Smartkarma Daily Briefs

Ahead of Aag Energy Holdings (2686 HK)’s vote on 27 April, the gross spread to Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer sits uncomfortably high at 13.5%.
The key risk remains that minorities vote down the scheme. Retail forums are active with mixed views on the offer. Peers have also modestly re-rated, which helps the NO camp.
At the last close, the risk-reward profile is unfavourable as the downside to a scheme fail (-16.0%) is greater than the upside to a scheme pass (+13.5%).

KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.
Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS).
If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.

CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete

With 4 trading days to go the review period, we see 13 potential index changes at the June rebalance that will be implemented at the close on 9 June.
We estimate a one-way turnover of 1.94% at the June rebalance leading to a one-way trade of CNY 5.05bn.
With the review period nearly complete, the gap between the potential adds and deletes could narrow ahead of the announcement of the changes as pre-positions are built.

Quiddity Leaderboard SE600 Jun 23: Three ADDs/DELs Likely

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the names leading the race to become ADDs/DELs for the STX Europe 600 and EUROSTX Indices for the March 2023 Rebalance.
There is roughly one more month left to the base date. At present, I see around 3 ADDs/DELs in the June 2023 review.
Separately, STX Europe 600 members Credit Suisse (CSGN SW) and Vantage Towers (VTWR GR) could possibly get deleted in the next few months triggering intra-review index changes.

Silver Lake/Software AG: Agreed Offer

By Jesus Rodriguez Aguilar

Silver Lake has announced its intention to launch a cash offer to delist Software AG at €30/share (53% premium, 12.7x EV/NTM EBITDA, 20.5x Fwd P/E), targeting 37% of the float.
The Board is suportive and Silver Lake does not seek a domination agreement. The offer price will not be adjusted by the next dividend (€0.05, ex-date 19 May).
My fair value estimate (EV/EBITDA based) is €26.54/share, the offer price seems adequate. The offer targets 37.6% of the float, feasible. Gross spread (incl. divi) is 0.97%, not terribly exciting.

Shockwave Medical Inc (SWAV US): Initial Thought on Takeover Talk and Probable Pricing

By Tina Banerjee

Shockwave Medical Inc (SWAV US) is reportedly drawing takeover interest from Boston Scientific. Shockwave can potentially be one of Boston Scientific’s largest ever acquisitions. Probable pricing still offers upside potential.
Shockwave has an addressable market opportunity of $8.5 billion. The company has guided for 2023 revenue of $660–680 million, which represents 35–39% YoY growth.
Addition of Shockwave will bolster Boston Scientific’s cardiovascular portfolio. No official announcement has been made by any of the companies. There is no certainty they will lead to a deal.

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Apr 25

Daily Brief Equity Bottom-Up: Meituan (3690 HK): Delivery Workers on Strike and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

Meituan (3690 HK): Delivery Workers on Strike
Keisei (9009): Connecting Narita and Tokyo
Nidec (6594) | Remain Cautious Despite Bullish Guidance
Oriental Land: The 33.5x FY27 Consensus OP Bubble
IHH Healthcare (IHH MK): Core Business Recovery; Fortis Open Offer to Come Soon
TRACKING TRAFFIC/Container Shipping: Momentum Bottomed | Shares Stabilized | Focus on May News
Taiwan Tech Weekly: This Is a Major Earnings Week; Are We Entering a 2-Track Semiconductor Recovery?
APAC Insurers Series (#2): AIA or Prudential?
Mercedes-Benz: Luxury Brand With Strong Pricing Power
Rakuten Bank – In Japan With 65% Loan Growth

Meituan (3690 HK): Delivery Workers on Strike

By Ming Lu

Meituan’s delivery workers started a strike in Shanwei City of Guangdong Province.
Meituan called many of its delivery workers from other cities nearby as substitutes.
We believe the hard job market pushes Meituan to the very font line of industrial relation.

Keisei (9009): Connecting Narita and Tokyo

By Henry Soediarko

Japan’s tourism scene is back in action albeit still missing a contribution from China.
On-The-Ground research in Japan has confirmed the above point and the crowded Narita airport.
Keisei Electric Railway Co (9009 JP)operates Skyliner which connects Narita Airport to downtown Tokyo.

Nidec (6594) | Remain Cautious Despite Bullish Guidance

By Mark Chadwick

NIdec’s full year FY3/23 operating profit declined 41% to Y100b, far short of analyst estimates
However, FY3/24 corporate guidance for Y220b in operating profit is very bullish and assumes a V-shaped recovery in margins
Given the macro outlook and lack of clarity on the restructuring charges, we prefer to remain cautious.

Oriental Land: The 33.5x FY27 Consensus OP Bubble

By Oshadhi Kumarasiri

Oriental Land (4661 JP)’s revenue in 4QFY23 could miss consensus by around 12%, but its profitability could exceed consensus expectations by around 20%.
The shares did not react to beating consensus and revising up its guidance in the last quarter. This suggests limited upside risk for the company’s shares following 4QFY23 earnings.
Despite consensus medium-term OP estimates, Oriental Land appears to be significantly overpriced, with shares trading at a consensus FY27 EV/OP multiple of 33.4x.

IHH Healthcare (IHH MK): Core Business Recovery; Fortis Open Offer to Come Soon

By Tina Banerjee

IHH Healthcare (IHH MK) reported 11% YoY revenue growth in its core hospital and healthcare business in 4Q22, mainly driven by higher inpatient admissions in most of the hospitals.
In November 2022, India’s stock exchange regulator SEBI has advised IHH to proceed with the open offer for Fortis Healthcare (FORH IN) to acquire 26.1% stake after obtaining court permission.
IHH is cautiously optimistic of robust growth from its core business with the return of local and foreign patients to its hospitals.

TRACKING TRAFFIC/Container Shipping: Momentum Bottomed | Shares Stabilized | Focus on May News

By Daniel Hellberg

Our measures of momentum and profitability suggest industry bottomed in Q1 2023
In addition, shares of container shipping stocks have stopped reacting to (plentiful) bad news
Outcome of ongoing rate negotiations and Q1 earnings calls will drive near-term performance

Taiwan Tech Weekly: This Is a Major Earnings Week; Are We Entering a 2-Track Semiconductor Recovery?

By Vincent Fernando, CFA

This week will have some major earnings data points released. In Taiwan, UMC, Delta, Mediatek, ASE will report among other local names in our coverage.
Samsung & SK Hynix will report this week, providing major insight into the Memory chip space for companies such as Nanya Technology and Micron.
TSMC & ASML results last week indicate that the cycle could be bottoming in 2Q23E for these leading firms… But are we entering a two-track industry recovery?

APAC Insurers Series (#2): AIA or Prudential?

By Alec Tseung

Given Pru’s demerger in 2021, it now offers investors a good alternative to AIA to tap into the development and the growth potential of the life insurance sector in Pan-Asia.
AIA has a more balanced business across so many markets in APAC, while Pru skews toward Southeast Asia.
Pru’s P/BV is currently at a 30% discount to AIA’s and is trading at the same level as the year-end when China just announced the re-opening of its borders.

Mercedes-Benz: Luxury Brand With Strong Pricing Power

By Alexis Dwek

Mercedes is a luxury brand with strong pricing power, well positioned to capture growth in EV as it invests significantly to transition into an all-electric, software-driven world
The launch of several models in the next few years will drive growth, as we believe the desirability remains very strong.
We like the direct sales model and believe the operational focus and discipline of the Company are still to pay off. The valuation remains appealing at a P/E below 6x.

Rakuten Bank – In Japan With 65% Loan Growth

By Daniel Tabbush

There are few, if any banks, in Japan that compare with Rakuten’s 65% loan growth
The newly listed interbank stands out with exceptional ROE, not from leverage
Credit metrics remain strong, with NPL cover especially high vs peers

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Apr 25

Daily Brief Macro: The Week That Was in ASEAN@Smartkarma – Matahari Dept Store Has Style and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

The Week That Was in ASEAN@Smartkarma – Matahari Dept Store Has Style, Bank Mandiri, and Astra Intl.
Weekly Market Monitor (16) – The Odds of a Recession Is Rising; Earnings Just Don’t Know It Yet
China Household
Don’t Get Fooled by the Tight Inventory Narrative – Economic Situation Continues to Worsen

The Week That Was in ASEAN@Smartkarma – Matahari Dept Store Has Style, Bank Mandiri, and Astra Intl.

By Angus Mackintosh

The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia
The past week saw insights on Matahari Department Store (LPPF IJ), Bank Mandiri Persero (BMRI IJ), Astra International (ASII IJ), and H2G Green in Singapore.
There were also sector pieces on Indonesian infrastructure and Indonesian tobacco.

Weekly Market Monitor (16) – The Odds of a Recession Is Rising; Earnings Just Don’t Know It Yet

By Jeroen Blokland

‘We lower the weight of equities. With markets pricing several Fed rate cuts, valuation rising, and earnings expectations too upbeat, catalysts for further increases are vanishing.
After the significant decline in March building permits, the implied recession odds linked to this indicator are rising again.
There’s a classic example of reverse operating leverage going on: earnings growth is negative, while sales growth is positive. Most of the time, this is followed by a recession.

China Household

By Untying The Gordian Knot

The YoY growth in China Retail sales was 10.60%, TSF lending grew at 15.70%, and New Loans to Households increased by 65.10%.
Deposit growth was 12.68%. You look at the headline figures Individually; there is something for all versions of Bullish Reopening Narratives from the recent data.
The onshore investor has participated in the reopening theme and unwinding, but the Foreign Investor seems to believe more than the locals and continues to get more invested.

Don’t Get Fooled by the Tight Inventory Narrative – Economic Situation Continues to Worsen

By The Commodity Report

Don’t get fooled by the tight inventory narrative While many copper bulls continue to write about the low copper inventories I would like to inform you once again that there is simply no correlation between copper inventories and the price of the industrial metal.
If you want to be precise – you could even make the case that excessive lows in the LME copper inventory data actually mark cyclical highs in the price of the brownish metal.
US Leading Economic Index’s recession signal deepens in March, Conference Board reports: “The US LEI fell to its lowest level since November of 2020, consistent with worsening economic conditions ahead,” says CB’s senior manager for business cycle indicators.

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Apr 25

Most Read: China Mobile, Yuexiu Property, Tong Hsing Electronic Industries Ltd, Doubleugames Co, Ltd., Meituan, Aag Energy Holdings, Youlchon Chemical, Rakuten Bank , Zhejiang Huafeng Spandex A, Kcc Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Another Reason To Like China Mobile (941 HK)
Yuexiu Property (123 HK) Rights Offering
Index Rebalance & ETF Flow Recap: MSCI STD, Yuanta Div+, ZJLD, Anta
Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch
Meituan (3690 HK): Delivery Workers on Strike
AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote
KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks
Rakuten Bank (5838 JP): Premium Growth Neobank Still Trading at Attractive Valuations
CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete
KCC: Plans to IPO Its Subsidiary Momentive Performance Materials in the US as Early as 2023

Another Reason To Like China Mobile (941 HK)

In March, the HK Secretary for Financial Services announced a waiver of stamp duty on dual counter trading market making. In November, the Govt of HK gazetted a bill.
HKEX launched plans in December. 9 large HK names announced in March they’d apply (Tencent, Kuaishou, Geely, BOC, Anta, AIA, China Resources Beer, Bidu, HKEX). Six more in April.
All the announcements are similar. But one on 21 April caught my eye because it is a big H/A with strong southbound support. That’s China Mobile (941 HK).

Yuexiu Property (123 HK) Rights Offering

On Thursday morning, Yuexiu Property (123 HK) halted trading in its shares and then later in the day announced a rights offering. Shares fell hard but gained back a little.
The rights offering lowers BVPS by about 11.3% so the current price is “about right” for the fundamentals if the price the day before the news was right.
There are, however, flow dynamics which are of interest. There almost always are.

Index Rebalance & ETF Flow Recap: MSCI STD, Yuanta Div+, ZJLD, Anta

The review period for the MSCI May QCIR started last week and there were ad hoc changes to the S&P/ASX family and the KOSDAQ 150 Index (KOSDQ150 INDEX).
The end of the coming week will mark the end of the review period for the upcoming rebalances for a bunch of indices with implementation scheduled in May and June.
There was inflow to the Tracker Fund of Hong Kong Ltd (2800 HK) ETF for another week.

Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch

By Sanghyun Park

Two pairs of constituent changes marked in squares in INTERNET and GAME may offer meaningful trading opportunities: Seojin System IN / Ahnlab OUT and Com2us IN / Doubleugames OUT.
Along with TIGER ETF, stealth index funds follow these indices. So, constituent changes in INTERNET and GAME create a flow impact of 0.3~0.6x DTV, even not in the Top 3.
Also, INTERNET and GAME have less passive flow impact degradation risk due to momentum trading flows compared to BATTERY and BIO.

Meituan (3690 HK): Delivery Workers on Strike

By Ming Lu

Meituan’s delivery workers started a strike in Shanwei City of Guangdong Province.
Meituan called many of its delivery workers from other cities nearby as substitutes.
We believe the hard job market pushes Meituan to the very font line of industrial relation.

AAG Energy (2686 HK): Nervousness Ahead of the 27 April Vote

Ahead of Aag Energy Holdings (2686 HK)’s vote on 27 April, the gross spread to Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer sits uncomfortably high at 13.5%.
The key risk remains that minorities vote down the scheme. Retail forums are active with mixed views on the offer. Peers have also modestly re-rated, which helps the NO camp.
At the last close, the risk-reward profile is unfavourable as the downside to a scheme fail (-16.0%) is greater than the upside to a scheme pass (+13.5%).

KOSPI200 Index Rebalance Preview: Materials to Replace Consumer Stocks

With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.
Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS).
If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.

Rakuten Bank (5838 JP): Premium Growth Neobank Still Trading at Attractive Valuations

By Victor Galliano

The sharp run-up in the share price since its IPO does not, in our view, mean that Rakuten Bank’s rally is done; there is further fundamental justification for a re-rating
Rakuten Bank trades on a LTM PE multiple of 14.4x, LTM PBV ratio of 1.6x and an ROE of 13.2%, which is the best return of our neobank peers
Relative to its peer group, Rakuten Bank has premium long-run growth prospects; conservatively estimating Rakuten Bank’s growth (8% pa), implies a PEG ratio in the range of 1.2x to 1.3x

CSI300 Index Rebalance Preview: Potential Changes as Review Period Nearly Complete

With 4 trading days to go the review period, we see 13 potential index changes at the June rebalance that will be implemented at the close on 9 June.
We estimate a one-way turnover of 1.94% at the June rebalance leading to a one-way trade of CNY 5.05bn.
With the review period nearly complete, the gap between the potential adds and deletes could narrow ahead of the announcement of the changes as pre-positions are built.

KCC: Plans to IPO Its Subsidiary Momentive Performance Materials in the US as Early as 2023

By Douglas Kim

On 24 April, KCC Corp announced that it plans to IPO its subsidiary Momentive Performance Materials Inc. in the US stock market as early as 2023.
In 2021, KCC raised its stake in MOM Holding from 50% + 1 share to 60%. Momentive EBITDA increased from $300 million in 2018 to $450 million in 2022.
Our valuation of KCC Corp suggests an NAV of 3.1 trillion won (post 50% discount) or NAV per share of 347,633 won per share, representing 49% higher than current price.

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Apr 24

Daily Brief South Korea: Doubleugames Co, Ltd. and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch

Overlooked Trading Angle in K-New Deal Rebalancing Event: Two LONG SHORT Pairs to Watch

By Sanghyun Park

Two pairs of constituent changes marked in squares in INTERNET and GAME may offer meaningful trading opportunities: Seojin System IN / Ahnlab OUT and Com2us IN / Doubleugames OUT.
Along with TIGER ETF, stealth index funds follow these indices. So, constituent changes in INTERNET and GAME create a flow impact of 0.3~0.6x DTV, even not in the Top 3.
Also, INTERNET and GAME have less passive flow impact degradation risk due to momentum trading flows compared to BATTERY and BIO.

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Apr 24

Daily Brief China: Yuexiu Property, China Mobile, Aag Energy Holdings, ZJLD Group, Shangri-La Asia, HKBN Ltd, Jiangnan, Jingdong Property, Jiangsu Hengrui Medicine, Sunac China Holdings and more

By Smartkarma Daily Briefs | China, Daily Briefs

In today’s briefing:

Yuexiu Property (123 HK) Rights Offering
Another Reason To Like China Mobile (941 HK)
Merger Arb Mondays (24 Apr) – AAG Energy, Jiangnan, HKBN, Healius, Lian Beng, Toyo
ZJLD Group: Limited Near-Term Post-IPO Upside, but Long-Term Prospects Indicate a Promising Future
Shangri-La Asia (69 HK): Not yet Fully Reflected China’s Comeback
Weekly Deals Digest (23 Apr) – HKBN, Jiangnan, Lian Beng, Yuexiu Property, ZJLD, Mankind, Adicon
Jiangnan (1366 HK): 15th May Court Meeting. IFA Says Fair
JD Property Pre-IPO – The Positives – Active on the Acquisition Front Leading to Growth
Jiangsu Hengrui Medicine (600276.CH) 2022/23Q1 – The Situation Is Not as Optimistic as Imagined
Morning Views Asia: Reliance Industries, Sunac China Holdings

Yuexiu Property (123 HK) Rights Offering

On Thursday morning, Yuexiu Property (123 HK) halted trading in its shares and then later in the day announced a rights offering. Shares fell hard but gained back a little.
The rights offering lowers BVPS by about 11.3% so the current price is “about right” for the fundamentals if the price the day before the news was right.
There are, however, flow dynamics which are of interest. There almost always are.

Another Reason To Like China Mobile (941 HK)

In March, the HK Secretary for Financial Services announced a waiver of stamp duty on dual counter trading market making. In November, the Govt of HK gazetted a bill.
HKEX launched plans in December. 9 large HK names announced in March they’d apply (Tencent, Kuaishou, Geely, BOC, Anta, AIA, China Resources Beer, Bidu, HKEX). Six more in April.
All the announcements are similar. But one on 21 April caught my eye because it is a big H/A with strong southbound support. That’s China Mobile (941 HK).

Merger Arb Mondays (24 Apr) – AAG Energy, Jiangnan, HKBN, Healius, Lian Beng, Toyo

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), Estia Health (EHE AU), Aag Energy Holdings (2686 HK), United Malt Group Ltd (UMG AU), Origin Energy (ORG AU), Toshiba Corp (6502 JP).
Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), Golden Energy & Resources (GER SP), HKBN Ltd (1310 HK), Mincor Resources NL (MCR AU).

ZJLD Group: Limited Near-Term Post-IPO Upside, but Long-Term Prospects Indicate a Promising Future

By Andrei Zakharov

ZJLD Group, a founder-led baijiu company, backed by PE firm KKR priced its Hong Kong IPO at HK$10.82/share. ZJLD Group shares are expected to start trading on Thursday, Apr.27.
The company’s IPO price implies a market cap of ~$4.6B, making it the Hong Kong’s largest IPO this year. Goldman Sachs and China Securities International acted as joint sponsors.
Baijiu is the world’s most consumed liquor and accounted for ~70% of the alcoholic beverage market in China in 2021. Baijiu has a history of more than 5,000 years.

Shangri-La Asia (69 HK): Not yet Fully Reflected China’s Comeback

By Osbert Tang, CFA

Despite Shangri-La Asia (69 HK)‘s good share price performance YTD, it has still not yet fully reflected the strengths of and benefits from China’s re-opening. More upside to come.
Occupancy for Hong Kong and mainland China has surged 30-45pp YoY in Mar, and with China’s RevPAR for FY22 is down 56.5% from peak, we see massive rebound in profitability.
Share of China’s EBITDA was US$258m in FY22, from US$465m in FY16-19, suggests good room for recovery. It is cheap on ~70% discount to revalued NAV, vs. 37% in FY18.

Weekly Deals Digest (23 Apr) – HKBN, Jiangnan, Lian Beng, Yuexiu Property, ZJLD, Mankind, Adicon