Smartkarma Daily Briefs

Tencent (700 HK) has announced that it will pay an interim dividend via an in-specie distribution of the bulk of its holding in Meituan (3690 HK).
Passive FTSE and MSCI trackers will receive shares in Meituan (3690 HK) from their Tencent (700 HK) holdings and they will not need to trade anything in the market.
First it was JD.com Inc. (9618 HK), now it is Meituan (3690 HK). The market will be looking for other stocks held by Tencent (700 HK) that could be next.

Tencent Distribution of Meituan Shares Official – Impact and Index Implications

In mid-August at mid-day, a Reuters article suggested Tencent (700 HK) would seek to divest its $24bn stake in Meituan (3690 HK) this year. The stock fell 9% that afternoon.
The general underlying suggestion was that regulators wanted them to sell. Other articles suggested later both aspects were “untrue”
With Q3 earnings, Tencent today announced a Jan23 distribution (Mar23 settlement) of 958,121,562 Meituan shares (1 for every 10 Tencent shares held). There are significant flow and index implications.

Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees

On 16th Nov 22, post-market close, along with its 3Q22 results Tencent also declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
The share distribution follows the template of the US$16bn worth of JD.com shares that Tencent paid out after its dividend announcement at the end of 2021.
In this note, we talk about the implications of the deal.

Swire B Vs A – It Bounced Before, It Can Bounce Again – A 19 Year Low On the Ratio In Sight

Swire Pacific has been buying back Swire Pacific (B) (87 HK) and Swire Pacific (A) (19 HK) shares since August. They are now 58+% done with their HK$4bn buyback program.
The buyback so far has been 50% B shares and 50% A shares. This still seems odd to me but they are doing what they are doing.
B/A ratio is near a 19-year low. The last time it dipped to 6% under its 3mo average, it bounced back in 4 weeks. Now 5% cheap to average.

Tencent 3Q: Shows Signs of Improvement

Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.

Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time

By Ming Lu

Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
A governmental media gave positive comment to game industry for first time.
We believe the stock has an upside of 52% for year end 2023.

TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops

Tencent Music (TME US) reported 3Q2022 results yesterday. Revenue declined 5.6% YoY to RMB7.4bn (vs consensus RMB7.0bn) while adjusted OP for the quarter increased 14.0% YoY to RMB765m.
Revenue from social entertainment services decreased 20% YoY which was partially helped offset by 18.8% YoY increase in online music services revenues.
GPM and OPM improved due to huge spending cuts on content, revenue sharing and S&M and we are yet to see if TME can sustain this without compromising user growth.

Beijing SinoHytec A/H Listing – Initial Thoughts on Valuation

Beijing Sinohytec Co Ltd (688339 CH) (BSH) is looking to raise up to US$400m via its H-shares listing.
BSH provides fuel cell systems in China, focusing on the design, development and manufacture of fuel cell systems and stacks mainly for commercial vehicles, such as buses and trucks.
We looked at the company’s past performance in our previous note. In this note, we’ll talk about valuations.

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Nov 17

Daily Brief Japan: Kaken Pharmaceutical and more

By Smartkarma Daily Briefs | Daily Briefs, Japan

In today’s briefing:

Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated

Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated

By Tina Banerjee

In H1FY23, Kaken Pharmaceutical (4521 JP) reported 2% revenue decline to ¥36.8 billion, as the company’s key branded drugs, including Clenafin, Artz, and Seprafilm are recording decelerating sales.
Newer drugs, including Ecclock, Regroth, and Hernicore reported revenue growth of 47.8%, 4.1%, and 4.1%, y/y, respectively. However, these three drugs contributed just 4% of total revenue.
Lower revenue and higher operating expenses (+2% y/y) pulled down operating profit by 9% y/y to ¥8.2 billion. Operating margin decreased 170bps to 22.3%.

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Nov 17

Most Read: Meituan, Monadelphous, Haw Par Corp, Halcyon Agri, Samyang Holdings, Devsisters, Lotte Confectionery, Swire Pacific (B) and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Meituan (3690 HK): Impact of Tencent’s In-Specie Dividend
Tencent Distribution of Meituan Shares Official – Impact and Index Implications
S&P/ASX Index Rebalance Preview: Shrinking Number of Changes in Dec
2023 High Conviction: Haw Par Is Cheap
Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees
Halcyon Agri Suspended Ahead Of Possible Offer
KOSPI200 Index Rebalance: Just One Change
KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises
KOSPI 200 & KOSDAQ 150 Rebalance Changes + KOSPI 200 & KOSDAQ 150 Exclusion Candidates in 2023
Swire B Vs A – It Bounced Before, It Can Bounce Again – A 19 Year Low On the Ratio In Sight

Meituan (3690 HK): Impact of Tencent’s In-Specie Dividend

Tencent (700 HK) has announced that it will pay an interim dividend via an in-specie distribution of the bulk of its holding in Meituan (3690 HK).
Passive FTSE and MSCI trackers will receive shares in Meituan (3690 HK) from their Tencent (700 HK) holdings and they will not need to trade anything in the market.
First it was JD.com Inc. (9618 HK), now it is Meituan (3690 HK). The market will be looking for other stocks held by Tencent (700 HK) that could be next.

Tencent Distribution of Meituan Shares Official – Impact and Index Implications

In mid-August at mid-day, a Reuters article suggested Tencent (700 HK) would seek to divest its $24bn stake in Meituan (3690 HK) this year. The stock fell 9% that afternoon.
The general underlying suggestion was that regulators wanted them to sell. Other articles suggested later both aspects were “untrue”
With Q3 earnings, Tencent today announced a Jan23 distribution (Mar23 settlement) of 958,121,562 Meituan shares (1 for every 10 Tencent shares held). There are significant flow and index implications.

S&P/ASX Index Rebalance Preview: Shrinking Number of Changes in Dec

Volatile stock prices could mean one change for the S&P/ASX 50 Index and one change for the S&P/ASX 200 (AS51 INDEX) at the December rebalance.
Atlas Arteria (ALX AU) could replace Lendlease Group (LLC AU) in the S&P/ASX 50 Index, while Monadelphous (MND AU) could replace St Barbara Ltd (SBM AU) in the S&P/ASX 200.
Short interest on St Barbara Ltd (SBM AU) has spiked in the last few weeks and there could be short covering ahead of implementation of the changes.

2023 High Conviction: Haw Par Is Cheap

Haw Par Corp (HPAR SP) is trading around multi-year trough levels on an implied stub valuation, and on an HPAR/UOL Group (UOL SP) ratio.
Preceding my comments on HPAR are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees

On 16th Nov 22, post-market close, along with its 3Q22 results Tencent also declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
The share distribution follows the template of the US$16bn worth of JD.com shares that Tencent paid out after its dividend announcement at the end of 2021.
In this note, we talk about the implications of the deal.

Halcyon Agri Suspended Ahead Of Possible Offer

Natural rubber play Halcyon Agri (HACL SP) was suspended ahead of trading on the 14 November.
Word on the street is that a privatisation will be announced shortly.
The benefit of hindsight … Halcyon’s largest shareholder, SOE-backed Sinochem, recently increased its stake, paying ~S$0.45/share.

KOSPI200 Index Rebalance: Just One Change

There will be 1 addition and 1 deletion for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the December rebalance that will be implemented on 8 December.
Lotte Confectionery (280360 KS) was a high probability add while Samyang Holdings (000070 KS) was the second delete on the list. Hyundai Home Shopping Network (057050 KS) avoided deletion.
Passive trackers will need to buy around 14 days of ADV on Lotte Confectionery (280360 KS) and sell nearly 13 days of ADV on Samyang Holdings (000070 KS).

KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises

There are 11 inclusions and 11 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 8 December.
We had forecast most of the changes (10 adds and 9 deletes), so there are a few surprises. The inclusion of SillaJen Inc (215600 KS) is the biggest one.
The adds to the index become short sell eligible from the open of trading on 9 December while the deletions will not be short sell eligible from the same time.

KOSPI 200 & KOSDAQ 150 Rebalance Changes + KOSPI 200 & KOSDAQ 150 Exclusion Candidates in 2023

By Douglas Kim

Korea Exchange announced the KOSPI 200, KOSDAQ 150, and KRX 300 rebalance changes today. Lotte Confectionery will be added and Samyang Holdings will be deleted from the KOSPI 200 index.
The rebalances of these Korean indices are regularly updated twice a year. The changes to these indices will be effective starting 9 December.
The potential exclusion candidates for KOSPI 200 in 2023 include K Car, Handsome, HS Enterprise, Zinus, and Hyundai Home Shopping.

Swire B Vs A – It Bounced Before, It Can Bounce Again – A 19 Year Low On the Ratio In Sight

Swire Pacific has been buying back Swire Pacific (B) (87 HK) and Swire Pacific (A) (19 HK) shares since August. They are now 58+% done with their HK$4bn buyback program.
The buyback so far has been 50% B shares and 50% A shares. This still seems odd to me but they are doing what they are doing.
B/A ratio is near a 19-year low. The last time it dipped to 6% under its 3mo average, it bounced back in 4 weeks. Now 5% cheap to average.

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Nov 17

Daily Brief Thematic (Sector/Industry): Malaysia: PH Is Stronger in West Malaysia and more

By Smartkarma Daily Briefs | Daily Briefs, Thematic (Sector/Industry)

In today’s briefing:

Malaysia: PH Is Stronger in West Malaysia, but Sabah-Sarawak May Hold Final Cards
Good Morning Japan | Schizophrenic Markets!
Xi-Biden Meeting and G20 – A Temporary Respite?
Newfound Research Q3 2022 Commentary
Inflation Bites: India Consumer Sector – Rising Revenues, Dipping Margins in Sept. Quarter

Malaysia: PH Is Stronger in West Malaysia, but Sabah-Sarawak May Hold Final Cards

By Prasenjit K. Basu

We expect PH to win the 15th General Election, because it will win a majority of the seats in West Malaysia as the non-PH vote splits between UMNO and PN.
PH may fall short of a national majority because it competes with local parties (rather than aligning with any major ones) in Sabah-Sarawak, which may hold the final cards.
While that is our baseline scenario, if current polling holds, PH will comfortably form the government with Anwar as PM. Winners will be technology companies and Hong Leong group.

Good Morning Japan | Schizophrenic Markets!

By Mark Chadwick

Good Morning Japan: We strive to provide the very best breaking macro, stock and thematic overnight news that will impact your trading day in Japan. FOLLOW US to keep abreast!
OVERSEAS: Strong US retail numbers cast doubt on Fed pivot; Micron’s cuts on memory wafers drag down Semis; Crypto crisis spreads; Trump declares 2024 Presidential run – Dems doing cartwheels?
JAPAN: Toyota 5th Gen Prius – looks like a…TESLA, very cool!; Rohm joins PIF’s Toshiba bid with ¥300bn; Rakuten taps junk bond market for $500mn-things are really serious..

Xi-Biden Meeting and G20 – A Temporary Respite?

By Xinyao (Criss) Wang

Xi-Biden meeting could be the most harmonious state both sides can reach for a long time to come – Both sides could draw a red line and then start competing.
Both China and the US hope to pursue absolute security, but like the paradox, the absolute security of one side is the absolute insecurity of the other.
The level of global development is so different that it’s impossible to have the same culture and so-called universal values. The world isn’t a fairy tale, nor is globalization.

Newfound Research Q3 2022 Commentary

By Fund Newsletters

Newfound, an SEC registered investment advisor, is a financial technology and product innovation firm enabling rule-based, behavior-driven investment strategies.
This commentary provides a high-level performance update for Q3 2022.
NFDIX returned -6.33% in Q3 2022.

Inflation Bites: India Consumer Sector – Rising Revenues, Dipping Margins in Sept. Quarter

By Devi Subhakesan

Despite a strong surge in sales in the Sept. quarter, most Indian consumer companies reported weak profit growth given negative impact of inflation, currency and interest rates.
Inflationary pressures from higher raw material costs, rise in fuel costs and higher wages have affected volume growth as companies attempted to effect price hikes to mitigate margin impact.
Leading FMCG companies have temporarily cut back on marketing spend during the quarter to offset the impact of cost pressures on operating margins.

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Nov 17

Daily Brief Industrials: Halcyon Agri, Senior PLC, Beijing Sinohytec Co Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Halcyon Agri Suspended Ahead Of Possible Offer
Halcyon Agri (HACL SP)’s Potential MGO
FTSE UK Quiddity Leaderboard Dec 22: Euromoney DEL and More High-Impact Intra-Review Changes
Beijing SinoHytec A/H Listing – Initial Thoughts on Valuation

Halcyon Agri Suspended Ahead Of Possible Offer

Natural rubber play Halcyon Agri (HACL SP) was suspended ahead of trading on the 14 November.
Word on the street is that a privatisation will be announced shortly.
The benefit of hindsight … Halcyon’s largest shareholder, SOE-backed Sinochem, recently increased its stake, paying ~S$0.45/share.

Halcyon Agri (HACL SP)’s Potential MGO

By Arun George

China Hainan Rubber Industry (601118 CH) has entered a conditional SPA with Sinochem International Corporation A (600500 CH) to acquire a 36.00% stake in Halcyon Agri (HACL SP) at US$0.315/share.
The SPA completion will trigger an MGO at US$0.315 (S$0.436) per share. The pre-conditions mainly relate to Chinese regulatory approvals which should be a formality due to SOE links.
The MGO has a 50%+ minimum acceptance condition which requires around a 40% minorities acceptance rate. We think that this is achievable as the offer is attractive.

FTSE UK Quiddity Leaderboard Dec 22: Euromoney DEL and More High-Impact Intra-Review Changes

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the potential index changes for FTSE 100 and FTSE 250 in the run up to the December 2022 Rebalance.
FTSE 250 candidate Euromoney Institutional Investor (ERM LN) could get deleted before the end of November and there could be more intra-review changes in December 2022.
The highest-ranked candidates that are leading the race to become FTSE250 replacements have 15+ days of volume to buy.

Beijing SinoHytec A/H Listing – Initial Thoughts on Valuation

Beijing Sinohytec Co Ltd (688339 CH) (BSH) is looking to raise up to US$400m via its H-shares listing.
BSH provides fuel cell systems in China, focusing on the design, development and manufacture of fuel cell systems and stacks mainly for commercial vehicles, such as buses and trucks.
We looked at the company’s past performance in our previous note. In this note, we’ll talk about valuations.

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Nov 17

Daily Brief Equity Bottom-Up: Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side and more

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

In today’s briefing:

Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
Tencent 3Q: Shows Signs of Improvement
Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops
Indonesian Banks 3Q22 Screener; Negara Stands Out as the Value Pick
Buy Polygon For Big-Brand Crypto Scaling
Nesco: BEC Business Is Back to Pre-COVID Level
Kolte Patil: Temporary Blip in Q2FY23 Earnings; On Track for a Strong FY23
Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated
Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox

Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side

By Oshadhi Kumarasiri

Sea Ltd (SE US) shares were up 36% yesterday following a relatively small top-line beat of 4.8% and a narrower-than-expected operating loss of $495.6m (consensus: $581.9) through rigorous cost-cutting.
The share price move sets-up nicely to make gains on the short-side, as e-commerce and fintech remain unprofitable after cutting-down necessary expenses such as logistics and senior management cash compensation.
We estimate the fair value of Sea Ltd at around $10.0bn EV compared to the current EV of $33.1bn, which implies a downside of 66% to Sea’s post-3Q22 price.

Tencent 3Q: Shows Signs of Improvement

Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.

Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time

By Ming Lu

Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
A governmental media gave positive comment to game industry for first time.
We believe the stock has an upside of 52% for year end 2023.

TME: Online Music Biz Resumes Growth but Social Entertainment Further Drops

Tencent Music (TME US) reported 3Q2022 results yesterday. Revenue declined 5.6% YoY to RMB7.4bn (vs consensus RMB7.0bn) while adjusted OP for the quarter increased 14.0% YoY to RMB765m.
Revenue from social entertainment services decreased 20% YoY which was partially helped offset by 18.8% YoY increase in online music services revenues.
GPM and OPM improved due to huge spending cuts on content, revenue sharing and S&M and we are yet to see if TME can sustain this without compromising user growth.

Indonesian Banks 3Q22 Screener; Negara Stands Out as the Value Pick

By Victor Galliano

In this 3Q22 Indonesian banks screener, we rate Bank Negara as our key value pick with its very attractive valuations including PEG ratio and its improving cost of risk trends
We continue to also favour Bank Mandiri, but, in the wake of the share price re-rating, it is our secondary value pick to Negara
Bank Rakyat has delivered improved returns in 3Q22, and shows signs of “turn around” potential; we look for management to improve credit quality and especially the Special Mention Loans Ratio

Buy Polygon For Big-Brand Crypto Scaling

By Kevin George

Polygon added to Disney Accelerator program. Fashion and payments companies add to the recent partnerships.
Polygon also added to the recently partnerships with Instagram NFTs.
In a recent article, I advised buying Disney for eventual growth in the metaverse. Polygon (MATIC-USD) is a crypto project that has been making waves with a series of big-name corporate partnerships, including Disney.

Nesco: BEC Business Is Back to Pre-COVID Level

By Ankit Agrawal, CFA

Bombay Exhibition Center (BEC) business has recovered sooner than expected and is now back to pre-COVID level with INR 50cr+ revenues in Q2FY23.
Demand for exhibitions could grow structurally post-COVID, suggesting that the BEC business is now likely to be even stronger than pre-COVID.
Office Leasing (IT Parks) business showed QoQ growth suggesting that the occupancy level showed marginal improvement.

Kolte Patil: Temporary Blip in Q2FY23 Earnings; On Track for a Strong FY23

By Ankit Agrawal, CFA

Q2FY23 results were subdued due to delay in launch of a few new projects.
Lower proportion of sales from Mumbai led to decline in realization by 9% QoQ, however, this has quarterly variation and was also impacted by delay in new project launches.
The current quarter sales seem to be a temporary blip as most of the new projects are on track to launch in Q3FY23.

Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated

By Tina Banerjee

In H1FY23, Kaken Pharmaceutical (4521 JP) reported 2% revenue decline to ¥36.8 billion, as the company’s key branded drugs, including Clenafin, Artz, and Seprafilm are recording decelerating sales.
Newer drugs, including Ecclock, Regroth, and Hernicore reported revenue growth of 47.8%, 4.1%, and 4.1%, y/y, respectively. However, these three drugs contributed just 4% of total revenue.
Lower revenue and higher operating expenses (+2% y/y) pulled down operating profit by 9% y/y to ¥8.2 billion. Operating margin decreased 170bps to 22.3%.

Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox

By Eric Fernandez, CFA

This model looks for slowing growth, margin declines, sales and/or earnings disappointments, troubling working capital trends, poor estimate trends or lowered guidance, among other characteristics.
The key judgement is whether a slowdown is temporary or the beginning of a trend. These shorts tend to have high valuations and betas. Multiple compression accelerates the stock’s decline.
Today we are flagging Plug Power, Nvidia, Palantir, and Roblox

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Nov 17

Daily Brief TMT/Internet: Meituan, Sea Ltd, Devsisters, WCP, Tencent, Meta Platforms (Facebook), NVIDIA Corp and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Meituan (3690 HK): Impact of Tencent’s In-Specie Dividend
Tencent Distribution of Meituan Shares Official – Impact and Index Implications
Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees
Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side
KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises
KOSPI 200 & KOSDAQ 150 Constituent Changes: Several Surprises
Tencent 3Q: Shows Signs of Improvement
Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time
Buy Polygon For Big-Brand Crypto Scaling
Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox

Meituan (3690 HK): Impact of Tencent’s In-Specie Dividend

Tencent (700 HK) has announced that it will pay an interim dividend via an in-specie distribution of the bulk of its holding in Meituan (3690 HK).
Passive FTSE and MSCI trackers will receive shares in Meituan (3690 HK) from their Tencent (700 HK) holdings and they will not need to trade anything in the market.
First it was JD.com Inc. (9618 HK), now it is Meituan (3690 HK). The market will be looking for other stocks held by Tencent (700 HK) that could be next.

Tencent Distribution of Meituan Shares Official – Impact and Index Implications

In mid-August at mid-day, a Reuters article suggested Tencent (700 HK) would seek to divest its $24bn stake in Meituan (3690 HK) this year. The stock fell 9% that afternoon.
The general underlying suggestion was that regulators wanted them to sell. Other articles suggested later both aspects were “untrue”
With Q3 earnings, Tencent today announced a Jan23 distribution (Mar23 settlement) of 958,121,562 Meituan shares (1 for every 10 Tencent shares held). There are significant flow and index implications.

Tencent Meituan Dividend – The US$20bn Overhang – Impact, Placement, Index, Other Investees

On 16th Nov 22, post-market close, along with its 3Q22 results Tencent also declared an interim dividend by way of distribution in specie of Class B Ordinary shares of Meituan.
The share distribution follows the template of the US$16bn worth of JD.com shares that Tencent paid out after its dividend announcement at the end of 2021.
In this note, we talk about the implications of the deal.

Sea Ltd 3Q22 Results – Set up Nicely To Make Big Gains On The Short Side

By Oshadhi Kumarasiri

Sea Ltd (SE US) shares were up 36% yesterday following a relatively small top-line beat of 4.8% and a narrower-than-expected operating loss of $495.6m (consensus: $581.9) through rigorous cost-cutting.
The share price move sets-up nicely to make gains on the short-side, as e-commerce and fintech remain unprofitable after cutting-down necessary expenses such as logistics and senior management cash compensation.
We estimate the fair value of Sea Ltd at around $10.0bn EV compared to the current EV of $33.1bn, which implies a downside of 66% to Sea’s post-3Q22 price.

KOSDAQ150 Index Rebalance: 11 Changes with a Couple of Surprises

There are 11 inclusions and 11 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 8 December.
We had forecast most of the changes (10 adds and 9 deletes), so there are a few surprises. The inclusion of SillaJen Inc (215600 KS) is the biggest one.
The adds to the index become short sell eligible from the open of trading on 9 December while the deletions will not be short sell eligible from the same time.

KOSPI 200 & KOSDAQ 150 Constituent Changes: Several Surprises

By Sanghyun Park

For KOSDAQ 150, SillaJen and WCP made it to the index. As for deletions, Intron Biotechnology, Ebest I&S, and Devsisters are additional names to leave the index through regular review.
Lotte Confectionery and Samyang Holdings do not have sizeable DTV. And they were fully expected. Nevertheless, the passive impact is so significant that the LONG/SHORT approach still seems valid.
We should focus on KOSDAQ 150 inclusions whose return has been high due to the inflow to secure a borrow pool for short-selling on top of the preemptive rebalancing flow.

Tencent 3Q: Shows Signs of Improvement

Tencent (700 HK) reported 3Q2022 results yesterday. Revenue decreased 1.6% YoY to RMB140.1bn (vs consensus RMB140.0bn) while adjusted OP declined 0.2% YoY to RMB28.4bn.
Revenue from both Internet VAS and Online Advertising declined YoY during the quarter. Social networks revenue declined YoY for the first time by 1.9%.
Tencent also announced that it will distribute majority of its shareholding on Meituan (3690 HK) to its shareholders in dividends similar to the special dividend of its stake in JD.com.

Tencent (700 HK): Rev Down by 1.6% in 3Q22, But Game Sees Positive Comment from Gov for First Time

By Ming Lu

Revenue decreased by 1.6% YoY in 3Q22, less than a decrease of 3.1% YoY in 2Q22.
A governmental media gave positive comment to game industry for first time.
We believe the stock has an upside of 52% for year end 2023.

Buy Polygon For Big-Brand Crypto Scaling

By Kevin George

Polygon added to Disney Accelerator program. Fashion and payments companies add to the recent partnerships.
Polygon also added to the recently partnerships with Instagram NFTs.
In a recent article, I advised buying Disney for eventual growth in the metaverse. Polygon (MATIC-USD) is a crypto project that has been making waves with a series of big-name corporate partnerships, including Disney.

Breaking Growth Short Candidates: Plug Power, Nvidia, Palantir, Roblox

By Eric Fernandez, CFA

This model looks for slowing growth, margin declines, sales and/or earnings disappointments, troubling working capital trends, poor estimate trends or lowered guidance, among other characteristics.
The key judgement is whether a slowdown is temporary or the beginning of a trend. These shorts tend to have high valuations and betas. Multiple compression accelerates the stock’s decline.
Today we are flagging Plug Power, Nvidia, Palantir, and Roblox

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Nov 17

Daily Brief Health Care: Haw Par Corp, Grifols SA, Kaken Pharmaceutical, HealthCare Global Enterprises and more

By Smartkarma Daily Briefs | Daily Briefs, Healthcare

In today’s briefing:

2023 High Conviction: Haw Par Is Cheap
Liquid Universe of European Ordinary and Preferred Shares: November ‘22 Report
Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated
HCG: All Set for a Stellar FY24

2023 High Conviction: Haw Par Is Cheap

Haw Par Corp (HPAR SP) is trading around multi-year trough levels on an implied stub valuation, and on an HPAR/UOL Group (UOL SP) ratio.
Preceding my comments on HPAR are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Liquid Universe of European Ordinary and Preferred Shares: November ‘22 Report

By Jesus Rodriguez Aguilar

Since mid-September, spreads have shown a mixed performance across our liquid universe with a slight bias towards widening (10 have widened, 8 tightened, 1 at same level).
Trade recommendations long ords / short prefs: Fuchs Petrolub, Ericsson, Handelsbanken, SSAB Svenska Stal.
Trade recommendations long prefs / short ords: Sixt, VW, MFE-Media for Europe, Grifols, Atlas Copco.

Kaken Pharmaceutical (4521 JP): H1FY23 Review- Key Drugs Continued to Fall; Guidance Reiterated

By Tina Banerjee

In H1FY23, Kaken Pharmaceutical (4521 JP) reported 2% revenue decline to ¥36.8 billion, as the company’s key branded drugs, including Clenafin, Artz, and Seprafilm are recording decelerating sales.
Newer drugs, including Ecclock, Regroth, and Hernicore reported revenue growth of 47.8%, 4.1%, and 4.1%, y/y, respectively. However, these three drugs contributed just 4% of total revenue.
Lower revenue and higher operating expenses (+2% y/y) pulled down operating profit by 9% y/y to ¥8.2 billion. Operating margin decreased 170bps to 22.3%.

HCG: All Set for a Stellar FY24

By Ankit Agrawal, CFA

HCG posted decent revenue growth in Q2FY23. Its new centers also saw improved profitability with scale.
HCG has been rolling out price increase across its network which alone should help it to expand margins by 100-150bp in FY24.
With new centers maturing, HCG is gearing up for a stellar FY24 and FY25. As per our estimates, HCG is on track to post FY25 PAT of INR 170cr+.

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Nov 17

Daily Brief Industrials: Halcyon Agri, Senior PLC, Beijing Sinohytec Co Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Halcyon Agri Suspended Ahead Of Possible Offer
Halcyon Agri (HACL SP)’s Potential MGO
FTSE UK Quiddity Leaderboard Dec 22: Euromoney DEL and More High-Impact Intra-Review Changes
Beijing SinoHytec A/H Listing – Initial Thoughts on Valuation

Halcyon Agri Suspended Ahead Of Possible Offer

Natural rubber play Halcyon Agri (HACL SP) was suspended ahead of trading on the 14 November.
Word on the street is that a privatisation will be announced shortly.
The benefit of hindsight … Halcyon’s largest shareholder, SOE-backed Sinochem, recently increased its stake, paying ~S$0.45/share.

Halcyon Agri (HACL SP)’s Potential MGO

By Arun George

China Hainan Rubber Industry (601118 CH) has entered a conditional SPA with Sinochem International Corporation A (600500 CH) to acquire a 36.00% stake in Halcyon Agri (HACL SP) at US$0.315/share.
The SPA completion will trigger an MGO at US$0.315 (S$0.436) per share. The pre-conditions mainly relate to Chinese regulatory approvals which should be a formality due to SOE links.
The MGO has a 50%+ minimum acceptance condition which requires around a 40% minorities acceptance rate. We think that this is achievable as the offer is attractive.

FTSE UK Quiddity Leaderboard Dec 22: Euromoney DEL and More High-Impact Intra-Review Changes

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the potential index changes for FTSE 100 and FTSE 250 in the run up to the December 2022 Rebalance.
FTSE 250 candidate Euromoney Institutional Investor (ERM LN) could get deleted before the end of November and there could be more intra-review changes in December 2022.
The highest-ranked candidates that are leading the race to become FTSE250 replacements have 15+ days of volume to buy.

Beijing SinoHytec A/H Listing – Initial Thoughts on Valuation