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Smartkarma Daily Briefs

Feb 25
0

Most Read: Ebos Group Ltd, DGB Financial Group, Japan Post Bank, Techtronic Industries, DB Hitek Co., Ltd., Ihara Science, S&P 500 and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Index Rebalance & ETF Flow Recap: MSCI, CSI500, XIN9I, DTAC/TRUE, Newcrest, Adani, Korea Spinoffs
  • Japan Post Holdings To Effectively “Re-IPO” Japan Post Bank (7182 JP)
  • KOSPI200 Index Rebalance Preview: Changes in April & June
  • Japan Post Bank Possible Placement – Here We Go Again with the US$9bn Overhang
  • Techtronic Industries (669 HK): JR Puts Down That Tool
  • Never-Seen Price Pattern Detected in a Split-Off Event Granting Appraisal Rights in Korea
  • Ihara Science (5999 JP) – Here Comes The Bumpitrage
  • Techtronic Industries (669 HK): Forensic Analysis Viewpoint
  • SPX Range Ahead of Next Leg Down
  • Techtronic Industries: Jehoshaphat Research’s Allegations and Our Assessment

Index Rebalance & ETF Flow Recap: MSCI, CSI500, XIN9I, DTAC/TRUE, Newcrest, Adani, Korea Spinoffs

By Brian Freitas

  • MSCI announced the changes to the GIMI on Friday as part of the February QCIR. MSCI also announced a review of the free float of the Adani Group companies.
  • FTSE will announce the changes to the All-World and All-Cap indices after the close of trading on Friday, 17 February. The same day is the S&P/ASX review cutoff for March.
  • Yet another weekly outflow for the IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) taking the YTD outflow to over US$2.5bn.

Japan Post Holdings To Effectively “Re-IPO” Japan Post Bank (7182 JP)

By Travis Lundy

  • Overnight a Reuters article suggested Japan Post Holdings (6178 JP) had started talks to sell a near 30%) stake in Japan Post Bank (7182 JP), the first sale since IPO. 
  • A sale is designed with two aims: 1) the TSE requires a 35% tradable share ratio, and 2) JPH is supposed to lower holdings in JPB to <50% by 2025.
  • This event may include a buyback, and has moving parts, and flows on the back end, but fundamentally a sale would effectively constitute a “re-IPO” of the shares.

KOSPI200 Index Rebalance Preview: Changes in April & June

By Brian Freitas

Japan Post Bank Possible Placement – Here We Go Again with the US$9bn Overhang

By Sumeet Singh

  • Japan Post Holdings (6178 JP) is looking to trim its stake in Japan Post Bank (7182 JP) by a third, as per Reuters. 
  • The deal would be worth around US$9bn and could come as soon as next month.
  • In this note, we talk about the news and take an early look at the possible selldown.

Techtronic Industries (669 HK): JR Puts Down That Tool

By David Blennerhassett

  • Jehoshaphat Research (JR) argues the case that Techtronic Industries (669 HK) has been engaged in “snowballing” to maintain margin growth.
  • JR flags TTI is the only public company in the world (with over $1bn in revenues) exhibiting positive sequential gross margin change in every semi-annual period over ten years.
  • Short interest had been picking up ahead of the short sell report. Shares fell 19% before being suspended in the afternoon session.  

Never-Seen Price Pattern Detected in a Split-Off Event Granting Appraisal Rights in Korea

By Sanghyun Park

  • A rather unusual price movement came out on February 20 for HLB. On the first trading day after the board of directors’ decision, the price reached the upper daily limit.
  • The short covering got to a temporarily excessive level in the process of securing appraisal rights should be the reason that led to the upper limit.
  • We should design a trading setup targeting excessive short covering-triggered price overheating in split-off events. At this point, the most likely candidate to pursue a split-off is DB Hitek.

Ihara Science (5999 JP) – Here Comes The Bumpitrage

By Travis Lundy

  • In my first piece, Ihara Science (5999 JP) Sees the Chairman Launch an MBO. I Might Expect Excitement I noted that the price was too low. I expected activist efforts.
  • The price did not trade below the Tender Offer Price after it opened for trading. That was a sign this wasn’t going to go easy.
  • This morning I am made aware of a letter from one of the “active if not activist” shareholders saying the price is too low. Hint: It is.

Techtronic Industries (669 HK): Forensic Analysis Viewpoint

By Arun George

  • Jehoshaphat’s short report has alleged that Techtronic Industries (669 HK)/TTI has been inflating its profits dramatically for over a decade with manipulative accounting.
  • Our forensic analysis of the allegations suggests that some are credible red flags while others are essentially an exaggeration.
  • TTI’s response to Jehoshaphat is pitiful. Valuation is meaningless until management adopts more conservative accounting or compelling disprove the allegations.

SPX Range Ahead of Next Leg Down

By Thomas Schroeder

  • SPX 3,980 is where a mild bounce should unfold. 4,060 sell resistance then the set-up calls for a break below 3,980 to test lower targets.
  • This next leg down will cause more damage in EM/Asia and Europe. MACD on the verge of an ugly break below the “0” acceleration line.
  • US 10yr yield dip is a buy for a push above the 3.95% pivot resistance with new highs in store.

Techtronic Industries: Jehoshaphat Research’s Allegations and Our Assessment

By Shifara Samsudeen, ACMA, CGMA

  • Techtronic Industries (669 HK) was targeted by Jehoshaphat Research (JR) accusing that the company’s profits are inflated dramatically over a decade with manipulative accounting.
  • As per the report, routine expenses incurred have been booked under various asset accounts such as deferred development costs thereby showing ever increasing margins for a cyclical business.
  • We have assessed the merits of some of these claims using our forensic accounting framework and it appears that most of the claims are very difficult to refute.

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Feb 25
0

Daily Brief ESG: Zee Entertainment- Litigations Scare and more

By | Daily Briefs, ESG

In today’s briefing:

  • Zee Entertainment- Litigations Scare

Zee Entertainment- Litigations Scare

By Nitin Mangal

  • Zee Entertainment Enterprises (Z IN) have yet again been bombarded with a corporate hurdle since the NCLT has admitted the company into CIRP relating to Siti Cable Network (SITINET IN).
  • It is found that ZEEL has created provisions in the balance sheet, however it should be noted that the CRIP might lead to cash outflow in future. 
  • Apart from the current CIRP, ZEEL also has other litigation risks that should not be overlooked.

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Feb 25
0

Daily Brief ECM: IdeaForge Pre-IPO Tearsheet and more

By | Daily Briefs, ECM

In today’s briefing:

  • IdeaForge Pre-IPO Tearsheet
  • Marriott International Inc.: Major Drivers

IdeaForge Pre-IPO Tearsheet

By Clarence Chu

  • IdeaForge Technology Limited (1475641D IN) is looking to raise around US$100m in its upcoming India IPO. Some of its notable pre-IPO investors include Qualcomm, Infosys, Celesta Capital (VC).
  • IdeaForge develops and manufactures unmanned aerial systems (UAS) and unmanned aerial vehicles (UAV).
  • The bookrunners on the deal are JM Financial and IIFL Securities.

Marriott International Inc.: Major Drivers

By Baptista Research

  • Marriott International had a decent business recovery in 2022 and the company delivered an all-around beat in the last quarter.
  • The number of leisure transient room nights in the fourth quarter increased compared to 2019.
  • Their mobile app users, digital room nights, and digital income all increased in 2022, each by 32% year over year.

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Feb 25
0

Daily Brief Credit: Shui On Land – Tear Sheet – Lucror Analytics and more

By | Credit, Daily Briefs

In today’s briefing:

  • Shui On Land – Tear Sheet – Lucror Analytics

Shui On Land – Tear Sheet – Lucror Analytics

By Leonard Law, CFA

We view Shui On as “Medium Risk” on the LARA scale. Our opinion is underpinned by the company’s portfolio of high-quality assets situated in prime locations in major Chinese cities. Shui On has a large investment property portfolio, which generates sufficient recurring revenue to cover more than 1x of adjusted interest expense. The investment properties were worth CNY 51.2 bn as at end-June 2022, covering net debt by 1.7x. Moreover, the company can dispose assets to boost cash flow if needed. These positive factors are balanced against Shui On’s small scale and lumpy earnings profile.

Our fundamental Credit Bias on Shui On is “Stable”, supported by the improved operating and financing environment for stronger Chinese developers. The company has a high-quality asset base and sizeable investment property portfolio, which would support access to bank financing. We also believe Shui On’s differentiated business model (compared to peers with heavy reliance on property development) will thrive in the post-property crisis environment.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. Shui On’s management appears to place a strong emphasis on ESG issues, and we note positively the company’s high level of disclosure and transparency.

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Feb 25
0

Daily Brief Thematic (Sector/Industry): Smartkarma Webinar | Global Liquidity Outlook for 2023 and more

By | Daily Briefs, Thematic (Sector/Industry)

In today’s briefing:

  • Smartkarma Webinar | Global Liquidity Outlook for 2023

Smartkarma Webinar | Global Liquidity Outlook for 2023

By Smartkarma Research

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Michael J. Howell as he shares more about his thoughts on the global liquidity outlook for 2023. From questions like why liquidity is so important for investors, to tracking the global liquidity cycle, join us in this next installment as we dive deep into the topic alongside Michael.

The webinar will be hosted on Wednesday, 1 March 2023, 17:00 SGT/HKT.

Michael J. Howell is Managing Director at CrossBorder Capital, an investment advisory firm specialising in macro-investing. Founded in 1996 with an international client base, CrossBorder focuses on monitoring and understanding global liquidity and capital flows.

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Feb 25
0

Daily Brief Technical Analysis: WTI Bear Triangle a Growth Negative and more

By | Daily Briefs, Technical Analysis

In today’s briefing:

  • WTI Bear Triangle a Growth Negative
  • MSCI ACWI Uptrend Break; Defensives to Shine; Ideas in Staples, Health Care, Telecomm, Utilities
  • Tencent Short Cover Target

WTI Bear Triangle a Growth Negative

By Thomas Schroeder

  • WTI’s bearish flat/triangle is setting up to break lower and a harbinger of weaker growth in coming months amid a stronger USD.
  • Bearish oil also gels with our stronger dollar and weaker demand view. It will also bring energy shares back to earth.
  • New low targets at 69 and 65 then review for a tactical recovery attempt.

MSCI ACWI Uptrend Break; Defensives to Shine; Ideas in Staples, Health Care, Telecomm, Utilities

By Joe Jasper

  • In our latest int’l reports we have preached caution, and since January we have discussed our expectations for $93 to cap upside on the ACWI-US
  • Thus far, $93 has proven to be rock-solid resistance, and ACWI-US now displays a 4.5-month uptrend violation signaling the pullback has officially begun.
  • We would expect this pullback to continue down to $86-87 at minimum, and potentially $84 (December 2022 low). Even $75-77 (the 2022 lows) is not out of the question.

Tencent Short Cover Target

By Thomas Schroeder

  • Tencent faced formidable resistance at 385 where old lows and old highs coincided and was our short level outlined on January 17.
  • 300 is our base line downside target. March will be a bearish month. Buy zone at sub-300.
  • Macro is constructive if 270 holds. Current decline is labeled a deep correction of the October to late January rally.

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Feb 25
0

Daily Brief Equity Bottom-Up: Techtronic Industries (669 HK): Forensic Analysis Viewpoint and more

By | Daily Briefs, Equity Bottom-Up

In today’s briefing:

  • Techtronic Industries (669 HK): Forensic Analysis Viewpoint
  • Alibaba: Post Earnings Price Reaction Confirms Investors Are Worried Of a Fading Core-Business
  • Techtronic Industries: Jehoshaphat Research’s Allegations and Our Assessment
  • Grab Follows Suit with GoTo and Accelerates Profitability Timeline
  • Branded Camping from Goldwin and Snow Peak
  • Nvidia: Don’t Let Narratives Fool You (Again)
  • Banamex Update & Mexican Banks’ December Data; Risks of Credit Spread Erosion & Rising Credit Costs
  • Airbnb Inc.: Major Drivers
  • The Coca-Cola Company: Major Drivers
  • Zoetis Inc.: Launch Of CircoMatch & Other Drivers

Techtronic Industries (669 HK): Forensic Analysis Viewpoint

By Arun George

  • Jehoshaphat’s short report has alleged that Techtronic Industries (669 HK)/TTI has been inflating its profits dramatically for over a decade with manipulative accounting.
  • Our forensic analysis of the allegations suggests that some are credible red flags while others are essentially an exaggeration.
  • TTI’s response to Jehoshaphat is pitiful. Valuation is meaningless until management adopts more conservative accounting or compelling disprove the allegations.

Alibaba: Post Earnings Price Reaction Confirms Investors Are Worried Of a Fading Core-Business

By Oshadhi Kumarasiri

  • Alibaba’s 3QFY23 results marginally topped consensus. With the share price dropping 0.65% cf. +0.35% for the index, both results and the price reaction were in line with our expectations.
  • Yesterday’s results confirm that Alibaba (ADR) (BABA US)’s core businesses, Taobao and Tmall are in trouble and cost-cutting elsewhere is insufficient to offset the short-term weakness.
  • Therefore, we do think that this is a good opportunity to profit on the short side with Alibaba shares having the potential to fall another 40-45% in the short term.

Techtronic Industries: Jehoshaphat Research’s Allegations and Our Assessment

By Shifara Samsudeen, ACMA, CGMA

  • Techtronic Industries (669 HK) was targeted by Jehoshaphat Research (JR) accusing that the company’s profits are inflated dramatically over a decade with manipulative accounting.
  • As per the report, routine expenses incurred have been booked under various asset accounts such as deferred development costs thereby showing ever increasing margins for a cyclical business.
  • We have assessed the merits of some of these claims using our forensic accounting framework and it appears that most of the claims are very difficult to refute.

Grab Follows Suit with GoTo and Accelerates Profitability Timeline

By Shifara Samsudeen, ACMA, CGMA

  • Grab reported 4Q2022 results yesterday. Q4 revenue more than quadrupled to $502m (vs consensus $403.48) while reported a negative adjusted EBITDA of $111m (vs consensus $137m) vs $305m in 4Q2021.
  • Deliveries business went on to report positive adjusted EBITDA driven by improvement in take rate coupled with reduction in total incentives.
  • Grab Holdings (GRAB US) share price dropped 8.29% at the end of yesterday’s trade despite the company accelerating its profit timeline to breakeven in 4Q2023 vs 2H2024 previously.

Branded Camping from Goldwin and Snow Peak

By Michael Causton

  • After decades of industrial, urban focus, city-dwelling Japanese first began a tentative reengagement with nature through hiking two decades ago. 
  • This has evolved into more extended trips that began to include camping and visits to wilder areas.
  • These excursions are still a bit forbidding for many, so camping and outdoor activities in a park managed by a trusted brand have strong appeal, providing new revenue for brands.

Nvidia: Don’t Let Narratives Fool You (Again)

By Vladimir Dimitrov, CFA

  • Nvidia’s risk-reward profile remains unattractive, according to the company’s recent earnings report.
  • Nvidia’s stock-based compensation also highlights some problems related to inventory levels and the amount of stock- based compensation.
  • The company’s share price has risen 14% following recent earnings, the report says.

Banamex Update & Mexican Banks’ December Data; Risks of Credit Spread Erosion & Rising Credit Costs

By Victor Galliano

  • We explore Citibank’s upcoming Banamex disposal, which appears to have become a one horse race and question whether an IPO is completely off the cards
  • Bank sector data trends to December remain robust, but headwinds are building; rising funding costs threaten credit spreads and worsening cost of credit trends, both set to erode 2023 returns
  • BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through parent BBVA shares; we remain cautious on Banorte, due to the growing risks to returns and valuation

Airbnb Inc.: Major Drivers

By Baptista Research

  • Airbnb had a solid year in 2022 with revenues growing 40% year-over-year.
  • Moreover, they saw that guest bookings for trips continued to rise, maintaining a robust backlog for Q1.
  • Excluding all of the Mainland China listings, the team increased supply by 900,000 listings, or 16%, in comparison to a year ago.

The Coca-Cola Company: Major Drivers

By Baptista Research

  • Coca-Cola had a successful year in 2022.
  • In spite of the difficult macro environment, the company performed well and expanded by concentrating on broadening the scope of its offerings.
  • Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

Zoetis Inc.: Launch Of CircoMatch & Other Drivers

By Baptista Research

  • Zoetis delivered a decent set of results for the last quarter of 2022 meeting analyst expectations as well as the high end of its management guidance.
  • Despite the economic challenges, ongoing pandemic recovery, and the political unpredictability brought on by the war in Ukraine, they delivered operational growth for the year in each of their top 13 markets.
  • The company’s unique companion animal portfolio drove its 8% operational revenue increase for the year, growing 14% operationally.

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Feb 25
0

Daily Brief Event-Driven: Sino Oil (702): Possible Jiangxi Jovo Offer and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Sino Oil (702): Possible Jiangxi Jovo Offer
  • AMT/​Cellnex: Lower Chances of a Bid
  • A Good Old Fashioned Bidding War
  • IAG Acquires Air Europa

Sino Oil (702): Possible Jiangxi Jovo Offer

By David Blennerhassett

  • Troubled coalbed methane play Sino Oil And Gas Holdings (702 HK) is currently suspended pursuant to the Hong Kong Code on Takeovers and Mergers. 
  • Sino Oil is burdened with a large convertible note and a winding-up petition.  Its auditor has disclaimed accounts since 2017 over its ability to continue as a going concern.
  • Jiangxi Jovo Energy (605090 CH) is interested in taking more than 50% of Sino Oil (via new shares), but less than 75%. Sino Oil is up >100% in the past month. 

AMT/​Cellnex: Lower Chances of a Bid

By Jesus Rodriguez Aguilar

  • American Tower stated during FY 2022 results presentation that debt reduction is its main priority. The probability of a takeover bid for Cellnex by American Tower and Brookfield is reduced.
  • Cellnex on 14.7x EV/NTM EBITDAe is trading cheaply vs. AMT on 19.5x and below private equity deals at 25-30x. I believe that Cellnex’s fundamentals are solid, and would be long.
  • Cellnex is the undisputed European leader in telecommunications towers with both high cash flow visibility (growth forecasted at 18% for the period 2021-2025e) and trading at 7.3% 22e FCF yield.

A Good Old Fashioned Bidding War

By Jesus Rodriguez Aguilar

  • Triton has raised its offer price to €8.95 in cash, 5.3% above the Alternative Consideration of the Bain’s consortium improved offer (vs. my €9.01/share fair value estimate, comps-based).
  • Gross spread is +0.78%. It seems that now it is the turn of the Bain’s consortium to make a move, at least match and probably bid over Triton’s offer.
  • Bain has the main shareholders on board. As of 24 February, I estimate the paper profits of Triton to be around €31 million (minus the costs of preparing the offer).

IAG Acquires Air Europa

By Jesus Rodriguez Aguilar

  • IAG Presents better than expected Q4 2022 results and announces that it will acquire the remaining 80% of Air Europa for €400 million in a cash and shares deal.
  • The purchase price implies valuing 100% of Air Europa at €500 million, which is in line with expectations and is half of the €1,000 million agreed in November 2019.
  • Air Europa and IAG finally reach an agreement and clear an uncertainty. It makes strategic sense to create a larger intercontinental hub between Europe and Latin America in Madrid,

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Feb 25
0

Daily Brief Macro: The Great Game – Wang Yi and His Wish.com Weapons and more

By | Daily Briefs, Macro

In today’s briefing:

  • The Great Game – Wang Yi and His Wish.com Weapons
  • TINA Has Left, Bond Yields Shine, and Cash Is King!
  • TPW Advisory Friday Musings: Foggy Weather

The Great Game – Wang Yi and His Wish.com Weapons

By Mikkel Rosenvold

  • 1) China wants Russia to be in their camp. Both for political reasons, but also to be able to offer cheap energy to non-aligned third world countries.
  • 2) Every day the war continues, Russia becomes more and more dependant on China.
  • 3) While the war is a strain on Chinese international diplomacy, the Chinese are basically carrying on their business of buying every port, factory or railway that they possibly can. 

TINA Has Left, Bond Yields Shine, and Cash Is King!

By Jeroen Blokland

  • Back in 2020, the yield on global Treasuries was 0.4%, and negative on money market funds. 
  • But the biggest central bank tightening cycle in decades has turned things around completely.
  • Bonds offer a significantly higher volatility-adjusted yield, but now face fierce competition from money market funds.

TPW Advisory Friday Musings: Foggy Weather

By TPW Advisory

Global cross asset market action is really stretching one’s inventory of analogies – we have already employed the two steps forward, one step back analogy so now we are going to use the traffic in foggy weather one.

It came to me when I was biking to work (big NYC City Bike fan) the other morning and as usual I looked up to the Empire State Bldg. as I rode up Broadway (yes, I know, going against traffic – what else is new).

Some days it is a beautiful sight; the early morning sun striking the top of the spire; other times, low hanging clouds scud across the tip.

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Feb 24
0

Daily Brief Australia: Star Entertainment Group, Nitro Software Ltd, Millennium Services Group Ltd and more

By | Australia, Daily Briefs

In today’s briefing:

  • Star Entertainment (SGR AU): A$800m Equity Raise to Buy Some Time
  • Star Entertainment’s A$800mn Buffer
  • Nitro (NTO AU): Potentia Comes Good with a Three-Part Offer
  • Star Entertainment (SGR AU): A$800m Highly Dilutive Raise to Fix the Balance Sheet
  • Millennium Services Group Ltd – Solid Growth Ahead with Contract Wins

Star Entertainment (SGR AU): A$800m Equity Raise to Buy Some Time

By Brian Freitas

  • Star Entertainment Group (SGR AU) is looking to raise A$685m via an ANREO of 3 shares in The Star for every 5 shares at a fixed price of A$1.2/share.
  • The A$1.2/share price is a 21.1% discount to the last close and a 14.3% discount to the Theoretical Ex-Rights Price (TERP) of A$1.4/share.
  • Short interest is near the highs and there is an index deletion pending. We’d look to buy the stock on a move lower, especially closer to index deletion.

Star Entertainment’s A$800mn Buffer

By David Blennerhassett

  • Star Entertainment Group (SGR AU)‘s announced it intends to raise $800mn after reporting a statutory $1.26bn 1H23 loss.
  • This equity raising will be broken down into a A$685mn non-renounceable entitlement Offer and a A$115mn institutional placement. The equity raising is fully underwritten. 
  • Star also announced it has secured covenant relief through to June 2025. Star’s immediate focus is to get its house in order and prove its suitability to hold casino licences. 

Nitro (NTO AU): Potentia Comes Good with a Three-Part Offer

By Arun George

  • Potentia has returned with an improved three-part offer for Nitro Software Ltd (NTO AU). The base offer of A$2.17 is 0.9% higher than Alludo’s A$2.15 offer. 
  • The offer could rise to A$2.20 or A$2.25 per share based on hitting additional conditions. There is a clear path for the final offer to reach A$2.20 per share. 
  • A A$2.25 per share offer is unlikely due to the onerous 25% scrip acceptance condition. At the last close, the gross spread to the likely final A$2.20 offer is 0.5%.

Star Entertainment (SGR AU): A$800m Highly Dilutive Raise to Fix the Balance Sheet

By Arun George

  • Star Entertainment Group (SGR AU) will raise A$800 million with a fully underwritten 3:5 pro rata accelerated non-renounceable entitlement offer and institutional placement at A$1.20, a 13.6% discount to TERP.
  • The equity raise of A$800 million will maintain leverage within the targeted 2.0x-2.5x net debt/EBITDA long-term range in our fines high-case scenario.
  • Adjusting for the raise, Star trades at a discount to peers. While the shares will be under short-term pressure due to the raise, there is long-term value for the brave. 

Millennium Services Group Ltd – Solid Growth Ahead with Contract Wins

By Research as a Service (RaaS)

  • Millennium Services Group Ltd (ASX:MIL) has delivered a H1 FY23 result well below prior forecast, with a two-month timing lag between wage increases and pass-through impacting the gross margin over H1 FY23 (down ~190bps to 14%).
  • With these costs now passed through under contract, gross margins improved in Q2 FY23 and are forecast to average around 15% for FY23, implying H2 FY23 margins of ~16%.
  • This combined with ~$25m-$30m of new contract business wins over the past six months puts the business in good stead for solid growth in H2 FY23 and into FY24. 

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