (9681) - This Changes Things)

Link Administration Holdings (LNK AU) (Mkt Cap: $2.2bn; Liquidity: $10mn)

On the 26 October PEP/Carlyle tabled a A$5.40/share non-binding indicative Offer, in cash, an increase over its initial Offer of $5.20/share, which was then a 30% premium to last close. PEP/Carlyle said it required six weeks of due diligence, and if DD access was not provided by the 28 October, they would walk. Link responded that the proposal was not compelling - but gave the consortium DD access nonetheless. Software provider Ss&C Technologies (SSNC US) has now pitched a non-binding indicative proposal, by way of Scheme, at A$5.65/share, 4.6% above PEP/Carlyle's proposal. Conditions to this proposal largely mirror that of PEP/Carlyle's: confirmatory DD, obtaining debt financing, FIRB (and ACCC). And no further dividends.

  • SS&C made an indicative Offer for GBST Holdings (GBT AU) last July, but eventually lost out to FNZ Group. This ~US$200mn competitive bidding situation, which involved the Takeovers Panel, was discussed in SSNC Swoops On GBST As Bravura Ponders Next Move and FNZ Deal for GBST Finally In, and the Market Expects More Already.
  • PEP/Carlyle proposal provided a cash offer of $3.80/share for Link ex-PEXA, indicating A$1.60/share for PEXA or A$850mn all-in for the digital property settlement platform. That value looks light with prior reports of a price tag at listing of at least A$2bn, or ~1.3x P/B.
  • Less than six weeks ago, Link's board said a $5.40/share Offer did not represent compelling value for Link. It is difficult to believe an offer 4.6% higher will change that view. This remains a non-binding situation, albeit a competitive one. I'd play the spread, and pay at SS&C's terms.

Adani Power Ltd (ADANI IN) (Mkt Cap: $2.4bn; Liquidity: $6mn)

The company won a short-term contract to supply 6,100MW of electricity to the Punjab Govt. Adani Power jumped 55.8% this past week. That means it has caught up quarter-to-date (+61.5%) with the rest of the Adani family companies, which are up 61.8% (as a daily-rebalanced equal-weighted basket since 30 Sep). It is not entirely clear WHY it did. But it did so in magnificent volume, which saw LOTS of day-trading as the deliverable quantity was relatively low. Forecasts are up. The Delisting Offer is set to start soon (by end-Dec).

  • There is a group of shareholders (nine funds and one company) who would appear to have extraordinarily strong ties to the Adani group. They have all been in the shareholder structure for many years and all but one would appear to have 80-99% of their fund assets in Adani group listed companies (Opal appears to be a shell company with one listed holding). It would strain credulity to think that they are not connected to the Adanis in some way.
  • The shareholder structure is such that I expect the Adani family may be able to determine the Reverse Book Build Discovered Price at will. Now that the shares have jumped 65-70% from their Rs 35-36 trough seen multiple times since the announcement, and are near unchanged on the year, I expect the reward/risk ratio for continuing to hold the shares is now much more limited than before.
  • The trade until now was to be long until it went up. The trade now is likely to be to range-trade the shares. One could sell what one has now or sell into strength. One could buy shares on any significant drop. Travis would buy dips below Rs 50.

(link to Travis' insight: ADANI POWER On the Move - Fundamentals Better and Delisting Offer Imminent But... There Are RISKS.... )

Infratil Ltd (IFT NZ) (Mkt Cap: $3.7bn; Liquidity: $3mn)

A day after announcing a strategic review of its 65.5% shareholding in Tilt Renewables (TLT NZ), renewable energy specialist Infratil has received a non-binding Offer, by way of Scheme, from AustralianSuper, Australia's largest superannuation fund. The NZ$7.43/share Offer is a 22.2% premium to Infratil's last close, and a lifetime high. The proposal includes a cash consideration of NZ$5.79/share and the distribution of 0.22 shares of Trustpower Ltd (TPW NZ), in which Infratil is a 50.76% shareholder, for each Infratil share.

  • AustralianSuper has a A$200bn global portfolio - with NZ$1.3bn already invested in New Zealand. AustralianSuper's proposal follows Aware Super's recent (failed) Offer for OptiComm Ltd (OPC AU), which was discussed in OptiComm: Uniti Sees Aware And Raises. But this does serve to highlight cashed-up pension funds are seeking stable long-term returns.
  • The Offer values Infratil at NZ$5.4bn. In its June presentation booklet accompanying a NZ$300mn capital raising, Infratil assessed a fair value for its investments at between NZ$5.67bn-NZ$6.3bn. That placement was done at NZ$4.76/share, an 8% discount to last close. Reuters reported Fisher Funds, holding 4.5%, does not believe the Offer fully prices in the long-term growth prospect of Infratil. Fisher went above 5% on the 8 April - prior to the June capital raising, which reduced its %. Shares were trading at $4.30 at the time.
  • Infratil's board unanimously rejected the Offer as it materially undervalued IFT’s high quality and "unique portfolio of assets on a control basis".

(link to my insight: Infratil (IFT NZ): Big Super's Infrastructure Grab)

Enplas Corp (6961 JP) (Mkt Cap: $0.4bn; Liquidity: $3mn)

Enplas makes plastics. They also have a variety of technological solutions which improve semiconductor performance. On 9 December, the company announced the completion of the buyback announced on 30 November. They spent all the money buying 444,100 shares (3.86% of shares out ex-Treasury shares) in 6 days. From 1 December through 8 December, the company buyback was 28% of traded volume. On 10 December, the company announced a further large buyback, announcing a repurchase of up to 1,500,000 shares for up to ¥5.25bn to be purchased between 11 December and 31 March 2021. That would be 13.59% of shares out (ex-Treasury shares). But it is more like one-third of float.

  • The company has, since Oct 1, been VERY aggressive in the market. The last two buybacks have been done at 23-28% of ADV, but they have been 100% of ADV prior to the announcement. The buying has been super aggressive. The 1.5mm shares to buy is about 33% of Real World Float. To buy in the next 3.75 months. They could do a ToSTNeT-3 buyback. And financial crossholders hold 14% so they could fill that buyback if the banks wanted to sell.
  • It looks as if the CEO is happy to buy back shares with the company's huge net cash position. That net cash position was, as of yesterday, not too far below market cap. Longer-term, this may translate into an MBO effort. If the company buys back a lot of stock at a very low EV/EBITDA multiple and Mr Yokota does not sell any shares, the family+crossholder ownership level would approach 45% after this buyback, and could easily be 50% after one more.
  • The company will be buying back stock in the market and there is no reason to think they will not be aggressive like before. There is probably money to be made by buying early in the process and selling later in the process. Keep an idea on the "shadow EV/EBITDA" of the post-buyback pro-forma valuation (see the table at the bottom). One can buy the stock on dips, and I expect the stock to remain strong-ish, but one should be careful of chasing too far.

(link to Travis' insight: Enplas (6961) ENORMOUS Buyback With Longer-Term Implications)

Asaleo Care Ltd (AHY AU) (Mkt Cap: $0.5bn; Liquidity: $9mn)

Swedish outfit Essity AB (ESSITYB SS) has made a conditional, non-binding A$1.26/share offer for the remaining 63.8% of Asaleo it does not already own, either by way of a Scheme or an off-market takeover. Hygiene, personal care, and consumer tissue products producer Asaleo said the Offer price, a 24.7% premium to last close, reflected a low takeover premium to recent market prices and was highly opportunistic in timing. However, Asaleo added it was still in the early stages of assessing the proposal.

  • Asaleo has commercial arrangements with Essity for the supply and purchase of personal care and professional hygiene products, and licensing of certain trademarks, technology, and intellectual property through to 2027. These include the Tork and TENA brands, which comprise the majority of Asaleo's B2B segment, which in turn made up ~53% of revenue in FY19.
  • Essity is a US$22.6bn market company. Ordinarily it holds 100% of its license holders; or via 50/50 JVs. The stake in Asaleo is an outlier, one which it appears Essity is seeking to rectify. Reportedly Essity was requesting just 7 days of due diligence to firm up an Offer. Essity, previously known as SCA, has patiently held its ~36% since Asaleo's listing in 2014 at A$1.65/share.
  • Currently trading ~2.3% through terms. Essity can easily pony up another A$0.15-A$0.20/share, or ~10% upside from here. Buy on dips - I would expect Essity to return with a higher Offer. However, this is not a particularly liquid arb situation.

I.T Ltd (999 HK) (Mkt Cap: $0.4bn; Liquidity: <$1mn)

Fashion wear and accessory player I.T. has received a pre-conditional Offer, by way of a Scheme, at HK$3.00/share, a 54.6% premium to last close. The Offer price is final. The Offeror is Brooklyn Investment Limited, which is 50.65% owned by the Founder Holdco (incl. the founder and senior management) and 49.35% by CVC Holdco. Founder also controls 63.61% of shares out. CVC Holdco is wholly-owned by CVC Funds. The pre-condition refers to approval from SAMR.

  • Conditions to the Scheme are standard. Disinterested shareholders total 36.39% of shares out therefore the blocking stake is equivalent to 3.639% or 43.52mn shares. The headcount test applies as IT is Bermuda incorporated. IT gained ~80% in November, on above-average volume. This includes the 19% gain shortly ahead of the suspension of shares on the 30 November. Funny that.
  • The announcement makes a refreshingly detailed commentary (page 13-14) on SAMR. Three months for the approval process appears excessive for what is effectively the controlling shareholders and founder taking the company private.

  • Currently trading at a gross spread of 8.3%. You'd expect this to trade wide given the massive downside if the deal breaks. I think there's enough in the Offer for it get up. This is a relatively long-dated Scheme, so there is no urgency to jump in. Look to pick up shares here or a spread or two below. However, this is not a very liquid arb situation.

(link to my insight: I.T. (999 HK): Management/CVC-Led Offer)

FGV Holdings Bhd (FGV MK) (Mkt Cap: $1.1bn; Liquidity: $4mn)

On the 1 November 2011, FGV signed a Land Lease (LLA) Agreement with Federal Land Development Authority (FELDA), whereby 351,000 ha of FELDA’s land was leased to FGV for 99 years. However, FELDA announced on the 30 October the termination of the LLA. Two days prior, Datuk Sri Mustapa Mohamed - Minister in the Prime Minister Department for Economic Affairs - announced that the Cabinet had agreed to the recommendation tabled by a task-force on the 14 October to the termination of FELDA’s LLA with FGV. FGV reckons it has received no written notice from FELDA,. FELDA has now announced a possible mandatory takeover of FGV at RM1.30/share.

  • FELDA, which currently owns a 21.24% stake in FGV, entered into conditional sale and purchase agreements (SPAs) to buy the 6.1% and 7.78% stakes held by Kumpulan Wang Persaraan (Diperbadankan) and Urusharta Jamaah Sdn Bhd for RM658mn. Upon completion, FELDA would hold 35.12%, which is above the 33% mandatory takeover offer threshold. FELDA added that in conjunction with parties acting in converts (PACs), it would hold more than 50%. The names of these PACs were not made public. The conditions to the agreements are primarily one of funding and are expected to be completed within 3 months.
  • No compensation figures have officially been released. Some reports indicate FGV should be compensated for 10 years in future profits if the LLA is terminated less than eight years from the last replanting; and five years of future profits if the agreement is terminated more than eight years from the land’s last replanting. Street estimates place the compensation in the range of RM3bn to RM4bn. It is not known whether FELDA intends to delist FGV.

  • It's all one big mess really. The government has agreed that the financial position of FELDA is untenable and that the terms of the LLA are unsatisfactory. I don't see how the LLA termination can in any way result in a positive outcome for FGV. Currently trading at a wide 9.2% gross return. That looks attractive, but there are numerous moving parts at work here.

(link to my insight: FGV Holdings: Reading the Palm Fronds)

In Vedanta Vaulting Near 2020 Highs On Higher Commods, Higher Forecasts, But Open Offer Remote?, Travis reckons Vedanta Ltd (VEDL IN) is still dirt cheap on an ex-HZL basis, would be a buyer on any big dip as long as commodity fundamentals stay stable. VEDL still owes investors nearly INR 15/share by year-end even if VEDL ex-HZ makes no money in H2 (despite record EBITDA margins, significant highs in some commodity prices, and expanded production).

In Korea M&A Spotlight: HHI Group Selected As Preferred Bidder for Doosan Infracore, Douglas Kim discusses that Hyundai Heavy Industries Group has been selected as the preferred bidder to acquire the 35.4% controlling stake of Doosan Infracore (042670 KS), held by Doosan Heavy Industries & Construction (034020 KS). Doosan Infracore currently has a market cap of ₩1.9tn. Hence, a 35.4% stake in the company would be worth ₩663bn.

STUBS

Haier Smart Home (600690 CH) ("HSH") / Haier Electronics Group Co (1169 HK)("HEG")

On the 9 December, 99.9% of shareholders present and via proxy voted for the privatisation of HEG. Shares will be suspended at the close of trading on the 11 December, with HSH's H-shares to commence trading on the 23 December.

  • The three-year average implied discount - using the 1.6x exchange ratio and $1.95 cash payment - was 34% prior to the 16 December 19 announcement. It was 41% on the 16 December. The average from then until the 31 December was 31%, and was 22% on the 31 July. The average has been 35% since July until now, and is currently at ~27%, around its tightest level in the last five months.
  • Listed-peer Hisense Home Appliances Group Co., Ltd. H (921 HK) is trading at a 35% discount to Hisense Kelon Electrical-A (000921 CH) versus a one-year average of 32%. A basket of H shares currently has an average discount of 44% to their A-share counterparts (shown below). It was 41% when this deal was announced back in July, and 35% back in December when the transaction was first floated.
  • What continues to matter is the A-share price now, expectations for where it will move, and the H-share discount to the A. A basket of liquid A/Hs trade at 44%+discount and one of HEG's closest peers is at 35%+. I think ~38-40% discount range is more appropriate. That gives a range of $32-$33/share or 15%-17% downside from here. Short interest has recently spiked. I also recommend shorting here - therefore you are short the HSH H-shares when they begin to trade.

(link to my insight: StubWorld: Last Roll Of The Dice For Haier)

Sino Ocean Land (3377 HK) / Sino-Ocean Service (6677 HK) ("SOS")

SOS joins the ever-expanding ranks of property management service companies seeking a listing. The Offer Price is expected to be announced on the 16 December, with the commencement of trading in the shares on the 17 December. Sino Ocean will own 67.57% in SOS after the IPO, down from 90.1% currently, before over-allotment. SOS intends to raise HK$1.8bn (US$0.23bn) if using HK$6.10/share, the mid-point of the indicative Offer Price range.

  • SOS is priced right down the middle of the fairway. That's an improvement over recent property service listings. But with below-average gross margins and revenue growth, it challenging to get excited about what is considered "fair". GFA expansion has also been modest.
  • SOS leads peers in the contribution from community VAS. This is low cost, high value add. Expect peers to aggressively catch-up in this space, pressuring SOS' margins. I'm not a buyer of SOS. It is priced with some semblance of reality compared to recent property management IPOs, yet ~26x FY20E is a punchy valuation for a company with as yet unproven growth prospects, and sustained margin expansion.
  • At 0.2x P/B, Sino Ocean is "cheap". But it has been so perennially. The key overhang is Sino Ocean's mountain of debt - 416% net debt/equity according to CapIQ - the second highest of all peers (with an average of 180%), just below Kaisa Group Holdings (1638 HK)'s. I don't see the SOS spin-off helping to narrow the trading gap to its competitors. It may well do the opposite.

links to my insight:
Sino Ocean Services (6677 HK): Bang In Line. Read more: https://skr.ma/jjPDZ
Sino Ocean (3377 HK): (Still) Trading Cheap Ahead Of Property Management Co Spin-Off

Jiayuan International (2768 HK)/ Jiayuan Services (1153 HK) (JSH)

Property management service company JSH Offer Price of $3.86 was towards the upper end of the indicative Offer Price range of HK$3.15-HK$4.05/share. Jiayuan will own 75% in JSH after the IPO, down from 100% currently, before over-allotment. JSH will raise HK$0.579bn (US$0.074bn), before over-allotment.

  • JSH is priced at a 29% premium to a basket listed peers on a FY20 (E) PER metric. This premium becomes more apparent (113%) when compared to similarly-sized property management peers (less than HK$5bn market cap). JSH's margins are solid, but not an outlier. GFA (under management) expansion has been lower than recently listed peers.
  • There is no shortage of choices in this space. I see no compelling reason why a management service company of this size, should be priced at a premium to larger, more liquid, and in many cases, superior management service companies.
  • At 1.13x P/B, parent Jiayuan appears fully priced. If the recent outperformance is on account of the listing of JSH today, even more reason to sell here. But for a US$1.6bn company, this is not a particularly liquid situation. Sell or take profits here unless you have a real fundamental reason to know differently.

links to my insight:
Jiayuan Services (1153 HK): Small Player At A Big Price
Jiayuan Int'l (2768 HK): Fully Priced Ahead Of Jiayuan Services Spin-Off

EVENTS

Fujitec Co Ltd (6406 JP) (Mkt Cap: $1.7bn; Liquidity: $4mn)

The previous Friday, mid-cap specialist elevator maker (in the top ten globally)Fujitec announced a Future Strategy Direction Plan which focused on "priority business areas in the medium-and-long-term, the Company's medium- and long-term strategic targets, and measures aimed at strengthening its governance structure.

  • Fujitec is now 8.8x trailing EV/EBITDA whereas Kone OYJ (KNEBV FH) is at 22x, Schindler Holding AG (SCHN SW) is at ~16x, Otis Worldwide is about 15.3x, and Hyundai Elevator Co (017800 KS) is at 9.0x (it is notable that the GPM and OPM which most resembles Fujitec's is at Hyundai). The big issue facing many developed markets in the next few years will be the growth of elevator demand slowing because of covid-19. In emerging markets where elevator growth was expected to be high, Travis expects it will continue to be high-ish.
  • Fujitec launched a poison pill proposal in May 2007 to make it difficult to take over the company (the company could issue warrants to all shareholders bur the high-stake shareholder who had triggered the poison pill, diluting the would-be-acquirer. In June of 2007, Fujitec shareholders approved the poison pill - the poison pill lasts until 2022.

  • As it is, Travis thinks the stock is good to buy on dips. If the company starts buying back cross-holder stakes near-term because the poison pill disappears in 18mos from now, that would mean the target timing is late 2022 for Something Big, and the company will likely try to manage it. If the stock dips between now and then, one might expect an opportunistic MBO for the company by the family and a sponsor (debt is very good to have when it comes time for estate planning).

(link to Travis' insight: Activist Pressure FINALLY Works on Fujitec (6406)- Going Up? (Albeit Slowly))

In Roland Returns at Cheaper Multiples: Not Going to Sing Well With Yamaha, Oshadhi Kumarasiri discusses Roland Corp (7944 JP)'s return to the first section of Tokyo Stock Exchange on 16th December 2020. Roland is priced relatively cheaper than Yamaha Corp (7951 JP)’s inflated valuation multiples.

It is not often that a Korean company goes activist on another publicly listed company so it pays attention to this new development where HYK Partners (with major investment backing from Kyungbang Ltd (000050 KS)) has publicly declared that it is going activist on Hanjin Transportation Co (002320 KS). There may be an increasing possibility that HYK Partners could partner with KCGI in trying to improve corporate governance of Hanjin Transportation. Meanwhile, Hanjin Transportation is trading at only 0.7x P/B. In HYK Partners (Kyungbang) Goes Activist on Hanjin Transportation, Douglas thinks that there are numerous positive catalysts with Hanjin Transportation and it is a stock that we believe could outperform the market over the next 6-12 months.

TOPIX INCLUSIONS!

Base Co Ltd (4481 JP) (Mkt Cap: $0.6bn; Liquidity: $6mn)
Base announced (J-only) they had received approval to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 16th December 2020 - the first trading day after the end of the above-mentioned 1-year post-IPO waiting period. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021. Janaghan Jeyakumar is bullish from now to the Inclusion Date.
  • The Index Inclusion Parameters are attractive. Janaghan estimates the Inclusion Quantity to be approximately 469,000 - 562,000 shares. This would translate to an Inclusion Size of ¥2.8-3.4bn and an Impact of 5-6 days of volume based on 3-month ADV. However, there were clear signals for this TSE1 move
  • Despite some concerns of relative overvaluations, the fundamentals are good. This is a high-growth business with a revenue CAGR of more than 25% for the last 3 years. The increasing trend of digitization coupled with a shortage of software engineers in Japan are expected to drive future growth for Base. The current share price translates to a PER (LTM) of 33.4x. Although this is more than double the median for peers (15x), it is worth noting that this differential was much larger a couple of months ago. The recent share price decline has brought this premium back to its all-time trading average.
(link to Janaghan's insight: TOPIX Inclusion (4481 JP): Base Co Ltd)
Mcdonald'S Holdings Co Japan (2702 JP) (Mkt Cap: $6.7bn; Liquidity: $20mn)

The disposition of McDonald's Corp (MCD US)'s ownership in McD J has been a widely discussed topic in the past several years. However, in July 2020, Mcdonald's confirmed in its 2020 FQ2 earnings call that they were planning to sell part of their stake. The disposition of Mcdonald's stake could pave way to a Giant TOPIX Inclusion Event with attractive scale and return characteristics.
  • If they get promoted to TSE1, Janaghan expects the Inclusion Size to be ¥61-73bn and the impact of this Inclusion to be around 30-36 days of volume based on 3-month ADV.
  • McD J is at its cheapest vs its parent Mcdonald's in almost 3 years but the outlook seems good. The recent selling pressure induced by the parent Mcdonald's has caused the share price to decline in recent months. Consequently, McD J's premium to its parent's PER (NTM) has contracted to its lowest in almost 3 years.
  • McD J has long been a somewhat-watched TSE1 candidate and this disposition of the parent's holdings could finally become the catalyst to this long-awaited event. On the other hand, the fundamentals are also reasonably strong that even if TSE1-promotion does not take place in 2021, I would be Bullish and view the remaining stake sale from the parent as a buying opportunity. has long been a somewhat-watched TSE1 candidate and this disposition of the parent's holdings could finally become the catalyst to this long-awaited event. On the other hand, the fundamentals are also reasonably strong that even if TSE1-promotion does not take place in 2021, I would be Bullish and view the remaining stake sale from the parent as a buying opportunity.

PAIR TRADES

Share prices of Japan’s two biggest beer makers, Kirin Holdings (2503 JP) and Asahi Group Holdings (2502 JP) have gained by 22.8% and 25.8% respectively since Pfizer and BioNTech’s announcement regarding the success rate of over 90% for its OCVID-19 vaccine. Sapporo Holdings (2501 JP), whose EV is just 14% of Kirin’s and 10% of Asahi’s, increased 13.9% during the post-announcement period. The Asahi/Sapporo EV ratio is at 10.34, which is 1.3% higher than plus two times the standard deviation of the 90-day average ratio. Oshadhi's target Asahi/Sapporo price ratio is 1.97 (90-day average), and a Long Sapporo and Short Asahi trade could yield around 10.2% in market-neutral returns through mean reversion. Link to Oshadhi's insight: Japanese Beer Pair Trade: Long Sapporo/Short Asahi.

M&A - UK/EUROPE

Elementis PLC (ELM LN) (Mkt Cap: $0.9bn; Liquidity: $3mn)
Elementis has rejected three approaches from Minerals Technologies (MTX US), at 107p, 117p and 130p (10.3x EV/Fwd EBITDA and 20.3x P/Fwd EPS, Capital IQ consensus).
  • All were unanimously rejected by the Board of Elementis, which said that even the last proposal was highly opportunistic, coming at a low point of earnings and value, and significantly undervalues Elementis and its future prospects (it has a point). It is signaling that a bid could be considered at c. 200p.
  • On 8 December, shareholder J.O. Hambro (4.25% stake) told Elementis to engage with Minerals Technologies to seek an improved bid. Jesus Rodriguez Aguilar reckons this could be worth 169p.

(link to Jesus' insight: Lowball Offers by Minerals Technologies)

In Allied Universal's Agreed Offer, Jesus discusses G4S PLC (GFS LN) accepted and recommended the 245p Offer from Allied Universal. Jesus reckons Canada's GardaWorld could still come over the top.

INDEX REBALS

In FTSE Announces Measures for Trump Exec Order on Chinese Military Companies, Travis' follow up to Trump's Executive Order on Chinese Military Companies, in which he discusses index provider FTSE announcing its treatment, which will mean additional flows in the December FTSE GEIS and China rebalance which is effective the morning of Monday 21 December, meaning the rebalance is executed at the close of 18 December 2020. This leaves MSCI, which has yet to announce, along with lesser global index providers, and then also the local/regional index providers. This ban is, at a time, both limited in scope, and problematic in the details.

JD Health (6618 HK). Hang Seng Indexes (HSIL) added JD Health to the Hang Seng China Enterprises Index (HSCEI INDEX), the Hang Seng TECH Index (HSTECH) and the Hang Seng Composite Index (HSCI) with the inclusion becoming effective after the close of trading on 21 December. The inclusion in the HSCI will make JD Health eligible for Southbound Stock Connect from the open of trading on 22 December. The passive flow and Southbound flow should keep the stock supported in the near term. The Fast Entry of JD Health in the HSCEI and the potential deletion of Petrochina Co Ltd H (857 HK) at the March review will put downward pressure on the HSCEI dividend futures. Link to Brian's insight: JD Health - Fast Entry in HSCEI Puts PetroChina at Risk; Impacts Dividends.

STAR50 Index Rebalance Preview. With a maximum of 5 changes permitted in a single review, that is what we will get in March. Potential inclusions are Cambricon Technologies Corp (688256 CH), Qi An Xin Technology Group (688561 CH), Shanghai Junshi Bioscience (688180 CH), Trina Solar Co Ltd (688599 CH) and Farasis Energy Gan Zhou (688567 CH). The potential deletions are Longyan Zhuoyue New Energy Co (688196 CH), Suzhou Tztek Technology Co-A (688003 CH), Beijing Seeyon Internet So-A (688369 CH), Tianjin Jiuri New Material-A (688199 CH), and Fujian Forecam Optics Co Ltd (688010 CH). Link to Brian's insight: STAR50 Index Rebalance Preview - March21: Rising AUM and a New Index Make an Exciting Combination.

ASX200 Index Rebalance. There are 2 inclusion and 3 exclusions in the review. It seems like the index committee has not followed the index methodology that specifies that stocks with a rank of 179 or better will be added to the index, and stocks with a rank of 221 or lower will be deleted from the index. The inclusions are Kogan.com (KGN AU) and Reece Ltd (REH AU) while the exclusions are Avita Medical (AVH AU), Cooper Energy (COE AU) and Western Areas (WSA AU). Link to Brian's insight: ASX200 Index Rebalance: Strange As.

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.

Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.

Name

% chg

Into

Out of

Super Strong (8262 HK)18.75%KGIOutside CCASS
Vinco Financial (8340 HK) 51.00%Grand CapOutside CCASS
Putian (1720 HK)18.18%SPDBShanghai Pudong
Guru (8121 HK)14.40%CelestialOutside CCASS
Sansheng (2183 HK)10.09%DongxingOutside CCASS
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

JY Grandmark (2231 HK) 72.90%MSOutside CCASS
Raffles (1376 HK)24.00%ShanxiOutside CCASS
360 Ludashi (3601 HK) 20.58%FutuOutside CCASS
Leading (6999 HK)10.75%CCBOutside CCASS
Kintor Pharmaceutical (9939 HK) 13.81%MsOutside CCASS
Source: HKEx
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