Smartkarma Daily Briefs

After the large tender offer in late 2021, SBI was always going to try to take Shinsei Bank private. Now they have launched their deal at ¥2,800/share.
That is below fair according to the Board, Special Committee, and implicitly to SBI. But the Shinsei Board has recommended shareholders tender so The Government will vote to squeeze out.
I expect some upset, the possibility of some activism, but it all plays out in the back end in my opinion. Not the front end.

Yuexiu Property (123 HK): Rights Trade Playbook

On 20 April, Yuexiu Property (123 HK) announced plans to raise US$1.1 billion through 30 rights shares for every 100 existing shares rights offering, with a rights price of HK$9.00.
Since the announcement of the rights issue, Yuexiu shares have declined by -23.6% to the undisturbed price and by -18.2% compared to the TERP of HK$11.74 per share.
The shares went ex-rights on 2 May and the rights start trading on 15 May. Link REIT (823 HK)’s trading over its rights period provides the playbook for Yuexiu’s trading.

Merger Arb Mondays (15 May) – SBI Shinsei, Arteria, Toshiba, Yitai, Hailan, Allkem, Lian Beng

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads 111 Inc (YI US), ARTERIA Networks Corp (4423 JP), Estia Health (EHE AU), United Malt Group Ltd (UMG AU), Aag Energy Holdings (2686 HK), Hailan Holdings (2278 HK).
Lowest spreads – Healius (HLS AU),Liontown Resources (LTR AU), Penguin International (PBS SP), Lian Beng (LBG SP), Mincor Resources NL (MCR AU), Blackmores Ltd (BKL AU), Arcland Service.

TLT Triangle Power Move Brewing

By Thomas Schroeder

Triangle breakouts are considered one of the more powerful patterns with a higher reliability and followed by high momentum moves. TLT 102 and 109 breakout pivots.
Slowing growth and falling inflation set a bullish backdrop for bonds and lower yields. US 1 year yield exhibits a compelling bearish flat range.
KRE bear break represents the biggest threat to the SPX in May/June. We are maintaining our sell from SPX 4,200 for mid-June cycle low.

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May 15

Daily Brief Industrials: Toshiba Corp, Horizon Construction Development, Jiangsu Expressway (H), Lian Beng and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Weekly Deals Digest (14 May) – Toshiba, Arteria, Shinsei, Yitai Coal, Allkem, Horizon Construction
Horizon Construction Development IPO – Peer Comparison & Thoughts on Valuation
Jiangsu Expressway (177 HK): A Decent Play Even After Rally
Lian Beng: Circ Out. IFA (Rightfully) Says Not Fair

Weekly Deals Digest (14 May) – Toshiba, Arteria, Shinsei, Yitai Coal, Allkem, Horizon Construction

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Nexus Select Trust (NST IN), Tata Technologies (TATATECH IN), ADICON Holdings Limited (ADI HK), Horizon Construction Development (1887128D HK) IPOs.
Event-Driven developments – ARTERIA Networks Corp (4423 JP), SBI Shinsei Bank (8303 JP), Toshiba Corp (6502 JP), Hailan Holdings (2278 HK), Inner Mongolia Yitai Coal Company Ltd (3948 HK), Allkem.

Horizon Construction Development IPO – Peer Comparison & Thoughts on Valuation

By Ethan Aw

Horizon Construction Development (1887128D HK) is looking to raise US$223m in its upcoming Hong Kong IPO.
HCD is an equipment operation service provider in China. It provides services covering the full cycle of projects.
In our previous notes, we looked at the company’s past performance and refiled PHIP updates. In this note, we undertake a quick peer comparison and share our thoughts on valuation.

Jiangsu Expressway (177 HK): A Decent Play Even After Rally

By Osbert Tang, CFA

We find good value in Jiangsu Expressway (H) (177 HK) – its 8.3x PER is cheap relative to 10.4% EPS CAGR and P/B multiple of 1.06x is below historical average.
It has an extremely secured dividend stream for the next two years, yielding at least 6.3%. 1Q23 result showed a solid recovery, and potentially adding upside to earnings outlook.
Key drivers are stronger traffic recovery, rise in contribution from clean energy, margin expansion through cost control and completion of new projects in the next two years.

Lian Beng: Circ Out. IFA (Rightfully) Says Not Fair

By David Blennerhassett

In response to media feedback calling out the low-balled Offer, the Ong family bumped the Offer Price for Lian Beng (LBG SP) by 9.7% to S$0.68/share and declared terms final.
At 0.43x P/RNAV, and with the bulk of the assets related to investment/development property, the price was still wrong,
The Circular is now out. The IFA considered terms to be not fair and not reasonable. The same opinion as in the 2021 Offer.

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May 14

Daily Brief South Korea: Dong Yang P&F and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

A Crash in 2 More Korean Stocks Related to CFD Derivatives: Margin Calls Again

A Crash in 2 More Korean Stocks Related to CFD Derivatives: Margin Calls Again

By Douglas Kim

In this insight, we discuss two stocks in Korea, Dong Yang P&F and Shindaeyang Paper, whose share prices declined sharply on 12 May.
It appears that the main culprit behind their collapse in share price appears to be unwinding of the excessive leverage (especially CFD derivatives trading).
Post the sharp decline in their share price for DYPNF and Shindeyang Paper on 12 May, further downside is likely on these stocks in the coming weeks.

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May 14

Daily Brief Australia: Allkem Ltd and more

By Smartkarma Daily Briefs | Australia, Daily Briefs

In today’s briefing:

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Allkem/Livent, Yitai Coal, ARTERIA, St Barbara, AAG Energy

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Allkem/Livent, Yitai Coal, ARTERIA, St Barbara, AAG Energy

By David Blennerhassett

There are 39 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three new deals were discussed on Smartkarma this past week: the Allkem (AKE AU)/Livent (LTHM US)‘s merger; Yitai Coal (3948 HK)‘s H-share buyback; Networks Corp (4423 JP)‘s tender offer.
Key updates took place forSt Barbara Ltd (SBM AU), AAG Energy Holdings (2686 HK), and Toshiba Corp (6502 JP).

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May 14

Daily Brief China: JD Health, Hong Kong Hang Seng Index, China Shenhua Energy Co H, Shanghai Bio-Heart Biological Technology, Alibaba Group and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

HSI Index Rebalance: Yippee! Finally at 80!
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- China Cooling?
HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact
China Healthcare Weekly (May.12) – Three Globalization Strategies, GLP-1/Weight Loss Drug, Bio-Heart
ECM Weekly (14th May 2023) – Mankind, Nexus REIT, SCG Chemicals, Guoquan, Shiyue, Medanta, Bikaji

HSI Index Rebalance: Yippee! Finally at 80!

The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- China Cooling?

By Simon Harris

Weekly summary of vol changes and moves across Global Markets
Analysing ATM volatility and skew changes over the last 5 days
We suggest a few trades to take advantage of the implied vol surfaces

HSCEI Index Rebalance: China Shenhua (1088 HK) Replaces Country Garden (2007 HK); Div Impact

As expected, China Shenhua Energy Co H (1088 HK) replaces Country Garden Holdings Co (2007 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) at the close 2 June.
Using prices from the close on 12 May, estimated one-way turnover is 2.1% leading to a one-way trade of HK$1.3bn (US$170m).
The change will lead to an increase in the fair value of the HSCEI 2023 Dividend Futures. We’d be sellers on a move higher towards 240 DIPS.

China Healthcare Weekly (May.12) – Three Globalization Strategies, GLP-1/Weight Loss Drug, Bio-Heart

By Xinyao (Criss) Wang

There are three main ways for Chinese pharmaceutical companies to enter global markets, but the results are completely different. Investors are advised to make cautious judgments based on different cases.
Speed is a crucial factor in the competition for drug development, but there’re precedents in history that late-comers are still able to turn things around, such as GLP-1/weight loss drugs.
We remain conservative about the future commercialization performance of Bio-Heart’s BRS and Iberis 2nd. However, the product launch is a catalyst for share price, which provides a good short-term trade opportunity.

ECM Weekly (14th May 2023) – Mankind, Nexus REIT, SCG Chemicals, Guoquan, Shiyue, Medanta, Bikaji

By Sumeet Singh

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
Mankind Pharma delivered some joy to the Indian equity markets over the past week.
There were no major placements over the past week but there were some lockup expiries.

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May 14

Daily Brief Japan: Mitsubishi Corp, SBI Shinsei Bank, Nitori Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

JAPAN BUYBACKS: A Very Big Week
SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔
Last Week in Event SPACE: MitCorp, Jardine Matheson, Toshiba, Japanese Foreign Inflows
Evaluate Not Only Board Practices, but Also Key Actions to See if They Are Leading to Value Creation

JAPAN BUYBACKS: A Very Big Week

This past week, nearly 150 companies in Japan announced buyback programmes totalling ¥2.1trln. 3 Tenders, 26 ToSTNeT-3 buybacks (including at least 5 delayed starts).
The median on-market buyback was 2.40% of shares, the average 2.9% (both measured as practical maxima at announcement. Median/Average % of ADV was 7.6/9.2%.
My prediction that this will be a record year for stock buybacks still stands.

SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer

SBI Shinsei Bank (8303 JP) has recommended SBI Holdings (8473 JP)’s tender offer of JPY2,800 per share, a 12.6% premium to the undisturbed price (11 May).
There is no minimum acceptance condition. SBI and irrevocables from government entities represent 73.02% of voting rights, ensuring the implementation of tender squeeze-out procedures.
The special committee failed to unanimously recommend the offer. Minorities will feel short-changed as the outcome is predetermined and the offer tends to favour the government shareholders.

Nikkei 225 Index Consultation Makes Things Weirder, but Still a 0️⃣🍔

The Nikkei Index team has been quite conscious of market impact since the April 2000 debacle. For a few years after, things were quieter. In 2005, Fast Retailing spurred introspection.
Float was low and became lower. Selection behaviour changed. Now there is a new consultation where “technical listings” would stay in, and phased “stepwise” inclusion would reduce inclusion impact.
The proposal increases subjectivity, reduces the attractiveness of bets, but otherwise increases the likelihood they will follow the other selection rules. It STILL does not solve the high weight problem.

Last Week in Event SPACE: MitCorp, Jardine Matheson, Toshiba, Japanese Foreign Inflows

By David Blennerhassett

Mitsubishi Corp (8058 JP)‘s ¥300bn buyback means 8+% of ADV every day from here to end-Dec 2023. Buy MitCorp vs trading houses with less of a buyback impact.
Rumours abound of an MSCI up weight for Jardine Matheson Holdings (JM SP). It wasn’t a clear-cut situation. And nothing came of it.
There are concerns about the stability of funding for JIP’s offer for Toshiba Corp (6502 JP) in the event that Kioxia (6600 JP)’s results collapse further.

Evaluate Not Only Board Practices, but Also Key Actions to See if They Are Leading to Value Creation

By Aki Matsumoto

Many companies have low valuations due to the fact that not few managers are concerned about maintaining public listing with the idea of prioritizing it over growth in shareholder interests.
Many companies only minimally respond to formally aligning board practices with the criteria of the Corporate Governance Code, and very few are creating value through advancing their corporate governance initiatives.
TSE data shows that OP Margin is neutral and Asset Turnover and Financial Leverage are both negative for ROE, so immediate share repurchases are the effective way in raising ROE.

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May 14

Most Read: Super Hi International Holding, Yunnan Chihong Zinc&Germanium Co, Ltd., ICICI Bank Ltd, JD Health, Trip.com, Ushio Inc, Mitsubishi Corp, SBI Shinsei Bank, Dong Yang P&F, Hong Kong Hang Seng Index and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September
MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes
HDFC/HDFCB Merger: Impact on Bank Nifty
HSI Index Rebalance: Yippee! Finally at 80!
HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade
HUUUGE Ushio (6925) Buyback
JAPAN BUYBACKS: A Very Big Week
SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer
A Crash in 2 More Korean Stocks Related to CFD Derivatives: Margin Calls Again
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades- China Cooling?

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in June & September

There is only one new listing as a potential inclusion to the HSCI in June. If added to the HSCI, it will also be added to Southbound Stock Connect.
There are 18 potential inclusions and 19 potential deletions for the HSCI in September. There are a few close adds and there could be another 5 deletions on Prolonged Suspension.
A lot of the potential deletions have large Southbound holdings. With all the stocks becoming sell-only, there could be unwinding of some positions over the next couple of months.

MVIS Global Rare Earth/Strategic Metals Index Rebalance Preview: Identifying Potential Changes

The review period for the June rebalance ends on 31 May. Announcement of the changes will be made on 9 June with implementation at the close on 16 June.
There could be 4 or 5 A-share additions due to their inclusion in Northbound Stock Connect. That in turn expands the universe and could result in up to 3 deletions.
If all changes go through as expected, estimated one-way turnover at the rebalance will be 15.1% resulting in a one-way trade of US$99m.

HDFC/HDFCB Merger: Impact on Bank Nifty

The HDFC Bank (HDFCB IN) / HDFC Limited (HDFC IN) merger will result in capping and funding changes on the Nifty Bank Index (NSEBANK INDEX) constituents.
We estimate one-way turnover of around 8.4% resulting in a one-way trade of INR 21,865m (US$266m) at the time of merger implementation.
The impact in terms of ADV is less than 1x on all stocks, but the impact in terms of delivery volume is higher than 1x on a few stocks.

HSI Index Rebalance: Yippee! Finally at 80!

The Hang Seng index committee has added four stocks to take the number of Hong Kong Hang Seng Index (HSI INDEX) constituents to 80. A year late, but we’re there!
The next leg of the increase in the number of index constituents will take us up to 100. There is no timeline, so this should take a couple of years.
Estimated one-way turnover is 2.93% leading to a one-way trade of HK$5.7bn (US$730m). All adds will have over 2x ADV to buy from passive trackers.

HSTECH Index Rebalance: Float & Capping Changes Lead to US$768m Two-Way Trade

There are no constituent changes for the Hang Seng Tech Index (HSTECH INDEX) in June but there are some free float changes and a bunch of capping changes.
Estimated one-way turnover is 3.2% leading to a one-way trade of HK$3bn (US$384m). There are 3 stocks with over 1 day of ADV to trade.
Trip.com (9961 HK) has over 1x ADV to buy from Hang Seng Tech Index (HSTECH) trackers. The stock is also an add to the Hong Kong Hang Seng Index (HSI).

HUUUGE Ushio (6925) Buyback

Ushio Inc (6925 JP) reported earnings on 11 May, with revenue +17.6% on the year, OP +21.4%, and NP +8.7% on the year. Div was unchanged at ¥50/share.
Forecasts are for revenue +7.4%, OP -21.2%, and NP -27% (¥90.6/EPS). But importantly, the company also announced a HUUUUUGE Buyback.
Buying ≦20mm shares (17.0%) spending ≦¥30bn from 29May2023 to 10May2024. That’s 13.3% at the 12 May close. How this will work is unknown. There’s less detail than one would want.

JAPAN BUYBACKS: A Very Big Week

This past week, nearly 150 companies in Japan announced buyback programmes totalling ¥2.1trln. 3 Tenders, 26 ToSTNeT-3 buybacks (including at least 5 delayed starts).
The median on-market buyback was 2.40% of shares, the average 2.9% (both measured as practical maxima at announcement. Median/Average % of ADV was 7.6/9.2%.
My prediction that this will be a record year for stock buybacks still stands.

SBI Shinsei Bank (8303 JP): SBI’s Contentious JPY2,800 Tender Offer