Smartkarma Daily Briefs

• This insight comes as one-half of a pair. The problem: I cannot label one insight as a pair trade, and there are different dynamics at play.
• This insight discusses the dynamics of Sembcorp Marine (SMM SP) as the takeover of Keppel O&M nears. The deal goes effective 28 February after last week’s SMM shareholder approval.
• That will mean overhang. Lots of active overhang. There WILL be some index upweights, but index treatment remains nebulous, and one has to expect a lot more net index outflow.

• This insight comes as one-half of a pair. The problem: I cannot label one insight as a pair trade, and there are different dynamics at play.
• This insight discusses the dynamics of Keppel Corp (KEP SP) as the SMM takeover of Keppel O&M nears. The deal goes effective 28 February but KEP trades ex- on 23 February.
• While not as egregiously mis-priced as SCI vs SMM in autumn 2021, NEW KEPPEL appears under-priced here. 

• The announcement of the changes to the FTSE GEIS was made on Friday post market close. Friday was also the cutoff for the March review of the S&P/ASX indices.
• Monday is the review cutoff for some indices, while Friday is the announcement of the changes to the Hang Seng family of indices and the SSE STAR50 (STAR50 INDEX). 
• There were big outflows from the IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) for yet another week taking YTD outflows to nearly US$3bn.

• The transaction completes on 28 February and the distribution in-specie of 49% new Sembcorp Marine (SMM SP) shares will be credited to Keppel Corp (KEP SP)‘s shareholders on 1 March.   
• While the potential index inclusions are likely to support new SMM shares, there is likely to be greater short-term downward pressure from the overhang created by the distribution in-specie. 
• New SMM trades at a premium P/NAV multiple of 1.81x vs peers. However, New SMM’s order book of S$18.1 billion implies an undemanding EV/order book of 0.60x vs historical ranges.

• Srisawad Power 1979 (SAWAD TB) is likely to join the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) in early March following the DTAC/TRUE merger.
• Then there should be one change in June with Thai Life Insurance (TLI TB) replacing Jaymart PCL (JMART TB) in the index.
• There is one stock close to failing the liquidity test and that could lead to another change with a few stocks vying for index inclusion.

• Keppel Corp (KEP SP) shares will trade ex-distribution on 23 February and the settlement of the new Sembcorp Marine (SMM SP) shares is expected to take place on 1 March.
• MSCI has announced the inclusion of Sembcorp Marine (SMM SP) in the MSCI Singapore Free Index (SIMSCI INDEX) at the close on 1 March.
• There are a lot of recent shorts on Sembcorp Marine (SMM SP) and there could be buying on the stock following the announcement of the MSCI inclusion.

• For the recent conversion, the listing date is March 3rd, involving 500K shares. Despite the ongoing rally, there is a possibility of a significant price impact due to the volume.
• We still have 1,632,333 shares to be converted. This represents 6.5% of the SO. There is a high likelihood that these will also be applied for conversion soon.
• Assuming that it occurs in increments of 400-500K, there could be roughly 3-4 opportunities for shorting.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Osbert Tang, CFA as he shares more about his top trade ideas in China, the latest trends, and business opportunities in the space.

The webinar will be hosted on Wednesday, 22 February 2023, 17:00 SGT/HKT.

Osbert Tang is an equity analyst with over 20 years of experience with focuses on China transport, infrastructure, industrials and utilities sectors. He has been based in Shanghai since 2003, accumulated nearly 20 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities. Osbert has received votes from top-tier institutional investors and has been a highly-ranked transport and infrastructure analyst in the Asiamoney, Institutional Investors and Greenwich surveys. In addition to his extensive experience with international investment banks including RBS, ABN AMRO (both served as Shanghai Chief Representative), Paribas Asia Equity, Maybank Kim Eng and DBS Securities, he has been a senior analyst with Moody’s Investors Service with focus on ratings of China infrastructure and related LGFV issuers. He has also worked in the area of strategic development at Sun Hung Kai Properties Limited. Osbert holds a BBA from the Chinese University of Hong Kong, an MBA from the University of Texas at Austin and a MSSc in Applied Psychology from the City University of Hong Kong. He was accredited with the CFA charter in 1997, and is a member of both British Psychological Society and Hong Kong Psychological Society.

• China Renaissance (1911 HK) was once touted as a “leading investment bank and asset manager dedicated to the new economy“. At the time of its 1Q21 post-IPO high, it was.
• Late last Thursday, the 16 February, CR said it was unable to contact (hours, days, weeks?) Bao Fan, its chairman, CEO, and controlling shareholder. Shares subsequently fell 28%.
• Bao is the face of CR and instrumental in client dealing and complex large-scale deal making. Clarification is recommended before investors dip their toe back in the water.

• Last night, MSCI announced Sembcorp Marine (SMM SP) will be added to MSCI Standard effective 2 March as the KOM Consideration Shares become tradable. This is something of a surprise.
• That other index family announced a temp line would be added to the index on receipt by Keppel shareholders. This dramatically changes the Day1 overhang arithmetic. 
• It erases most but not all of the Day 1 passive overhang, and means adding shares for the existing SMM portion. Medium-long-term active overhang is unchanged.