Smartkarma Daily Briefs

Today is the last day of trading for Mapletree North Asia Commercial Trust (MAGIC SP) also known as MNACT.
That means today is index deletion day for any number of global indices, even though MNACT is not in many of the major ones.
Payment will be S$1.949/unit plus a Clean-Up Distribution. There may be opportunities at the close. Strategy below.

Giordano (709 HK): Cheng Family Offer Or Cashing Out?

Giordano International (709 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code.
The Cheng Yu Tung family is the largest shareholder with 24.37%, as it has been since December 2015. A possible Offer ahead of a (potentially) improving retail outlook?
And just for some (possible) added excitement, David Webb holds 5.1%.

Kakao Pay Block Sale: It Seems Alibaba Is Liquidating Investments to Fund Loss Making Ventures

By Oshadhi Kumarasiri

Ant Financial Services Group (6688 HK) is declaring a dividend at a time when regulators have forced the company to increase its capital base.
Moreover, Ant’s financial performance doesn’t support a dividend payment of RMB 11.8bn in the short term.
We think the sale of 5.0m Kakao Pay (377300 KS) shares today was forced upon Ant through the lack of usual funding sources at Alibaba Group (9988 HK)’s disposal.

Atlas Arteria (ALX AU): IFM Investors Comes Knocking

Fresh from successfully taking out Sydney Airport (SYD AU) earlier this year, IFM is reportedly on the cusp of submitting a non-binding indicative proposal for Atlas Arteria (ALX AU)
A proposal is contingent on being granted limited due diligence. Meanwhile, IFM has accumulated an economic interest in ALX of 15%.
ALX said they have not received any information on a proposal. Expect that to occur shortly.

HS Holdings (8699 JP): Khan Bank IPO Delayed but Path Clear

The saga that has been the Sawada now HS Holdings (8699 JP) effective control change and change in Mongolian Banking Law has been interesting but the end game is clear.
Last week, the Mongolian parliament extended the listing deadline for the top 5 Mongolian banks from June 2022 to June 2023. The IPO has been pushed back. Which is good.
The stock is not what people think it is, and the implied PBR and PER of Khan Bank exposure on a cash-adjusted basis is VERY low.

Lotte Chilsung Beverage: Block Deal Sale by Hotel Lotte

After the market close today, Lotte Chilsung Beverage Co announced that there will be a block deal sale of the company (200,000 shares), representing 2.15% of total outstanding shares.
The discount rate range is 185,250 won to 189,150 won, which are 3% to 5% discount from the closing price today (195,000 won).
We have a Positive view on Lotte Chilsung Beverage and we would take this deal.

Uniti Group: 15th July To Vote On Morrison/Brookfield’s Scheme

The Scheme Booklet for Morrison/Brookfield/CSC’s Offer for Uniti Group Ltd (UWL AU) has now been despatched. The Scheme Meeting will be held on the 15th July.
The Independent Expert considers the terms to be fair and reasonable with a fair value range between A$4.65-A$5.20 compared to the Offer price of $5.00/share.
Trading tight to terms, as it has done since parties entered into the Scheme Implementation Deed.

STAR50 Index Rebalance Preview (Sep): Change Is the Only Constant

With only one change expected in September using a 12 month minimum listing history, we expect the index committee to continue using a 6 month minimum listing history.
That will see the maximum of 5 changes that are permitted at a single rebalance resulting in a one-way turnover just shy of 5%.
Over the last few rebalances, the adds have outperformed the deletes post the end of the review period. That’s expected given passive trackers need to buy/sell a lot of stock.

Uniti’s Scheme Meeting on 15 July, IE’s Opinion

By Arun George

Unsurprisingly, the independent expert (IE) considers the consortium’s offer of A$5.00 per share to be fair and reasonable. We think that IE’s valuation approach is sound.
The key condition is approval from Uniti Group Ltd (UWL AU) shareholders and regulatory authorities (FIRB). The scheme meeting is scheduled for 9:30 am on 15 July.
We continue to think that offer is attractive. At the last close price and for the 4 August implementation date, the gross and annualised spread is 0.8% and 5.1%, respectively.

Kakao Pay: Comp Valuation Analysis Suggests Additional 40% Downside Risk

Our base case valuation of Kakao Pay is market cap of 7.1 trillion won or 53,767 won per share, which represents an additional 40% downside risk from current levels.
Our base case valuation is based on 5x EV/Sales multiple and applying this to the consensus estimated sales of 898 billion won in 2023.
The fact that the share price ended 15.6% lower (much bigger than block deal discount range of 8.5% to 11.8%) suggests a lower probability of an MSCI Korea index inclusion.

Before it’s here, it’s on Smartkarma

Jun 09

TMT: Tencent, Twitter Inc, ACM Research Shanghai Inc, GoGoX Holdings, GoTo, Net Protections, Bitcoin, Abbvie Inc, Credicorp Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Tencent/Netease: Smell of Common Prosperity in June Game Approval
Tencent – Cold Shoulder On New Game Approvals Is A Concern
Elon’s Trying To Get Out Of Buying Twitter—As We Knew He Would
STAR50 Index Rebalance Preview (Sep): Change Is the Only Constant
GOGOX IPO: Growth at All Costs
GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability
Net Protections Holding IPO Lock-Up – Small Expiry Now, Before 20% Is Released Later in the Year
Crypto Biweekly – Breakdown In Correlation Between Crypto and Equity as Market Wait for ETH 2.0
Diamond Hill All Cap Select Fund Q1 2022 Market Commentary
Diamond Hill International Fund 2022 Market Commentary

Tencent/Netease: Smell of Common Prosperity in June Game Approval

By Ke Yan, CFA, FRM

China announced game approval last night for June batch, after a break in May.
We discussed in our previous note that China had resume game approval but at a slower pace.
Tencent and Netease continue to score zero in June domestic game approval.

Tencent – Cold Shoulder On New Game Approvals Is A Concern

By Mio Kato

As reported by Reuters, yesterday China’s gaming regulator granted licences for 60 new games, none of which were published by Tencent or NetEase.
The two dominant companies in the industry did not feature in the list of 45 approvals in April either and this pattern should not be ignored by investors.
The lack of approval of foreign titles in the two batches is also striking and a further negative in our view.

Elon’s Trying To Get Out Of Buying Twitter—As We Knew He Would

By Vicki Bryan

Elon can’t get out of his stupidly overpriced, but solidly binding agreement to buy Twitter. But he can tie it up in court indefinitely.
Meanwhile, Twitter’s prospects for operational improvement are mixed at best.
Twitter is left in limbo, as are its investors. What should bondholders do?

STAR50 Index Rebalance Preview (Sep): Change Is the Only Constant

By Shifara Samsudeen, ACMA, CGMA

With only one change expected in September using a 12 month minimum listing history, we expect the index committee to continue using a 6 month minimum listing history.
That will see the maximum of 5 changes that are permitted at a single rebalance resulting in a one-way turnover just shy of 5%.
Over the last few rebalances, the adds have outperformed the deletes post the end of the review period. That’s expected given passive trackers need to buy/sell a lot of stock.

GOGOX IPO: Growth at All Costs

By Arun George

GoGoX Holdings (GOGO HK) is a major online intra-city logistics platform in Asia. It has passed the listing hearing for an HKEx IPO to raise US$100-150 million.
In GOGOX IPO Initiation: A Less than Perfect Delivery, we noted that as the losses are expected to persist over the next three years, we would avoid the IPO.
In this note, we examine the PHIP for the 2021 results and recent developments. The fundamentals remain unattractive and we would give the IPO a pass.

GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability

GoTo (GOTO IJ) announced 1Q2022 and FY2021 results on 30th May. Gross income grew by 43.5% YoY in 2021 with a growth of 53.5% YoY in 1Q2022.
However, gross margins show no improvement and operating losses have also worsened with the merger of Tokopedia in May 2021.
GoTo plans to turnaround its profitability through synergies, improved monetisation and cost efficiencies. However, we don’t expect profits in the near future.

Net Protections Holding IPO Lock-Up – Small Expiry Now, Before 20% Is Released Later in the Year

By Sumeet Singh

Net Protections Holdings, a buy now pay later service provider, raised around US$570m via selling a mix of primary and secondary shares in its Japan IPO in Dec 2021.
As per Yano Research, it had 40% market share in the domestic BNPL market for B2C transactions.
In this note, we will talk about the upcoming lock-up expiry on 12th Jun 2022.

Crypto Biweekly – Breakdown In Correlation Between Crypto and Equity as Market Wait for ETH 2.0

By Josh Du

Crypto and equity correlations are at all-time highs this year as both are negatively impacted by global headwinds like rate hikes. However, correlations decoupled over the past two weeks
Equities were in the positives while crypto prices continued to decline due to idiosyncratic factors such as the continued impact from Luna and the execution risks of ETH 2.0 merger
However, public crypto valuation is now overly depressed and the worst may be over with the Luna impact while the ETH 2.0 execution risk will be derisked imminently

Diamond Hill All Cap Select Fund Q1 2022 Market Commentary

By Fund Newsletters

Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
During a volatile quarter, the Diamond Hill All Cap Select Fund held up meaningfully better than the Russell 3000 Index.
After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
While the year-to-date pullback in equity markets has created some investment opportunities, broad market valuations remain above historical averages.

Diamond Hill International Fund 2022 Market Commentary

By Fund Newsletters

Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
During a volatile quarter, the portfolio held up better than the Morningstar Global Markets ex-US Index by a decent margin.
After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
We expect to see varying states of economic growth aroundthe world in 2022 and believe persistent inflation will be one of the mostcritical risk factors economies face this year.

Before it’s here, it’s on Smartkarma

Jun 09

Singapore: Mapletree North Asia Commercial Trust and more

By Smartkarma Daily Briefs | Daily Briefs, Singapore

In today’s briefing:

Last Minute MNACT Arb and Index Selling

Last Minute MNACT Arb and Index Selling

Today is the last day of trading for Mapletree North Asia Commercial Trust (MAGIC SP) also known as MNACT.
That means today is index deletion day for any number of global indices, even though MNACT is not in many of the major ones.
Payment will be S$1.949/unit plus a Clean-Up Distribution. There may be opportunities at the close. Strategy below.

Before it’s here, it’s on Smartkarma

Jun 09

Consumer: Giordano International, Alibaba Group, WM Motor Technology Co Ltd, Lotte Chilsung Beverage Co, Uniti Group Ltd, Tuhu Car, Kakao Pay, Netflix Inc, Abbott Laboratories and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

Giordano (709 HK): Cheng Family Offer Or Cashing Out?
Kakao Pay Block Sale: It Seems Alibaba Is Liquidating Investments to Fund Loss Making Ventures
WM Motor Pre-IPO Tearsheet
Lotte Chilsung Beverage: Block Deal Sale by Hotel Lotte
Uniti Group: 15th July To Vote On Morrison/Brookfield’s Scheme
Uniti’s Scheme Meeting on 15 July, IE’s Opinion
Tuhu Car Pre-IPO – The Negatives – Remains Unprofitable and Have Been Racking up Its Payables
Kakao Pay: Comp Valuation Analysis Suggests Additional 40% Downside Risk
TMT Quick Hits: INTC/AMD, NFLX/ROKU
Diamond Hill Long-Short Fund 2022 Market Commentary

Giordano (709 HK): Cheng Family Offer Or Cashing Out?

Giordano International (709 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code.
The Cheng Yu Tung family is the largest shareholder with 24.37%, as it has been since December 2015. A possible Offer ahead of a (potentially) improving retail outlook?
And just for some (possible) added excitement, David Webb holds 5.1%.

Kakao Pay Block Sale: It Seems Alibaba Is Liquidating Investments to Fund Loss Making Ventures

By Oshadhi Kumarasiri

Ant Financial Services Group (6688 HK) is declaring a dividend at a time when regulators have forced the company to increase its capital base.
Moreover, Ant’s financial performance doesn’t support a dividend payment of RMB 11.8bn in the short term.
We think the sale of 5.0m Kakao Pay (377300 KS) shares today was forced upon Ant through the lack of usual funding sources at Alibaba Group (9988 HK)’s disposal.

WM Motor Pre-IPO Tearsheet

By Ethan Aw

WM Motor Technology Co Ltd (WMT CH) is looking to raise about US$1bn in its upcoming Hong Kong IPO. The deal will be run by Haitong International, CMBI and BOCI.
WM Motor is a smart EV player in China. As of the latest practicable date, it had a total of four main EV models (with various versions of each model).
As per the CIC, it was the first EV automaker in China to have established its own manufacturing facilities from the outset.

Lotte Chilsung Beverage: Block Deal Sale by Hotel Lotte

After the market close today, Lotte Chilsung Beverage Co announced that there will be a block deal sale of the company (200,000 shares), representing 2.15% of total outstanding shares.
The discount rate range is 185,250 won to 189,150 won, which are 3% to 5% discount from the closing price today (195,000 won).
We have a Positive view on Lotte Chilsung Beverage and we would take this deal.

Uniti Group: 15th July To Vote On Morrison/Brookfield’s Scheme

The Scheme Booklet for Morrison/Brookfield/CSC’s Offer for Uniti Group Ltd (UWL AU) has now been despatched. The Scheme Meeting will be held on the 15th July.
The Independent Expert considers the terms to be fair and reasonable with a fair value range between A$4.65-A$5.20 compared to the Offer price of $5.00/share.
Trading tight to terms, as it has done since parties entered into the Scheme Implementation Deed.

Uniti’s Scheme Meeting on 15 July, IE’s Opinion

By Arun George

Unsurprisingly, the independent expert (IE) considers the consortium’s offer of A$5.00 per share to be fair and reasonable. We think that IE’s valuation approach is sound.
The key condition is approval from Uniti Group Ltd (UWL AU) shareholders and regulatory authorities (FIRB). The scheme meeting is scheduled for 9:30 am on 15 July.
We continue to think that offer is attractive. At the last close price and for the 4 August implementation date, the gross and annualised spread is 0.8% and 5.1%, respectively.

Tuhu Car Pre-IPO – The Negatives – Remains Unprofitable and Have Been Racking up Its Payables

By Clarence Chu

Tuhu Car (2007986D HK) is looking to raise up to US$400m in its upcoming Hong Kong IPO.
Tuhu is an integrated online and offline platform for automotive services in China.
The firm remains loss making with no signs of being profitable in the near/medium term given its aggressive growth strategy.

Kakao Pay: Comp Valuation Analysis Suggests Additional 40% Downside Risk

Our base case valuation of Kakao Pay is market cap of 7.1 trillion won or 53,767 won per share, which represents an additional 40% downside risk from current levels.
Our base case valuation is based on 5x EV/Sales multiple and applying this to the consensus estimated sales of 898 billion won in 2023.
The fact that the share price ended 15.6% lower (much bigger than block deal discount range of 8.5% to 11.8%) suggests a lower probability of an MSCI Korea index inclusion.

TMT Quick Hits: INTC/AMD, NFLX/ROKU

By Aaron Gabin

Intel warned that conditions outlined in 1Q22 have worsened, key to see what AMD says tomorrow.
Netflix – Roku rumor doesn’t make much sense, we think its more likely Roku cut off insider selling because it is looking to acquire Starz.
Netflix churn is rising among longtime customers – going to ad-supported Peacock and Paramount. We think another guide down is coming in 2Q22.

Diamond Hill Long-Short Fund 2022 Market Commentary

By Fund Newsletters

Diamond Hill invests on behalf of clients through a shared commitment to its valuation-driven investment principles, long-term perspective, capacity discipline and client alignment.
The Diamond Hill Long-Short Fund’s returns were just about flat—slightly positive— in Q1.
After a strong rebound in 2021, global GDP growth is expected to moderate in 2022.
From current levels, equity market returns over the next five years are likely to be below historical averages.

Before it’s here, it’s on Smartkarma

By Shifara Samsudeen, ACMA, CGMA

Jun 09

Indonesia: GoTo and more

By Smartkarma Daily Briefs | Daily Briefs, Indonesia

In today’s briefing:

GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability

GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability

GoTo (GOTO IJ) announced 1Q2022 and FY2021 results on 30th May. Gross income grew by 43.5% YoY in 2021 with a growth of 53.5% YoY in 1Q2022.
However, gross margins show no improvement and operating losses have also worsened with the merger of Tokopedia in May 2021.
GoTo plans to turnaround its profitability through synergies, improved monetisation and cost efficiencies. However, we don’t expect profits in the near future.

Before it’s here, it’s on Smartkarma

By Shifara Samsudeen, ACMA, CGMA

Jun 09

Equity Bottom-Up: Tencent, Netflix Inc, Escorts Ltd, GoTo, Ironwood Pharmaceuticals, Inc and more

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

In today’s briefing:

Tencent/Netease: Smell of Common Prosperity in June Game Approval
Tencent – Cold Shoulder On New Game Approvals Is A Concern
TMT Quick Hits: INTC/AMD, NFLX/ROKU
Escorts Ltd (ESC IN) | Expected to Grow Slower than Industry
GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability
Ironwood Pharmaceuticals (IRWD US): Brand Leadership of Linzess Continues; Pipeline Advances

Tencent/Netease: Smell of Common Prosperity in June Game Approval

By Ke Yan, CFA, FRM

China announced game approval last night for June batch, after a break in May.
We discussed in our previous note that China had resume game approval but at a slower pace.
Tencent and Netease continue to score zero in June domestic game approval.

Tencent – Cold Shoulder On New Game Approvals Is A Concern

By Mio Kato

As reported by Reuters, yesterday China’s gaming regulator granted licences for 60 new games, none of which were published by Tencent or NetEase.
The two dominant companies in the industry did not feature in the list of 45 approvals in April either and this pattern should not be ignored by investors.
The lack of approval of foreign titles in the two batches is also striking and a further negative in our view.

TMT Quick Hits: INTC/AMD, NFLX/ROKU

By Aaron Gabin

Intel warned that conditions outlined in 1Q22 have worsened, key to see what AMD says tomorrow.
Netflix – Roku rumor doesn’t make much sense, we think its more likely Roku cut off insider selling because it is looking to acquire Starz.
Netflix churn is rising among longtime customers – going to ad-supported Peacock and Paramount. We think another guide down is coming in 2Q22.

Escorts Ltd (ESC IN) | Expected to Grow Slower than Industry

By Pranav Bhavsar

Escorts Ltd (ESC IN) has been losing market share. As per management, “there are no “big” problems and they will regain the market share”, but we do not think so.
Some flash channel checks are suggesting issues with some of the company’s products. These issues still remain unaddressed as per some dealers and customers.
While the export opportunity and overall industry dynamics are positive unless the market share is regained, growth is likely to be slower than industry.

GoTo: Growth in Top Line Doesn’t Mean Improvement in Profitability

GoTo (GOTO IJ) announced 1Q2022 and FY2021 results on 30th May. Gross income grew by 43.5% YoY in 2021 with a growth of 53.5% YoY in 1Q2022.
However, gross margins show no improvement and operating losses have also worsened with the merger of Tokopedia in May 2021.
GoTo plans to turnaround its profitability through synergies, improved monetisation and cost efficiencies. However, we don’t expect profits in the near future.

Ironwood Pharmaceuticals (IRWD US): Brand Leadership of Linzess Continues; Pipeline Advances

By Tina Banerjee

Ironwood Pharmaceuticals, Inc (IRWD US)’s sole marketed drug Linzess is the #1 prescribed branded treatment in the U.S. for adults with IBS-C/CIC with ~4M unique patients since launch.
First commercialized in December 2012, Linzess achieved blockbuster drug status in 2021. The earliest licensed entry of any generic Linzess in the U.S. is expected only in March 2029.
The company’s potential drug candidate IW-3300 is in phase 1 trial for interstitial cystitis/bladder pain syndrome (IC/BPS). Recently, Ironwood has shared positive findings from the study.

Before it’s here, it’s on Smartkarma

Jun 09

Most Read: Kakao Pay, Gongniu Group Co Ltd, Mapletree North Asia Commercial Trust, Atlas Arteria, Tencent and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations
Stock Connect Changes & MSCI/FTSE Deletions on Friday
Last Minute MNACT Arb and Index Selling
Atlas Arteria Group (ALX AU): IFM Makes an Approach
Tencent/Netease: Smell of Common Prosperity in June Game Approval

Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations

By Sanghyun Park

Alipay’s stake sale raises another critical issue: Kakao Pay’s MSCI inclusion. Kakao Pay comfortably satisfies the full MC threshold but tightly exceeds the float MC hurdle.
As for the passive flow, we should see an inflow of 6.11x ADTV, equivalent to 1.48% of SO. It represents nearly 2M shares, close to ₩210B.
If we build up a position betting on Kakao Pay’s downward trend due to Alipay’s block deal risk, we should consider temporarily switching the position when this event is triggered.

Stock Connect Changes & MSCI/FTSE Deletions on Friday

Changes to the Northbound Stock Connect Buy and Sell list were announced yesterday with 35 SSE-listed stocks becoming sell-only, and 32 SZSE-listed stocks becoming sell-only.
This will result in the deletion of 45 stocks from the FTSE All-World, All-Cap and Micro-cap indices, while there will be 9 deletions from the MSCI Standard Index.
There are a few stocks with over 1 day of ADV to sell from passive trackers and these stocks could trade weaker than the market over the next few days.

Last Minute MNACT Arb and Index Selling

Today is the last day of trading for Mapletree North Asia Commercial Trust (MAGIC SP) also known as MNACT.
That means today is index deletion day for any number of global indices, even though MNACT is not in many of the major ones.
Payment will be S$1.949/unit plus a Clean-Up Distribution. There may be opportunities at the close. Strategy below.

Atlas Arteria Group (ALX AU): IFM Makes an Approach

IFM bought around 67.1m shares (7% of shares out) of Atlas Arteria (ALX AU) at A$8.1/share last evening taking its total holding to around 15% of shares outstanding.
IFM intends to request certain information that would help it assess whether it can submit a non-binding proposal to acquire all the shares in Atlas Arteria that it does not own.
With the indicative offer floor set at A$8.1/share, Atlas Arteria still trades cheaper than Transurban Group and offers a 14% premium to last close and even higher premiums to longer-term VWAPs.

Tencent/Netease: Smell of Common Prosperity in June Game Approval

By Ke Yan, CFA, FRM

China announced game approval last night for June batch, after a break in May.
We discussed in our previous note that China had resume game approval but at a slower pace.
Tencent and Netease continue to score zero in June domestic game approval.

Before it’s here, it’s on Smartkarma

Jun 08

South Korea: Kakao Pay and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Kakao Pay Placement – Discount Is Enticing, That’s It
Kakao Pay: Block Deal Sale by Alipay (Big Overhang on Future Sales)
Alipay’s Kakao Pay Exit: Common Prosperity Policy or Partnership Starting to Crack?
Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations

Kakao Pay Placement – Discount Is Enticing, That’s It

By Sumeet Singh

Alipay aims to raise around US$386m via selling around 3.3% of outstanding shares of Kakao Pay.
The stock more than doubled on listing, providing one of the best first day returns in 2021. However, its performance since then hasn’t been all that great.
In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Kakao Pay: Block Deal Sale by Alipay (Big Overhang on Future Sales)

After the market close today, Kakao Pay (377300 KS) announced that there will be a block deal sale of the company’s shares (5 million) by Alipay Singapore Holdings.
Alipay is the second largest shareholder of Kakao Pay with a 38.52% stake. After the block deal sale, there will be continued overhang on the remaining shares held by Alipay.
We continue to have a NEGATIVE view on Kakao Pay and we also have a negative view on this block deal sale as well.

Alipay’s Kakao Pay Exit: Common Prosperity Policy or Partnership Starting to Crack?

By Sanghyun Park

Alipay’s return on investment is 10x, so it may be natural to realize a profit for some stakes. But the local market believes that the strategic partnership is cracking.
Starting with this stake sale, it is highly likely that Alipay will go through a multi-phased stake sale process similar to that of Temasek/JPM’s Celltrion stake sales.
Meanwhile, we should also pay attention to the possibility that this block deal by Alipay will likely lead to the inclusion of Kakao Pay in the MSCI August IR.

Kakao Pay’s MSCI August QIR Inclusion: Screening/Passive Flow Calculations

By Sanghyun Park

Alipay’s stake sale raises another critical issue: Kakao Pay’s MSCI inclusion. Kakao Pay comfortably satisfies the full MC threshold but tightly exceeds the float MC hurdle.
As for the passive flow, we should see an inflow of 6.11x ADTV, equivalent to 1.48% of SO. It represents nearly 2M shares, close to ₩210B.
If we build up a position betting on Kakao Pay’s downward trend due to Alipay’s block deal risk, we should consider temporarily switching the position when this event is triggered.

Before it’s here, it’s on Smartkarma

Jun 08

Japan: Softbank Group, NTT Data Corp, PAL GROUP Holdings Co., Ltd., Torikizoku and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

Softbank Group – Didi Relief and ZME Pain Highlight Multiple Potential Outcomes
Parent-Subsidiary Listing Investment Strategy Update (5)
Record Sales for Pal Group Driven by 300 Yen Chain
Torikizoku Holdings (3193): May SSS Recovered to 83% of Pre-Pandemic Levels

Softbank Group – Didi Relief and ZME Pain Highlight Multiple Potential Outcomes

By Kirk Boodry

Didi shares jumped 24% on reports regulatory relief was at hand. That is good news for Softbank although the halo effect boosting Alibaba had more of a valuation impact
Less noticed but also relevant as a potential outcome is the de-listing of Zhangmen Education which fell 50% Monday and is down 97% for VF in total
Softbank shares trade at a 43% discount to fair value and remain range-bound. Tech market sentiment remains the primary driver and we continue to be cautious

Parent-Subsidiary Listing Investment Strategy Update (5)

By Aki Matsumoto

This article updates NTT DATA by referring my earlier article although Hopes of NTT Data becoming a wholly owned subsidiary are far from fulfilled after the May 9th news conference.
My previous article stated reorganization with NTT’s overseas operations is priority to strengthen NTT Data’s overseas business. NTT Data’s stock price is highly valued while NTT Data’s profitability is lacking.
The timing of NTT Data becoming a wholly owned subsidiary will depend solely on how quickly the company can raise its profitability while it focuses more on domestic business.

Record Sales for Pal Group Driven by 300 Yen Chain

By Michael Causton

Not many retailers could boast sales growth of more than 50% last year, especially a retailer from the fashion sector.
Pal Group’s 3Coins managed this thanks to the huge success of the discount fashion to home decor format.
Its success is one more example of the growth in discount chains.

Torikizoku Holdings (3193): May SSS Recovered to 83% of Pre-Pandemic Levels

By Mita Securities

Same-store sales were 1648.4% vs. May 2021 (208.7% for April), 684.1% vs. May 2020 (1979.9% for April), and 83.2% vs. May 2019 (77.2% for April)
Note that both May 2021 and May 2020 were significantly affected by the emergency measures
The number of holidays (weekends and holidays) was one day less than in May 2021 and May 2020, and two more than in May 2019

Before it’s here, it’s on Smartkarma

Jun 08

India: Escorts Ltd, Metropolis Healthcare Limited, IFB Industries, Kansai Nerolac Paints, Marksans Pharma, Rossari Biotech, Sobha Ltd, Gland Pharma Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, India

In today’s briefing:

India Channel Insight #37 | Escorts & Mahindra & Mahindra (Tractors)
Metropolis Healthcare (METROHL IN): Adani & Apollo Eyeing Majority Stake? Could Outperform Dr Lal
IFB Industries – Margin Pressures Impacts Profitability; Confident of Healthy Demand in Future
Kansai Nerolac – Results Reviews – Weakest Among Peers; Pain Seems Priced In
Marksans Pharma- Management Meet Update
Rossari Biotech: Complete Pass-Through Is a Challenge in Formulations Biz
Sobha – Steady Operating Performance; Deleveraging Balance Sheet
Gland Pharma- Management Meet Update

India Channel Insight #37 | Escorts & Mahindra & Mahindra (Tractors)

By Pranav Bhavsar

Consumer sentiment and demand environment is stable in Rural India.
There is a bit of optimism and hope of breaching FY20 volumes in FY23, supported with some pricing action.
Technical/Product issues are leading to a loss of market share for Escorts Ltd (ESC IN)

Metropolis Healthcare (METROHL IN): Adani & Apollo Eyeing Majority Stake? Could Outperform Dr Lal

By Janaghan Jeyakumar, CFA

Several press reports regarding potential takeover speculations related to Indian diagnostics company Metropolis Healthcare Limited (METROHL IN) have emerged in the Indian press over the last few days.
Metropolis Healthcare Limited currently has a total market capitalization of US$1bn.
Below is a closer look at the details of the situation.

IFB Industries – Margin Pressures Impacts Profitability; Confident of Healthy Demand in Future

Front-load Washing Machine update: Front-load Washing Machine revenue grew by 2.8% YoY in 4QFY22 to Rs2.38bn. Sales were affected in Dec’21 and Jan’22 due to the third covid wave.

Top-load Washing Machine update: Sales of top-load Washing Machines increased by 33.6% YoY in 4QFY22 to Rs972mn.

Outlook: Over FY21-FY24E, we expect IFB to post 22.4% revenue CAGR. With the commissioning of self- manufacturing plant, addition of AC OEMs and scale-up in other categories, we expect earnings CAGR of 45.2% over FY21-FY24E.

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Kansai Nerolac – Results Reviews – Weakest Among Peers; Pain Seems Priced In

By HDFC Securities

Q4FY22 highlights: Standalone revenue grew 6% YoY to INR 14.1bn (in-line).
In decorative segment, volume declined 7-8%/value remained flat YoY in Q4; performance continued to lag the top two.
FY22 price hikes in decorative/industrial coatings stood at ~21/18%.

Marksans Pharma- Management Meet Update

Efforts around portfolio selection and disciplined R&D has helped the company profitably build its export formulations business

Outlook: The company will incur capital expenditure on its existing facility upgradation; and it is also open to pursuing an acquisition (~Rs2,000mn is the allocation).

Targeting customer acquisition and geographic expansion in the US market: The company has added new retailers in the US market with an intention to penetrate tier 2 & tier 3 cities.

Rossari Biotech: Complete Pass-Through Is a Challenge in Formulations Biz

ROSSARI has taken some price hikes from March’22 in order to cope with the ongoing inflationary challenges.
Formulations business is the core strength of ROSSARI’s business model and inability to pass on the cost impact would mean margin pressure for two more quarters

On a consolidated basis, the management has guided for Rs20bn revenue and Rs2.5bn EBITDA for FY23.

Sobha – Steady Operating Performance; Deleveraging Balance Sheet

Sales volume increases by 1.5% QoQ and by 0.4% YoY: Average sales volume increased by 1.5% QoQ from ~1.32mn sqft in 3QFY22 to ~1.34mn sqft in 4QFY22 and realization increased by 4.4% QoQ to Rs 8,265/sqft.
In 4QFY22, the Bangaluru market was the key contributor, with sales volume of 0.93mn sqft and contributed 69% to total volume. Bangaluru was followed by Gurgaon, with sales volume of 0.23mn sqft, which was up by 22% QoQ and contributed 17% to total sales volume.
The company launched Sobha Brooklyn Tower Wing 3 in Bengaluru with a built up area of ~0.20mn sqft.

Gland Pharma- Management Meet Update

Shortages that affected US business are resolved: Gland Pharma faced challenges in the US business on account of key component shortages like syringes, vials, stoppers & needles etc. as its major USFDA-approved supplier rooted its capacity for vaccine manufacturing, leading to residual orders getting piled up.

Levers for EBITDA margin enhancement going forward: Gland Pharma will have a single- minded focus on EBITDA margin rather than gross margin.

Effect of thrust on the CDMO business: Gland Pharma does not see significant enhancement in opex on account of CDMO business going forward given that costs have already been absorbed in 4QFY22.

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