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. SK Hynix (000660 KS; SKHY US): Updated Index Flows/Timing & Where Could the Premium Settle?
- SK Hynix (000660 KS) raised US$26.5bn selling 177.9m shares of SK Hynix (SKHY US) at US$149/share. SK Hynix (SKHY US) closed at a 15.5% premium to the local line.
- There will be passive buying in the local shares and the ADR line over the next few months. The ADR line could trade at a premium in the near-term.
- We expect the ADR to trade between a 30-35% premium in the very short-term and that could drift lower following the limited passive buying in the ADR.
2. Newly Surfaced Risk to Hynix ADR Premium Trade
- Hynix’s FSS engagement strongly signals a potential treasury buyback into ADR conversion.
- Tight early conversion quotas could let Hynix capture capacity upfront, pressuring local shares and forcing ADR premium assumptions above TSMC’s 30% historical peak.
- Need to price in upside beyond TSMC’s 30% peak, as Hynix could capture premium expansion early, creating a key risk for ADR premium trading setup.
3. Story Behind Hynix 2Q Earnings Reset Leak
- 2Q price reset was inevitable, but Hynix’s early leak three weeks before earnings raises questions. The timing matters given significant memory multiple compression and potential strategic positioning.
- Need a precise Hynix playbook as memory multiple compression persists. Focus on capturing ADR conversion headroom as a micro catalyst and assessing its role as a relative buffer versus peers.
- KSD guidelines could come earlier than expected. Medium term, combine US passive flows with memory hedges. Watch Samsung utilization ramp and potential preferred discount compression.
4. Genesis (GMD AU) & Vault (VAU AU) Merger: Index Implications with A$1bn to Buy
- The Genesis Minerals (GMD AU) and Vault Minerals Ltd (VAU AU) merger will bring much larger passive flows compared to the Regis Resources (RRL AU) and Vault merger.
- For each share of Vault Minerals Ltd (VAU AU) held, shareholders will receive 0.7629 shares in Genesis Minerals (GMD AU) plus A$0.475 in cash.
- The MergeCo could be added to a couple of indices and be upweighted in a few others, bringing in over A$1bn of inflows following merger completion in October/November.
5. Kakaku.com (2371 JP): Rethinking the Arb Trade
- Kakaku.com Inc (2371 JP)’s shares have been trading above Bain/LY (4689 JP)’s preconditional binding offer of JPY3,384 (if KDDI agrees to a share buyback, the offer is at JPY3,500).
- I previously opined that the probability of a bidding war is low. However, disclosure on 2 July showed that EQT increased its offer to JPY3,300 on 22 June.
- EQT can match Bain/LY’s JPY3,500 offer with a modest 2.4% increase to the effective cost of its 22 June offer. If it matches Bain/LY’s effective cost, EQT can offer JPY3,643.
6. Kakaku.com (2371 JP): Sheer Gamesmanship
- Nikkei reported that EQT/Digital Garage (4819 JP) has increased its offer for Kakaku.com Inc (2371 JP) to the mid-JPY3,400, while Bloomberg reported that EQT/DG is now offering JPY3,440-3,460 per share.
- The latest EQT/DG offer is designed to game the competing-offer clauses to retain the Board’s and KDDI’s support and potentially secure Oasis’s allegiance.
- The bidding battle is not done yet. By increasing its offer by 1% from JPY3,384 to JPY3,419 (from JPY3,500 to JPY3,535 on an equivalent basis), Bain/LY can regain the advantage.
7. Baycurrent (6532) Preview Before Q1 Earnings Wednesday
- When I pounded the table pre-buyback in mid-March, Baycurrent (6532 JP) was trading a lot lower, hit by the selloff in the SaaS/growth bias. AI was going to take over.
- The Skynet Takeover, while not thwarted, is delayed by the simple fact that Baycurrent is a tech/business consultant and a leading voice in corporate Japan for AI integration.
- Baycurrent reiterated guidance. Multi-year mid 20%s CAGR against 16x PER. The stock bounced. Now 20.6x Feb27e NP. Q1 earnings Weds. Seasonality matters. KPIs matter. That’s a question.
8. Digital Garage (4819 JP): Cheap, but Not Cheerful
- Digital Garage (4819 JP) shares popped 12% on news that Old Peak had emerged as a substantial shareholder, potentially signalling an activist push for the Board to prioritise shareholder returns.
- DG’s shares have languished since the announcement of the Kakaku.com Inc (2371 JP) transaction on 12 May. DG is undoubtedly cheap and could be worth 2x more.
- However, closing this valuation gap remains challenging, particularly if Resona continues to support the Board. Pasona is a cautionary tale that a material windfall does not result in a rerating.
9. China Shengmu (1432 HK): Fast-Tracking Towards Being Declared Unconditional
- China Shengmu Organic Milk (1432 HK)’s mandatory offer from China Modern Dairy (1117 HK) is HK$0.35, subject to a 50% minimum acceptance condition. The first closing date is 21 July.
- I previously opined that meeting the minimum would be challenging. However, based on CCASS data, including acceptances, CMD’s shareholding was 45.69% of outstanding shares as of 10 July.
- The offer is on track to be declared unconditional by the first closing date. At the last close and the 30 July payment, the gross/annualised spread is 7.7%/294%.
10. Genesis And Vault Firm Terms After Regis Walks
- After Genesis Minerals (GMD AU) pitched a “superior” cash/scrip Offer for Vault Minerals Ltd (VAU AU) on the 6th July, Regis Resources (RRL AU) was expected to walk. And they did.
- This morning, Genesis/Vault firmed terms: 0.7629 new shares for every Vault share, plus A$0.475/share in cash – for an implied value of A$5.274/share. Terms are unchanged from the 6th July.
- The Offer is by way of a Scheme. Expect a Scheme Booklet by August/September, a meeting a month later, and expected implementation by October/November. Clean deal.
