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Smartkarma Daily Briefs

Nov 14
0

Daily Brief India: Adani Ports & Special Economic Zone, Bank Of Baroda, Life Insurance of India and more

By | Daily Briefs, India

In today’s briefing:

  • Adani Ports – Earnings Flash – H1 FY 2023-24 Results – Lucror Analytics
  • Indian Banks Screener: Stick with Bank of Baroda and HDFC Bank
  • Life Insurance of India (LICI IN) 2Q24 Review: Poor Performance; No Signs of Turnaround. Sell.

Adani Ports – Earnings Flash – H1 FY 2023-24 Results – Lucror Analytics

By Leonard Law, CFA

Adani Ports and Special Economic Zone’s (APSEZ) H1/23-24 results came in slightly above expectations, with revenue growth of 26% y-o-y exceeding management’s full-year guidance for a 15-20% increase. EBITDA (excluding FX losses) rose by 17%, at the higher end of the 13-17% guidance. Net adjusted leverage improved to 3.4x (FY 2022-23: 4.0x). We expect the company’s leverage to continue improving in FY 2023-24, in line with management’s guidance.

In our view, there remains a small degree of regulatory overhang and negative headline risk facing the broader Adani Group, which may affect group entities’ financing access in the offshore bond market (particularly on an unsecured basis). That said, the group’s access to onshore and bank financing remains intact.

Separately, we note that the Supreme Court hearing regarding the Securities and Exchange Board of India’s (SEBI) investigation on Adani Group has been repeatedly deferred. The Supreme Court requested on November 6th that all parties file final submissions regarding the case by November 8th. We believe the regulatory overhang may only be resolved by the eventual outcome of SEBI’s investigation and the Supreme Court’s judgement. 

Indian Banks Screener: Stick with Bank of Baroda and HDFC Bank

By Victor Galliano

  • We retain Bank of Baroda as the deep value Indian bank from our peer group, for its modest valuations, healthy ROE and further improvements in pre- and post-provision returns
  • The market seems unconvinced by HDFC Bank but we retain it as our quality bank pick, with its potential for savings from the HDFC merger and its strong balance sheet
  • Axis bank stays on our watchlist, but its premium valuations are the challenge; we remain negative on State Bank of India for its delinquency risks and limited progress on returns

Life Insurance of India (LICI IN) 2Q24 Review: Poor Performance; No Signs of Turnaround. Sell.

By Raj Saya, CA, CFA

  • Life Insurance of India (LICI IN) reported its 1H24 earnings which are a continuation of the poor performance of the largest life insurer in India.
  • Total sales were down -10% (individual sales – flat y-o-y); VNB margins falling; outlook not positive. Not positive shifts in product mix or distribution trends.
  • We value LIC at 0.5x FY25e P/EV, implying a -15% downside from the current price, reflecting poor sales growth, loss of market-share and its failure to turn-around the business model.

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Nov 14
0

Daily Brief Japan: Japan Best Rescue System Co, Ajinomoto Co, Shidax Corp, Takara Holdings, Appier Group, Sanyo Trading, Japan Elevator Service Holding, TSE Tokyo Price Index TOPIX and more

By | Daily Briefs, Japan

In today’s briefing:

  • Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth
  • Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback
  • Shidax (4837) – Mgmt Lowers F’casts So Family Can MBO Minorities Cheap. Offensive Governance.
  • StubWorld: Takara Trading “Rich” As Bio Cuts Forecast Earnings
  • Appier (4180) | Key Drivers Behind Strong Q3 Performance
  • Japan Best Rescue System (2453 JP): MBK Partners Backed MBO Tender Offer at JPY1,000
  • Sanyo Trading (3176 JP) – Transitioning onto the Next Stage
  • Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel
  • The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity

Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth

By Travis Lundy

  • This MBO by MBK is a strong premium because of a low recent price, but it pays a low P/FCF multiple for growth, and no synergies counted.
  • Yet another MBO where insiders and friends take advantage of structural inferiority of minority shareholders. Something Should Be Done.
  • What do Minority Shareholders in Japan Say When They Meet Death? “OK, Today it is then.” (with apologies to Game Of Thrones).

Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback

By Travis Lundy

  • Today after the close, Ajinomoto Co (2802 JP) announced a large secondary offering of 14.3mm shares (2.75% of shs out). At last price that is ¥82bn.
  • At the same time, they announced a 10mm share (1.92%) ¥40bn buyback to be conducted from the delivery date of the Offering through 31 March 2024. 
  • Over time, there would be some index upweight as float increases. On a net basis, this is a small deal on a low vol stock with a semiconductor story lurking.

Shidax (4837) – Mgmt Lowers F’casts So Family Can MBO Minorities Cheap. Offensive Governance.

By Travis Lundy

  • Shidax had a Good Governance Moment last year. The stock is up 40-odd% since last year’s GGM, but now the Board, so good last year, has tripped up. 
  • The family and main shareholder – part of last year’s GGM – have decided to bully the Board into accepting an MBO at the wrong price. 
  • Management lowers forecasts without telling anyone. Bidders say “Synergies LaLaLa!” Board says “Ohh la la!” Nobody counts the synergies. Bidder buys at low multiple of newly lowered forecasts. Minorities Lose. 

StubWorld: Takara Trading “Rich” As Bio Cuts Forecast Earnings

By David Blennerhassett

  • On an implied stub and simple ratio, Takara Holdings (2531 JP) is at a decade-plus high to 60.9%-held Takara Bio Inc (4974 JP).
  • Preceding my comments on Takara are the current setup/unwind tables for Asia-Pacific Holdcos.
  • These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Appier (4180) | Key Drivers Behind Strong Q3 Performance

By Mark Chadwick

  • Appier’s Q3 demonstrated a 39% YoY revenue increase, reaching a record JPY7.1B. This was driven by substantial growth in the US/EMEA markets (117% YoY), customer expansion, and Digital Content growth.
  • Appier’s gross margin expanded from 51.3% to 52.6% and the operating margin reached a historical high of 4.4%. Despite ongoing investments, EBITDA margins hit12.1%, showcasing strong operating leverage.
  • Appier’s revised full-year outlook, with increased revenue target (JPY 26.2B), operating income (JPY0.70B), and EBITDA (JPY2.6B), exceeds consensus expectations by 1%, 11%, and 8%, respectively.

Japan Best Rescue System (2453 JP): MBK Partners Backed MBO Tender Offer at JPY1,000

By Arun George

  • Japan Best Rescue System Co (2453 JP)/JBR has recommended an MBK Partners-backed MBO tender offer of JPY1,000 per share, a 53.8% premium to the undisturbed price (13 November). 
  • The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.67% ownership ratio.
  • Irrevocables to accept the offer represent a 53.62% ownership ratio. The minimum acceptance condition requires a 28.1% minority acceptance rate, which is helped by the significant premium. 

Sanyo Trading (3176 JP) – Transitioning onto the Next Stage

By Astris Advisory Japan

  • Impressive progress to date – Q1-4 FY9/2023 results were at record highs for the company, demonstrating a sustained track record of above-average profitability and disciplined capital allocation via M&A.
  • Business diversification to life sciences has led to sales mix improvement and a more resilient business in our view.
  • Company guidance for FY9/2024 indicates a decrease in earnings YoY, attributed to the accumulation of strategic upfront investments for business development. 

Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel

By Astris Advisory Japan

  • Success of disruptive innovation – we believe Q1-2 FY3/2024 results were ahead of the run-rate for FY guidance, driven by 1) sustained growth in maintenance and repair service contracts, and
  • 2) stronger than expected demand for modernization services, resulting in gross margin improvement QoQ in Q2 FY3/2024 via amplified proposal effectiveness and increases in pricing.
  • We expect to see JES continue to successfully disrupt the market via innovation, driven by secular growth as building owners convert to reputable independent providers for cost management and structural demand from aging elevators requiring modernization.

The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity

By Aki Matsumoto

  • 30% female board member set by TSE isn’t surprising, as it’s level within reach, but the fact that TSE set explicit target that companies can’t excuses is a first step.
  • To ensure that a female board member isn’t isolated from other board members, multiple female board members should be elected. In this sense, 30% female board members goal makes sense.
  • In fact, the most interesting question is how many more companies will approach 50% after achieving a 30% of female board members.

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Nov 14
0

Daily Brief China: WuXi XDC Cayman , Zhejiang Expressway Co H, Hygon Information Technology C, Vinda International, Zeekr, China Feihe, Cainiao Smart Logistics Network, China Jinmao Holdings and more

By | China, Daily Briefs

In today’s briefing:

  • WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines
  • Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting
  • CSI300 Index Rebalance Preview: 13 Potential Changes in December
  • Vinda International (3331 HK): Essity’s Stake Attracts More Potential Bidders
  • Zeekr Pre-IPO – The Positives – Has Been Growing Very Fast While Meeting Its Targets
  • China Feihe (6186 HK):  Year-Of-The-Dragon Trade
  • CaiNiao Smart Logistics Pre-IPO Part 5 | For Better or Worse, J&T IPO Will Impact CaiNiao Valuation
  • Morning Views Asia: China Jinmao Holdings

WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines

By Brian Freitas

  • WuXi XDC Cayman (1877628D HK) is looking to raise up to HK$4.07bn (US$521m) in its IPO by selling 197.6m shares at HK$20.6/share, valuing the company at HK$24.67bn (US$3.16bn).
  • WuXi XDC Cayman (1877628D HK) will not get Fast Entry to any indices but should be added to the HSCI and to Southbound Stock Connect in March.
  • Inclusion in other indices will take longer with the highest probability of index inclusion starting in September 2024.

Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting

By Travis Lundy

  • Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
  • The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there. 
  • The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

CSI300 Index Rebalance Preview: 13 Potential Changes in December

By Brian Freitas

  • With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
  • We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
  • Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

Vinda International (3331 HK): Essity’s Stake Attracts More Potential Bidders

By Arun George

  • Bloomberg reported Asia Pulp & Paper is the latest party to have expressed interest in acquiring Essity (ESSITYB SS)’s controlling Vinda International (3331 HK) stake at more than HK$20 per share.
  • Vinda has three substantial shareholders. We think the most likely structure is a bidder acquiring Essity’s stake, which would trigger a mandatory general offer.
  • Vinda’s recent update points to improving growth and margins. Peers and historical multiples imply a fair price range of HK$21-26 per share, a 7-32% premium to the last close.

Zeekr Pre-IPO – The Positives – Has Been Growing Very Fast While Meeting Its Targets

By Sumeet Singh

  • Zeekr, a premium EV brand by Geely Auto (175 HK) , aims to raise around US$500m in its US listing.
  • Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
  • In this note, we talk about the positive aspects of the deal.

China Feihe (6186 HK):  Year-Of-The-Dragon Trade

By Steve Zhou, CFA

  • China Feihe (6186 HK) saw major derating (from around 20x PE to the current high-single-digit PE) coupled with sizable earnings drop (-28% yoy in 2022/-25% yoy in 1H23) since 2022. 
  • The investment thesis or trade thesis here is a play on the rise of new born babies in 2024, the year of the dragon in China. 
  • The margin of safety here is also high given a 7% forward dividend yield (Feihe has pledged to increase dividend payout ratio going forward).

CaiNiao Smart Logistics Pre-IPO Part 5 | For Better or Worse, J&T IPO Will Impact CaiNiao Valuation

By Daniel Hellberg

  • J&T debuted with a rich valuation, but little investor enthusiasm to date
  • Focusing on J&T’s valuation alone could be a boon to CaiNiao’s valuation…
  • …but, with few other comps, J&T’s lackluster early performance could be a drag

Morning Views Asia: China Jinmao Holdings

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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Nov 14
0

Daily Brief Quantitative Analysis: The Week Ahead: No Shortage of Potential Catalysts; Tencent (700) Reports and more

By | Daily Briefs, Quantitative Analysis

In today’s briefing:

  • The Week Ahead: No Shortage of Potential Catalysts; Tencent (700) Reports, MSC Index Changes, US CPI

The Week Ahead: No Shortage of Potential Catalysts; Tencent (700) Reports, MSC Index Changes, US CPI

By Charlotte van Tiddens, CFA

  • The week ahead is packed with economic, index and earnings releases.
  • MSC announce index changes tomorrow evening for the November rebalance (30 Nov). We highlight potential deletions from MSC SA below (ANG, GRT, ARI, NPH).
  • Tencent is due to release earnings on Wednesday after the Hong Kong close. The market is expecting a robust set of results.

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Nov 14
0

Daily Brief ESG: The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity and more

By | Daily Briefs, ESG

In today’s briefing:

  • The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity

The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity

By Aki Matsumoto

  • 30% female board member set by TSE isn’t surprising, as it’s level within reach, but the fact that TSE set explicit target that companies can’t excuses is a first step.
  • To ensure that a female board member isn’t isolated from other board members, multiple female board members should be elected. In this sense, 30% female board members goal makes sense.
  • In fact, the most interesting question is how many more companies will approach 50% after achieving a 30% of female board members.

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Nov 14
0

Daily Brief Thematic (Sector/Industry): Ohayo Japan | All Quiet Ahead of CPI; NTT Data’s Mobility Platform and more

By | Daily Briefs, Thematic (Sector/Industry)

In today’s briefing:

  • Ohayo Japan | All Quiet Ahead of CPI; NTT Data’s Mobility Platform
  • The Cockpit View: The Effect of War and Geopolitics on Aviation Companies
  • China’s China Weight Loss Drug Market Update – the Negatives and the True Colors
  • Furniture/Furnishings Weekly – Looking Ahead: What We Expect in 2024
  • Japan’s Fashion Sector 2023: Recovery Complete for Some as the Sector Looks Forward
  • 2024 Trends for Direct Sellers – Looking for an Inflection Point
  • The Highlights – Cannabis News for the Week Ending November 10, 2023

Ohayo Japan | All Quiet Ahead of CPI; NTT Data’s Mobility Platform

By Mark Chadwick

  • Overseas: SPX -0.1%, Nasdaq -0.3%; Traders waiting for upcoming inflation data; Tesla +4%
  • Today: NKY Futs +0.6% v cash. JPY 151.7; Japan inflation cooling; machine tool orders -21%
  • JapanX: Empowering Tomorrow’s Connectivity: NTT Data Pioneering Innovation in the EV Revolution

The Cockpit View: The Effect of War and Geopolitics on Aviation Companies

By Mohshin Aziz

China’s China Weight Loss Drug Market Update – the Negatives and the True Colors

By Xinyao (Criss) Wang

  • While we’re optimistic about weight loss drug business, we also need to recognize the “true colors” of relevant companies, which helps us realize “when to participate and when to exit”.
  • We analyzed the negatives/”flaws” of popular companies that favored by capital: BrightGene Bio-Medical Technol (688166 CH), Hybio Pharmaceutical (300199 CH), Hainan Poly Pharm (300630 CH), Sinopep-Allsino, Kawin Technology, Highfine Biotech,etc.
  • Short-Term stock price rally are mainly driven by sentiment, but future valuation still needs to be supported by performance and fundamentals. Some companies are just conceptual hype in our view.

Furniture/Furnishings Weekly – Looking Ahead: What We Expect in 2024

By Water Tower Research

  • Following a spate of earnings last week and major retailer earnings ahead, we pause here to reflect on where the furniture and furnishings sectors—residential and commercial/contract— are now and a peek at their likely tracks in the early 2024.
  • Where are we in broad strokes? Residential: Following demand surges fueled by a once-in-a-lifetime focus by consumers on their homes during the pandemic, residential furniture and furnishings demand slumped as the focus shifted to “experiences” from goods.
  • Commercial: New demand (orders) didn’t enjoy the surge (though backlog deliveries fueled reported sales).

Japan’s Fashion Sector 2023: Recovery Complete for Some as the Sector Looks Forward

By Michael Causton

  • Parts of the apparel/fashion sector made a complete recovery last year but performance was patchy, with high rates of growth from a few but more had sales below 2019.
  • 2023-24 should be a stellar year thanks to inbound tourism growth and healthier, if still hesitant, domestic demand.
  • While profitability has risen significantly, the pressure to keep prices down is widening the gap between efficient operators and the rest.

2024 Trends for Direct Sellers – Looking for an Inflection Point

By Water Tower Research

  • This year marks the fifth year in the most current downcycle for the stocks we monitor in the direct selling channel, with the brief exception of the pandemic-related benefits they reaped in 2H20 and 1H21, as a result of their product focus on health and wellness as well as their direct-to-consumer business models during the widespread lockdowns.
  • Even those benefits have been mostly given back in 2022 and 2023 as consumers moved from spending on goods for the home and body to services and experiences as mobility returned to the global marketplace
  • Below are the five key trends we are looking for to drive this group in 2024.

The Highlights – Cannabis News for the Week Ending November 10, 2023

By Water Tower Research

  • Cannabis stocks had an excellent week, with the US cannabis MSOS ETF surging 11.39% and the global YOLO ETF ending +4.07%. YTD, MSOS is -6.29% and YOLO is -21.94%, indicating that US cannabis has been outperforming Canadian and other global names.
  • The week started with BAT (LSE: BATS, NYSE: BTI) making a C$124.6 million investment into Canadian operator Organigram (TSX: OGI, OTCQX: OGI).
  • Most of the capital is to create Jupiter, a strategic investment pool designed to expand Organigram’s footprint and capitalize on strategic growth opportunities.

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Nov 14
0

Daily Brief ECM: Zeekr Pre-IPO – The Positives – Has Been Growing Very Fast While Meeting Its Targets and more

By | Daily Briefs, ECM

In today’s briefing:

  • Zeekr Pre-IPO – The Positives – Has Been Growing Very Fast While Meeting Its Targets
  • CaiNiao Smart Logistics Pre-IPO Part 5 | For Better or Worse, J&T IPO Will Impact CaiNiao Valuation
  • Q323 Another Tough Quarter for Kerry Express Thailand (KEX) | Negative Read-Through for J&T Global

Zeekr Pre-IPO – The Positives – Has Been Growing Very Fast While Meeting Its Targets

By Sumeet Singh

  • Zeekr, a premium EV brand by Geely Auto (175 HK) , aims to raise around US$500m in its US listing.
  • Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
  • In this note, we talk about the positive aspects of the deal.

CaiNiao Smart Logistics Pre-IPO Part 5 | For Better or Worse, J&T IPO Will Impact CaiNiao Valuation

By Daniel Hellberg

  • J&T debuted with a rich valuation, but little investor enthusiasm to date
  • Focusing on J&T’s valuation alone could be a boon to CaiNiao’s valuation…
  • …but, with few other comps, J&T’s lackluster early performance could be a drag

Q323 Another Tough Quarter for Kerry Express Thailand (KEX) | Negative Read-Through for J&T Global

By Daniel Hellberg

  • KEX’s EBIT margin fell to -38% in Q323, but showed Q/Q improvement vs Q223
  • Q/Q progress on margin most likely due to KEX initiatives, not market recovery
  • Ongoing weakness in Thai domestic express market marginally negative for J&T 

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Nov 14
0

Daily Brief Event-Driven: WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines
  • Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth
  • Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting
  • Shidax (4837) – Mgmt Lowers F’casts So Family Can MBO Minorities Cheap. Offensive Governance.
  • CSI300 Index Rebalance Preview: 13 Potential Changes in December
  • Vinda International (3331 HK): Essity’s Stake Attracts More Potential Bidders
  • StubWorld: Takara Trading “Rich” As Bio Cuts Forecast Earnings
  • KOSPI200 Rebalance in December 2023 Highlighted by Locals
  • KT&G: A New Shareholder Return Policy Worth 2.8 Trillion Won Over Next 3 Years
  • Japan Best Rescue System (2453 JP): MBK Partners Backed MBO Tender Offer at JPY1,000

WuXi XDC (2268 HK): Index Inclusion Possibility & Timelines

By Brian Freitas

  • WuXi XDC Cayman (1877628D HK) is looking to raise up to HK$4.07bn (US$521m) in its IPO by selling 197.6m shares at HK$20.6/share, valuing the company at HK$24.67bn (US$3.16bn).
  • WuXi XDC Cayman (1877628D HK) will not get Fast Entry to any indices but should be added to the HSCI and to Southbound Stock Connect in March.
  • Inclusion in other indices will take longer with the highest probability of index inclusion starting in September 2024.

Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth

By Travis Lundy

  • This MBO by MBK is a strong premium because of a low recent price, but it pays a low P/FCF multiple for growth, and no synergies counted.
  • Yet another MBO where insiders and friends take advantage of structural inferiority of minority shareholders. Something Should Be Done.
  • What do Minority Shareholders in Japan Say When They Meet Death? “OK, Today it is then.” (with apologies to Game Of Thrones).

Zhejiang Expressway (576 HK) Rights Offering – The Dynamics May Be Interesting

By Travis Lundy

  • Last week, Zhejiang Expressway Co H (576 HK) announced its rights offering on both its H-Shares and its A-Shares, previously mooted on 23 May, and the Circular on 26 June.
  • The company applied, got CSRC approval on 5 Nov, announced the issuance on 6 Nov, and shares went ex- on 10 November. It’s probably unneeded, but it’s there. 
  • The stock is cheap. The company will boost its payout ratio. And it isn’t that “heavy” a deal. The Rights Trading Dynamics may be interesting.

Shidax (4837) – Mgmt Lowers F’casts So Family Can MBO Minorities Cheap. Offensive Governance.

By Travis Lundy

  • Shidax had a Good Governance Moment last year. The stock is up 40-odd% since last year’s GGM, but now the Board, so good last year, has tripped up. 
  • The family and main shareholder – part of last year’s GGM – have decided to bully the Board into accepting an MBO at the wrong price. 
  • Management lowers forecasts without telling anyone. Bidders say “Synergies LaLaLa!” Board says “Ohh la la!” Nobody counts the synergies. Bidder buys at low multiple of newly lowered forecasts. Minorities Lose. 

CSI300 Index Rebalance Preview: 13 Potential Changes in December

By Brian Freitas

  • With the review period for the December rebalance of the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX) complete, there could be 13 changes for the index.
  • We estimate one-way turnover of 1.94% at the December rebalance leading to a one-way trade of CNY 6.98bn. There are a lot of stocks with over 1x ADV to trade.
  • Over the last 6 months, the potential adds and potential deletes have tracked each other and underperformed the index. Positioning has led to outperformance in the last week.

Vinda International (3331 HK): Essity’s Stake Attracts More Potential Bidders

By Arun George

  • Bloomberg reported Asia Pulp & Paper is the latest party to have expressed interest in acquiring Essity (ESSITYB SS)’s controlling Vinda International (3331 HK) stake at more than HK$20 per share.
  • Vinda has three substantial shareholders. We think the most likely structure is a bidder acquiring Essity’s stake, which would trigger a mandatory general offer.
  • Vinda’s recent update points to improving growth and margins. Peers and historical multiples imply a fair price range of HK$21-26 per share, a 7-32% premium to the last close.

StubWorld: Takara Trading “Rich” As Bio Cuts Forecast Earnings

By David Blennerhassett

  • On an implied stub and simple ratio, Takara Holdings (2531 JP) is at a decade-plus high to 60.9%-held Takara Bio Inc (4974 JP).
  • Preceding my comments on Takara are the current setup/unwind tables for Asia-Pacific Holdcos.
  • These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

KOSPI200 Rebalance in December 2023 Highlighted by Locals

By Douglas Kim

  • This article discusses the potential inclusions and exclusions of KOSPI200 rebalance inDecember 2023 (especially those that are highlighted by the locals).
  • Stocks that are expected to be added to the KOSPI200 index include Posco DX, HD Hyundai Electric, Sam-A Aluminum, TCC Steel, and Dentium. 
  • Stocks that are expected to be excluded in the KOSPI200 index Include Zinus, Handsome, Cuckoo Homesys, Taekwang Industrial, and Hyundai Home Shopping.

KT&G: A New Shareholder Return Policy Worth 2.8 Trillion Won Over Next 3 Years

By Douglas Kim

  • KT&G announced a new shareholder return policy worth 2.8 trillion won (including dividend payout of 1.8 trillion won and treasury shares purchase/cancellation of 1.0 trillion won) over next three years.
  • In addition, the company plans to cancel about 7.5% of the company’s existing treasury shares which represents about 142 billion won (1.2% of outstanding shares). 
  • Although this 2.8 trillion won in shareholder return policy is large, the company could have announced even larger shareholder return policy, including cancellation of its entire treasury shares. 

Japan Best Rescue System (2453 JP): MBK Partners Backed MBO Tender Offer at JPY1,000

By Arun George

  • Japan Best Rescue System Co (2453 JP)/JBR has recommended an MBK Partners-backed MBO tender offer of JPY1,000 per share, a 53.8% premium to the undisturbed price (13 November). 
  • The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.67% ownership ratio.
  • Irrevocables to accept the offer represent a 53.62% ownership ratio. The minimum acceptance condition requires a 28.1% minority acceptance rate, which is helped by the significant premium. 

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Nov 14
0

Daily Brief Credit: Adani Ports – Earnings Flash – H1 FY 2023-24 Results – Lucror Analytics and more

By | Credit, Daily Briefs

In today’s briefing:

  • Adani Ports – Earnings Flash – H1 FY 2023-24 Results – Lucror Analytics
  • Morning Views Asia: China Jinmao Holdings

Adani Ports – Earnings Flash – H1 FY 2023-24 Results – Lucror Analytics

By Leonard Law, CFA

Adani Ports and Special Economic Zone’s (APSEZ) H1/23-24 results came in slightly above expectations, with revenue growth of 26% y-o-y exceeding management’s full-year guidance for a 15-20% increase. EBITDA (excluding FX losses) rose by 17%, at the higher end of the 13-17% guidance. Net adjusted leverage improved to 3.4x (FY 2022-23: 4.0x). We expect the company’s leverage to continue improving in FY 2023-24, in line with management’s guidance.

In our view, there remains a small degree of regulatory overhang and negative headline risk facing the broader Adani Group, which may affect group entities’ financing access in the offshore bond market (particularly on an unsecured basis). That said, the group’s access to onshore and bank financing remains intact.

Separately, we note that the Supreme Court hearing regarding the Securities and Exchange Board of India’s (SEBI) investigation on Adani Group has been repeatedly deferred. The Supreme Court requested on November 6th that all parties file final submissions regarding the case by November 8th. We believe the regulatory overhang may only be resolved by the eventual outcome of SEBI’s investigation and the Supreme Court’s judgement. 

Morning Views Asia: China Jinmao Holdings

By Charles Macgregor

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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Nov 14
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Daily Brief Equity Bottom-Up: Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback and more

By | Daily Briefs, Equity Bottom-Up

In today’s briefing:

  • Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback
  • Appier (4180) | Key Drivers Behind Strong Q3 Performance
  • Taiwan Dual Listings Monitor: TSMC ADR Spread at Decent Short Level; UMC ADR Short Interest Soaring
  • Sea Ltd: Potential for a Short Squeeze
  • China Feihe (6186 HK):  Year-Of-The-Dragon Trade
  • Sanyo Trading (3176 JP) – Transitioning onto the Next Stage
  • Indian Banks Screener: Stick with Bank of Baroda and HDFC Bank
  • Life Insurance of India (LICI IN) 2Q24 Review: Poor Performance; No Signs of Turnaround. Sell.
  • Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel
  • Himax Vs. Novatek Long/Short: Display Industry Inventory Normalized, Growth Expected for 2024E

Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback

By Travis Lundy

  • Today after the close, Ajinomoto Co (2802 JP) announced a large secondary offering of 14.3mm shares (2.75% of shs out). At last price that is ¥82bn.
  • At the same time, they announced a 10mm share (1.92%) ¥40bn buyback to be conducted from the delivery date of the Offering through 31 March 2024. 
  • Over time, there would be some index upweight as float increases. On a net basis, this is a small deal on a low vol stock with a semiconductor story lurking.

Appier (4180) | Key Drivers Behind Strong Q3 Performance

By Mark Chadwick

  • Appier’s Q3 demonstrated a 39% YoY revenue increase, reaching a record JPY7.1B. This was driven by substantial growth in the US/EMEA markets (117% YoY), customer expansion, and Digital Content growth.
  • Appier’s gross margin expanded from 51.3% to 52.6% and the operating margin reached a historical high of 4.4%. Despite ongoing investments, EBITDA margins hit12.1%, showcasing strong operating leverage.
  • Appier’s revised full-year outlook, with increased revenue target (JPY 26.2B), operating income (JPY0.70B), and EBITDA (JPY2.6B), exceeds consensus expectations by 1%, 11%, and 8%, respectively.

Taiwan Dual Listings Monitor: TSMC ADR Spread at Decent Short Level; UMC ADR Short Interest Soaring

By Vincent Fernando, CFA

  • TSMC’s ADR premium is 10.4%, this is a decent level to short it based on the historical trading range.
  • UMC’s ADR premium is near a good level to short the spread but one should wait for it to rise above 1.5% in our view.
  • UMC ADR short interest continues to trend higher; TSMC ADR short interest continues to fall.

Sea Ltd: Potential for a Short Squeeze

By Oshadhi Kumarasiri

  • We suspect that the recent strength in Sea (SE US)‘s price performance is likely due to short covering, with shorts incentivized to cover after a nearly 38% gain.
  • As earnings approach, short positions have been increasing since late October, likely anticipating another earnings disappointment from Sea Ltd’s Q3 report on November 14, 2023.
  • Consensus estimates for Sea Ltd are at their lowest since its inception. A modest outperformance could lead to a squeeze in short interest.

China Feihe (6186 HK):  Year-Of-The-Dragon Trade

By Steve Zhou, CFA

  • China Feihe (6186 HK) saw major derating (from around 20x PE to the current high-single-digit PE) coupled with sizable earnings drop (-28% yoy in 2022/-25% yoy in 1H23) since 2022. 
  • The investment thesis or trade thesis here is a play on the rise of new born babies in 2024, the year of the dragon in China. 
  • The margin of safety here is also high given a 7% forward dividend yield (Feihe has pledged to increase dividend payout ratio going forward).

Sanyo Trading (3176 JP) – Transitioning onto the Next Stage

By Astris Advisory Japan

  • Impressive progress to date – Q1-4 FY9/2023 results were at record highs for the company, demonstrating a sustained track record of above-average profitability and disciplined capital allocation via M&A.
  • Business diversification to life sciences has led to sales mix improvement and a more resilient business in our view.
  • Company guidance for FY9/2024 indicates a decrease in earnings YoY, attributed to the accumulation of strategic upfront investments for business development. 

Indian Banks Screener: Stick with Bank of Baroda and HDFC Bank

By Victor Galliano

  • We retain Bank of Baroda as the deep value Indian bank from our peer group, for its modest valuations, healthy ROE and further improvements in pre- and post-provision returns
  • The market seems unconvinced by HDFC Bank but we retain it as our quality bank pick, with its potential for savings from the HDFC merger and its strong balance sheet
  • Axis bank stays on our watchlist, but its premium valuations are the challenge; we remain negative on State Bank of India for its delinquency risks and limited progress on returns

Life Insurance of India (LICI IN) 2Q24 Review: Poor Performance; No Signs of Turnaround. Sell.

By Raj Saya, CA, CFA

  • Life Insurance of India (LICI IN) reported its 1H24 earnings which are a continuation of the poor performance of the largest life insurer in India.
  • Total sales were down -10% (individual sales – flat y-o-y); VNB margins falling; outlook not positive. Not positive shifts in product mix or distribution trends.
  • We value LIC at 0.5x FY25e P/EV, implying a -15% downside from the current price, reflecting poor sales growth, loss of market-share and its failure to turn-around the business model.

Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel

By Astris Advisory Japan

  • Success of disruptive innovation – we believe Q1-2 FY3/2024 results were ahead of the run-rate for FY guidance, driven by 1) sustained growth in maintenance and repair service contracts, and
  • 2) stronger than expected demand for modernization services, resulting in gross margin improvement QoQ in Q2 FY3/2024 via amplified proposal effectiveness and increases in pricing.
  • We expect to see JES continue to successfully disrupt the market via innovation, driven by secular growth as building owners convert to reputable independent providers for cost management and structural demand from aging elevators requiring modernization.

Himax Vs. Novatek Long/Short: Display Industry Inventory Normalized, Growth Expected for 2024E

By Vincent Fernando, CFA

  • Both Himax and Novatek reported their results last week; both delivered gross margins at the high-end or above their previous guidance.
  • Both companies showed a continued decline in inventory levels. Himax is trading at one of the cheapest levels relative to Novatek in history.
  • Novatek sees industry inventory levels as normalized and expects 2024E to be an industry growth year. We rate both stocks as Structural Longs.

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