Smartkarma Daily Briefs

JD Health (6618 HK) and Yum China Holdings Inc (9987 HK) will replace Longfor Properties (960 HK) and XPeng (9868 HK) in the FTSE China 50 Index on 16 December.
The largest flow and impact of passive trading will be on Yum China Holdings Inc (9987 HK). There could be buying on Yum China Holdings, Inc (YUMC US) overnight.
Short interest on the deletes is over 7% of float and there could be short covering against the passive selling at the close on 16 December.

Rakuten (Neutral) – Follow up After Results: Mobile Issues Far from Over

By Kirk Boodry

Rakuten’s successful junk bond sale means the Rakuten Bank IPO will happen next year and not in December as some had feared
More detail on mobile shows that network costs including D&A are 4x that of service revenue and slightly higher QoQ. Roaming alone is higher than service revenue
And that means Rakuten can’t aggressively go after new subscribers unless it wants operating losses to accelerate. Bad for Rakuten but good news for incumbents KDDI, NTT and Softbank.

KLCI Index Rebalance: Preliminary Changes Announced; Should Be Same as Final

Post market close yesterday, FTSE announced the preliminary changes to the Kuala Lumpur Composite Index (KLCI) (FBMKLCI INDEX) for the December rebalance. The final changes will be announced today.
As expected, AMMB Holdings (AMM MK) and Ql Resources (QLG MK) will replace Hartalega Holdings (HART MK) and Top Glove Corp (TOPG MK) in the index.
From a near 20% index weight in 2020, Malaysian glovemakers will have no representation in the index once these changes are implemented.

Balrampur Chini Mills Ltd- Forensic Analysis

By Nitin Mangal

Balrampur Chini Mills (BRCM IN) is one of the major integrated sugar manufacturing companies in India. Besides sugar, the company also engages in the business of ethanol and power generation.
Balrampur has managed to turnaround its free cash flows and earnings quality. Additionally, it has also stabilized working capital on the back of declining debt.
While there are not many red flags, care must be given to inventory reconciliation with bank statement.

Mahindra & Mahindra (MM IN) | Wake up and Smell the Coffee

By Pranav Bhavsar

Mahindra & Mahindra (MM IN) ‘s production data provides more questions than answers.
The drop in production for Thar and XUV 700 in October in spite of the high order backlog is surprising.
Considering the industry outlook and the existing sales and production for these two models, we believe this demand forecast may not materialise

Lava International IPO: Forensic Analysis

By Nitin Mangal

Lava International (9263793Z IN) is one of the leading end-to-end focused mobile handset and mobile handset Solutions Company based in India, with operations in a number of countries.
Major business risk arises from external environment, as Lava is one of the prominent leaders in feature phone segment, where the market is dying.
Key forensic takeaways pertain to ECL provisioning and some absurd trend in line items. There are several discomforts on the governance end as well which must not be ignored.

Berli Jucker (BJC TB) – Back on the Boil

Berli Jucker (BJC TB) is seeing a recovery underway although it has been masked by YoY comparisons and some pressure from higher raw material costs for its packaging business.
The company is back into expansion mode in retail with 200 new Mini BIGC stores planned for 2023 plus it will increase its aluminium can capacity in Thailand by 10%.
Berli Jucker (BJC TB) continues to be an interesting recovery play as an indirect play on tourism and consumption recovery as well as now declining commodity prices.

BGF & BGF Retail Pair Trade: Two Sons of BGF Chairman Hong Receive a Combined 20.9% Stake in BGF

By Douglas Kim

It was announced today that Hong Jung-Guk (eldest son) received a 10.5% stake in BGF Co. (10 million shares) from his father Hong Suk-Jo.
Hong Jung-Hyeok’s (second son) stake in BGF also increased from 0.03% to 10.5%.
We like a pair trade between BGF Co (go long) and BGF Retail (go short). The combination of price momentum and valuation favor BGF vs BGF Retail.

Sky Perfect JSAT (Buy) – Q2 Follow up Plus Amazon Proof of Concept for Space Compass

By Kirk Boodry

We are publishing updated forecasts and commentary for Sky Perfect after meeting the company post-results
Media results were predictably weak but the company hopes to make up ground in H2 as it ramps up marketing spend to support sport packages that launch in Spring
Amazon’s reveal that it has tested LEO-based satellite software highlights cloud platform interest in space ICT infrastructure like that being pursued by Sky Perfect JSAT and NTT

Weilong Delicious Global Pre-IPO – Updated Peer Comp and Valuation

By Sumeet Singh

Weilong Delicious Global (WDG HK), a spicy snack food company in China, aims to raise around US$200m in its Hong Kong IPO.
According to F&S, WDG ranked first among spicy snack food enterprises in China, with a market share of 6.2%, and in the seasoned flour product and spicy vegetable snacks categories.
In this note, we provide an update to our earlier peer comparison and valuations.

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Dec 01

Daily Brief Energy/Materials: Posco Chemical Co Ltd, Warrego Energy, Lygend Resources & Technology, Origin Energy, ABM Investama, Indocement Tunggal Prakarsa and more

By Smartkarma Daily Briefs | Daily Briefs, Energy & Materials Sector

In today’s briefing:

CSI KRX China-Korea: Rebalancing Results from KRX & Flow Trading Considerations
Reinhart Edges Stokes In Tussle For Warrego Energy
Lygend Resources & Technology IPO: Trading Debut
Warrego (WGO AU) In a Three-Way Tussle with Hancock’s A$0.23 Offer
(Mostly) Asia M&A Nov 2022 Roundup: Origin, Perpetual, Mori Trust, Uzabase, Chip Eng, Golden Energy
Asia HY Trade Book – November 2022 – Lucror Analytics
Lygend Resources & Technology IPO Trading – Tepid Subscription but Potential Upside Remains
Indocement (INTP IJ) – Increasing Reach, Reducing Costs, and Improving Sustainability

CSI KRX China-Korea: Rebalancing Results from KRX & Flow Trading Considerations

By Sanghyun Park

KRX unveiled the rebalancing results of the CSI KRX China-Korea indices for Korean constituents yesterday.
There is still insufficient evidence data to estimate specific passive impact. The previous rebalancing in June showed no clear correlation between constituent changes and price impact.
Although it may be risky to trade on this rebalancing, monitoring the correlation of their passive impact at this point, one year after the release, seems worthwhile.

Reinhart Edges Stokes In Tussle For Warrego Energy

Gina Rinehart’s Hancock Prospecting has joined the bidding war for Warrego Energy (WGO AU) with a A$0.23/share, all cash, off-market Offer versus Beach Energy (BPT AU)‘s management-backed A$0.20/share Scheme Offer.
Hancock has already lodged the Bidder’s Statement. There is no minimum acceptance condition attached to this offer.
Warrego currently recommends Beach’s Offer, subject to no superior proposal emerging. Beach has matching rights under the SID entered into on the 14 November.

Lygend Resources & Technology IPO: Trading Debut

Lygend Resources & Technology (2245 HK) priced its IPO at HK$15.80 per share to raise net proceeds of HK$3.5 billion (US$450 million). The shares will start trading tomorrow.
We previously discussed the IPO in Lygend Resources & Technology IPO: Riding the Wave and Lygend Resources & Technology IPO: Valuation Insights.
Peers have re-rated and the IPO price continues to imply a discount to the median peer CY2023 P/E multiple. Therefore, the IPO price remains attractive.

Warrego (WGO AU) In a Three-Way Tussle with Hancock’s A$0.23 Offer

Hancock’s offer of A$0.23 is at a 15% premium to Beach Energy (BPT AU)’s A$0.20 offer and a 21.1% premium to Strike Energy (STX AU)’s scrip value on 29 November.
The Hancock off-market offer for Warrego Energy (WGO AU) has no minimum acceptance condition or a material adverse change clause. The offer closes on 31 January 2023.
STX could be Hancock’s next logical target to facilitate Perth Basin consolidation. Between STX and BPT, BPT is more likely to return with an improved offer.

(Mostly) Asia M&A Nov 2022 Roundup: Origin, Perpetual, Mori Trust, Uzabase, Chip Eng, Golden Energy

For the month of November, 11 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$20bn.
The average premium for the new deals announced (or first discussed) in November was ~52%, and a year-to-date average of 41%.
This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

Asia HY Trade Book – November 2022 – Lucror Analytics

By Charles Macgregor

The Asia HY Trade Book for November 2022 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia (ex-Japan) HY and crossover credits.

Lygend Resources & Technology IPO Trading – Tepid Subscription but Potential Upside Remains

By Clarence Chu

Lygend Resources & Technology (2245 HK) raised US$470m in its Hong Kong IPO.
Lygend Resources & Technology (Lygend) is a nickel trading and production firm with a portfolio covering multiple areas across the nickel industry value chain.
In this note we will talk about the trading dynamics.

Indocement (INTP IJ) – Increasing Reach, Reducing Costs, and Improving Sustainability

Indocement Tunggal Prakarsa (INTP IJ) has had a tough year with rising energy costs prompting price increases which impacted demand but 3Q2022 saw a strong rebound in sales growth.
Margins remained under pressure but increasing prices and the use of alternative fuels are helping to offset the impact of energy costs and more recently coal prices have been declining.
Indocement continues to impress with its focus on sustainability, significantly beating on emissions and dust. Valuations look attractive versus history and with a potential recovery in earnings in 2023.

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Dec 01

Daily Brief Industrials: Toyo Construction and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toyo Construction (1890) – Creeping Up On The Next “Tender Offer Start Date”….. Uh…. Maybe

Toyo Construction (1890) – Creeping Up On The Next “Tender Offer Start Date”….. Uh…. Maybe

By Travis Lundy

In March 2022, Toyo Construction (1890 JP) agreed to be taken over by equity affiliate stake owner INFRONEER Holdings (5076 JP) at what was a low price.
Nintendo Founder Family Office “YFO” objected, and bought 25+% of the company, then offered to buy it out 30% higher. Toyo Construction objected.
Four months later they finally signed an NDA and then started negotiating. Early in November the target date for a Tender Offer start by YFO was pushed to early December.

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Dec 01

Daily Brief Health Care: Nippon Shinyaku, Esco Lifesciences Group, WuXi AppTec Co Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Healthcare

In today’s briefing:

Nippon Shinyaku (4516 JP): Viltepso Has Strong Muscle Power; New Seizure Drug Launch in Japan
Esco Lifesciences Pre-IPO Tearsheet
WuXi AppTec (603259.CH/2359.HK) – Interpretation of the Recent Proposed Disposal of A Shares

Nippon Shinyaku (4516 JP): Viltepso Has Strong Muscle Power; New Seizure Drug Launch in Japan

By Tina Banerjee

Driven by continued strong performance of Viltepso and other partnered drugs, Nippon Shinyaku (4516 JP) is expected to report accelerated revenue growth momentum.
Viltepso is expected to be the top selling drug of Nippon Shinyaku in FY23. For FY23, the drug is expected to report revenue of ¥14.7 billion (+90% y/y).
In November, Nippon Shinyaku launched Fintepla (fenfluramine) for the treatment of seizures in patients with Dravet syndrome (DS) as an add-on therapy to other anti-epileptic medicines in Japan.

Esco Lifesciences Pre-IPO Tearsheet

By Ethan Aw

Esco Lifesciences Group (1891571D SP) is looking to raise about US$300m in its upcoming HK IPO. The deal will be run by JP Morgan, BofA and Jefferies.
Esco Lifesciences (EL) is a global provider of life sciences, pharmaceutical and bioprocessing tools, with an aim to develop, discover and commercialize technology-driven life sciences, pharmaceutical and bioprocessing tools.
According to CIC, it is the second largest supplier of biosafety cabinets and the third largest supplier of time-lapse incubators globally as measured by revenue in 2021.

WuXi AppTec (603259.CH/2359.HK) – Interpretation of the Recent Proposed Disposal of A Shares

By Xinyao (Criss) Wang

WuXi AppTec announced its proposed disposal of A Shares again. Investors’re worried about the signal behind – Performance growth has reached certain limit. There’s the possibility of a turning point.
Such proposed disposal (regardless of share price) could continue to weigh on the valuation performance of the whole CXO sector – There is still “bubble” in share price.
In fact, Li Ge (Founder of WuXi AppTec) knows CXO industry much better than anyone, when he decides to resolutely reduce his shareholding, it is very telling.

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Dec 01

Daily Brief Financials: Home Consortium Ltd, Credit Acceptance, European Smaller Companies, iShares China Large-Cap (FXI), Saratoga Investama Sedaya, Sunshine Insurance, Hana Financial and more

By Smartkarma Daily Briefs | Daily Briefs, Financials

In today’s briefing:

FTSE EPRA Nareit Index Rebalance: One Deletion for Australia
A Blessing in Disguise
FTSE UK Dec 22 Rebal: Quiddity Announcement Day Thoughts
EQD | FXI (FXI US): – Could Chinese Equities Lead the Way Higher? Use Options for Delta-Revisited
Saratoga Investama Sedaya (SRTG IJ) – A World of Indonesian Themes
Sunshine Insurance Group IPO: Valuation Insights
South Korean Banks Screener; Hana Financial in the Positive Spotlight

FTSE EPRA Nareit Index Rebalance: One Deletion for Australia

There are no adds for the FTSE EPRA Nareit Developed Asia Index in December. The only deletion is Home Consortium Ltd (HMC AU).
Passive trackers are estimated to sell 12x ADV on Home Consortium Ltd at the close 16 December. Short interest is nearly the same and there could be some covering.
Home Consortium Ltd (HMC AU) has underperformed its peers over the last 12 months and still trades more expensive to its peer group.

A Blessing in Disguise

By Steven Chen

We try to stay away from the fool’s errand of forecasting the economy;
But often, we notice that high-quality businesses actually benefit from harsh economic conditions in terms of (long-term) shareholder value;
We provided an example of a company that we own to illustrate how.

FTSE UK Dec 22 Rebal: Quiddity Announcement Day Thoughts

By Janaghan Jeyakumar, CFA

The December 2022 Rebalance of the FTSE UK Index series will be based on the closing prices of 29th November 2022.
The results will be announced after market close later today (30th November 2022).
Below are Quiddity’s final expectations for index changes and flow parameters for the December 2022 Rebalance event. You have the day to trade this.

EQD | FXI (FXI US): – Could Chinese Equities Lead the Way Higher? Use Options for Delta-Revisited

By Simon Harris

Chinese equities have been on a volatile path but are finally gaining some upside momentum
Dollar seems to have peaked and USDCNH is retreating with renewed optimism for the Chinese economy reopening.
We revisit the trade and look at potential restructuring options

Saratoga Investama Sedaya (SRTG IJ) – A World of Indonesian Themes

Saratoga Investama Sedaya (SRTG IJ) is the leading listed investment company with stakes in a number of leading companies across sectors in Indonesia with some of the highest growth potential.
Investments include stakes in Adaro Energy, Merdeka Copper Gold, Tower Bersama Infrastructure, Mitra Pinasthika Mustika, and Aneka Gas (AGII IJ), and a number of tech companies providing unique thematic exposure.
Saratoga Investama Sedaya (SRTG IJ) provides a one-stop shop to get well-rounded exposure to high-growth areas of the Indonesian economy and to early-stage growth companies in the digital space.

Sunshine Insurance Group IPO: Valuation Insights

Sunshine Insurance (6963 HK) has launched its HKEx listing at HK$5.83-6.45 per share to raise up to US$951 million. Books are open from 30 November to 5 December.
We previously discussed the IPO in Sunshine Insurance Group IPO: The Bull Case and Sunshine Insurance Group IPO: The Bear Case.
At the IPO price range, Sunshine trades at a significant premium to median peer multiples. Therefore, we would avoid the IPO.

South Korean Banks Screener; Hana Financial in the Positive Spotlight

By Victor Galliano

Six of the seven South Korean banks screen favourably on valuation versus returns metrics to September 2022; we add Hana Financial, to our buy rating on KB Financial
Hana has undemanding valuations, and improving pre-provision and post-provision returns, it also has sound core capital ratio of close to 13%
We remain neutral on digital bank KakaoBank where we are deterred by high cost of risk metrics relative to its peers; we continue to seek positive catalysts on this name

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Dec 01

Daily Brief Singapore: Esco Lifesciences Group and more

By Smartkarma Daily Briefs | Daily Briefs, Singapore

In today’s briefing:

Esco Lifesciences Pre-IPO Tearsheet

Esco Lifesciences Pre-IPO Tearsheet

By Ethan Aw

Esco Lifesciences Group (1891571D SP) is looking to raise about US$300m in its upcoming HK IPO. The deal will be run by JP Morgan, BofA and Jefferies.
Esco Lifesciences (EL) is a global provider of life sciences, pharmaceutical and bioprocessing tools, with an aim to develop, discover and commercialize technology-driven life sciences, pharmaceutical and bioprocessing tools.
According to CIC, it is the second largest supplier of biosafety cabinets and the third largest supplier of time-lapse incubators globally as measured by revenue in 2021.

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Dec 01

Daily Brief Thailand: Berli Jucker and more

By Smartkarma Daily Briefs | Daily Briefs, Thailand

In today’s briefing:

Berli Jucker (BJC TB) – Back on the Boil

Berli Jucker (BJC TB) – Back on the Boil

Berli Jucker (BJC TB) is seeing a recovery underway although it has been masked by YoY comparisons and some pressure from higher raw material costs for its packaging business.
The company is back into expansion mode in retail with 200 new Mini BIGC stores planned for 2023 plus it will increase its aluminium can capacity in Thailand by 10%.
Berli Jucker (BJC TB) continues to be an interesting recovery play as an indirect play on tourism and consumption recovery as well as now declining commodity prices.

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Dec 01

Daily Brief South Korea: HYBE, Posco Chemical Co Ltd, BGF Co Ltd, Hana Financial and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

End of Mandatory Lock-Up Periods for 58 Companies in Korea in December 2022
CSI KRX China-Korea: Rebalancing Results from KRX & Flow Trading Considerations
BGF & BGF Retail Pair Trade: Two Sons of BGF Chairman Hong Receive a Combined 20.9% Stake in BGF
South Korean Banks Screener; Hana Financial in the Positive Spotlight

End of Mandatory Lock-Up Periods for 58 Companies in Korea in December 2022

By Douglas Kim

We discuss end of the mandatory lock-up periods for 58 stocks in Korea in December 2022, among which 9 are in KOSPI and 49 are in KOSDAQ.
These 58 stocks on average could be subject to further selling pressures in December and could underperform relative to the market.
Among these 58 stocks, the top 5 market cap stocks include HYBE, Kakao Games, WCP, Sillajen, and Duksan Neolux.

CSI KRX China-Korea: Rebalancing Results from KRX & Flow Trading Considerations

By Sanghyun Park

KRX unveiled the rebalancing results of the CSI KRX China-Korea indices for Korean constituents yesterday.
There is still insufficient evidence data to estimate specific passive impact. The previous rebalancing in June showed no clear correlation between constituent changes and price impact.
Although it may be risky to trade on this rebalancing, monitoring the correlation of their passive impact at this point, one year after the release, seems worthwhile.

BGF & BGF Retail Pair Trade: Two Sons of BGF Chairman Hong Receive a Combined 20.9% Stake in BGF

By Douglas Kim

It was announced today that Hong Jung-Guk (eldest son) received a 10.5% stake in BGF Co. (10 million shares) from his father Hong Suk-Jo.
Hong Jung-Hyeok’s (second son) stake in BGF also increased from 0.03% to 10.5%.
We like a pair trade between BGF Co (go long) and BGF Retail (go short). The combination of price momentum and valuation favor BGF vs BGF Retail.

South Korean Banks Screener; Hana Financial in the Positive Spotlight

By Victor Galliano

Six of the seven South Korean banks screen favourably on valuation versus returns metrics to September 2022; we add Hana Financial, to our buy rating on KB Financial
Hana has undemanding valuations, and improving pre-provision and post-provision returns, it also has sound core capital ratio of close to 13%
We remain neutral on digital bank KakaoBank where we are deterred by high cost of risk metrics relative to its peers; we continue to seek positive catalysts on this name

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Dec 01

Daily Brief Indonesia: ABM Investama, Saratoga Investama Sedaya, Indocement Tunggal Prakarsa and more

By Smartkarma Daily Briefs | Daily Briefs, Indonesia

In today’s briefing:

Asia HY Trade Book – November 2022 – Lucror Analytics
Saratoga Investama Sedaya (SRTG IJ) – A World of Indonesian Themes
Indocement (INTP IJ) – Increasing Reach, Reducing Costs, and Improving Sustainability

Asia HY Trade Book – November 2022 – Lucror Analytics

By Charles Macgregor

Saratoga Investama Sedaya (SRTG IJ) – A World of Indonesian Themes

Saratoga Investama Sedaya (SRTG IJ) is the leading listed investment company with stakes in a number of leading companies across sectors in Indonesia with some of the highest growth potential.
Investments include stakes in Adaro Energy, Merdeka Copper Gold, Tower Bersama Infrastructure, Mitra Pinasthika Mustika, and Aneka Gas (AGII IJ), and a number of tech companies providing unique thematic exposure.
Saratoga Investama Sedaya (SRTG IJ) provides a one-stop shop to get well-rounded exposure to high-growth areas of the Indonesian economy and to early-stage growth companies in the digital space.

Indocement (INTP IJ) – Increasing Reach, Reducing Costs, and Improving Sustainability

Indocement Tunggal Prakarsa (INTP IJ) has had a tough year with rising energy costs prompting price increases which impacted demand but 3Q2022 saw a strong rebound in sales growth.
Margins remained under pressure but increasing prices and the use of alternative fuels are helping to offset the impact of energy costs and more recently coal prices have been declining.
Indocement continues to impress with its focus on sustainability, significantly beating on emissions and dust. Valuations look attractive versus history and with a potential recovery in earnings in 2023.

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Dec 01

Daily Brief Australia: Home Consortium Ltd, Warrego Energy, Origin Energy and more

By Smartkarma Daily Briefs | Australia, Daily Briefs

In today’s briefing:

FTSE EPRA Nareit Index Rebalance: One Deletion for Australia
Reinhart Edges Stokes In Tussle For Warrego Energy
(Mostly) Asia M&A Nov 2022 Roundup: Origin, Perpetual, Mori Trust, Uzabase, Chip Eng, Golden Energy
Warrego (WGO AU) In a Three-Way Tussle with Hancock’s A$0.23 Offer

FTSE EPRA Nareit Index Rebalance: One Deletion for Australia

There are no adds for the FTSE EPRA Nareit Developed Asia Index in December. The only deletion is Home Consortium Ltd (HMC AU).
Passive trackers are estimated to sell 12x ADV on Home Consortium Ltd at the close 16 December. Short interest is nearly the same and there could be some covering.
Home Consortium Ltd (HMC AU) has underperformed its peers over the last 12 months and still trades more expensive to its peer group.

Reinhart Edges Stokes In Tussle For Warrego Energy

Gina Rinehart’s Hancock Prospecting has joined the bidding war for Warrego Energy (WGO AU) with a A$0.23/share, all cash, off-market Offer versus Beach Energy (BPT AU)‘s management-backed A$0.20/share Scheme Offer.
Hancock has already lodged the Bidder’s Statement. There is no minimum acceptance condition attached to this offer.
Warrego currently recommends Beach’s Offer, subject to no superior proposal emerging. Beach has matching rights under the SID entered into on the 14 November.

(Mostly) Asia M&A Nov 2022 Roundup: Origin, Perpetual, Mori Trust, Uzabase, Chip Eng, Golden Energy

For the month of November, 11 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$20bn.
The average premium for the new deals announced (or first discussed) in November was ~52%, and a year-to-date average of 41%.
This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

Warrego (WGO AU) In a Three-Way Tussle with Hancock’s A$0.23 Offer