Smartkarma Daily Briefs

The KKR consortium which was to buy Hitachi Transport System (9086 JP) has encountered a delay. What was to start in September is now scheduled for November.
On the 29th, HTS released a document saying KKR still had a couple of approvals or lapses of waiting periods needed.
The HTS announcement suggested the start of the Tender Offer would be early November rather than end-September.

TOPIX Inclusions: Who Is Ready (Oct 2022)

By Janaghan Jeyakumar, CFA

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Aug 2022)
At present, there are 53 names that satisfy all of these conditions and there are more names that are close to being in that group.

MBK Partners Joins JIC Consortium to Acquire Toshiba

It was announced today that MBK Partners will join a consortium led by Japan Investment Corporation (JIC) to acquire Toshiba Corp (6502 JP).
The sharp appreciation of the USD vs JPY could make a stronger case for JIC consortium (now backed by both Bain Capital and MBK Partners) to become the main bidder.
Including the premium for management rights, the acquisition price of Toshiba is expected to reach about 3 trillion JPY (US$21 billion).

Yamada Holdings: Time to Lock In Profits

By Oshadhi Kumarasiri

We were lucky with our call on Yamada Denki (9831 JP) earlier this year as the stock outperformed Topix by around 30% in the first 9 months of 2022.
We were expecting to make more than 70%, but revenues have fallen short of our expectations.
With demand falling more than expected after a short boost during COVID through telework and online classes, we would look to cash in the gains before the 2QFY23 earnings release.

Itochu Advance Logistics (3493 JP): Offering Could Trigger Outperformance Vs Peers

By Janaghan Jeyakumar, CFA

Today after the close, small-cap logistics JREIT Itochu Advance Logistics Investment (3493 JP) (“IAL”) announced a follow-on equity offering to fund part of their recently-announced property acquisition.
The primary offer quantity is 70,773 units. In addition, there will also be an over-allotment quantity of 3,500 units. The total size of this offering could be roughly ¥10bn (~US$76mn).
Below is a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks.

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Oct 05

Most Read: Tencent, Kakao Pay, Hitachi Transport System, Appier Group, Li Auto, Hanwha Aerospace, PEXA Group, Samyang Foods, Toshiba Corp, Taiwan Glass Industry and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

EQD | Tencent (700 HK): Time to Take off Hedges and Leverage up Using Options
Kakao Pay Placement Lockup Expiry – Alipay Is Soon Going to Be Free to Shed Its US$1.6bn Stake
Hitachi Transport (9086) – Delay Doesn’t Mean Ditched
TOPIX Inclusions: Who Is Ready (Oct 2022)
HSI Index Rebalance Preview: Small Step or Giant Leap?
KOSPI Size Index Migration: 10-Year Backtesting
Link Admin’s In-Specie Distribution of PEXA: Potential ASX200 Inclusion
KOSPI 200 Rebalance in December Highlighted by Locals
MBK Partners Joins JIC Consortium to Acquire Toshiba
FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: Market Consultation Driven Changes

EQD | Tencent (700 HK): Time to Take off Hedges and Leverage up Using Options

By Simon Harris

Stock has fallen 17% since Sep 15th, and implied vols have picked up
The fundamentals remain strong and tech momentum may be shifting
We suggest two directional trades using options to play earnings

Kakao Pay Placement Lockup Expiry – Alipay Is Soon Going to Be Free to Shed Its US$1.6bn Stake

By Sumeet Singh

In early Jun 2022, Alipay raised around US$386m via selling 3.3% of outstanding shares of Kakao Pay (377300 KS). That was the first selldown by Alipay (Alibaba (ADR) (BABA US)).
Despite pricing the shares at an enticing 11.8% discount to last close, the stock failed to hold the deal price and hasn’t looked back since.
In this note, we will talk about the previous deal and the upcoming lockup expiry.

Hitachi Transport (9086) – Delay Doesn’t Mean Ditched

The KKR consortium which was to buy Hitachi Transport System (9086 JP) has encountered a delay. What was to start in September is now scheduled for November.
On the 29th, HTS released a document saying KKR still had a couple of approvals or lapses of waiting periods needed.
The HTS announcement suggested the start of the Tender Offer would be early November rather than end-September.

TOPIX Inclusions: Who Is Ready (Oct 2022)

By Janaghan Jeyakumar, CFA

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Aug 2022)
At present, there are 53 names that satisfy all of these conditions and there are more names that are close to being in that group.

HSI Index Rebalance Preview: Small Step or Giant Leap?

Currently at 69 index members, we just could reach 80 constituents at the December rebalance. That would leave the index committee to plan the move to 100 constituents in 2023.
We list 10 potential inclusions to the index in December. One-way turnover is just under 4% and inclusions of all stocks will increase index market cap coverage significantly.
Shorts are more than 3% of free float on five of the potential inclusions and these stocks could see some short covering ahead of the announcement of the changes.

KOSPI Size Index Migration: 10-Year Backtesting

By Sanghyun Park

Price adjustment by passive flow started one month before the effective date. The LONG/SHORT basket set a month towards the effective dates provided a higher yield than seven days ahead.
The yield tended to be relatively low when the overall market was in a bearish phase. We see a positive correlation between the yields and the market direction.
Overall, the LONG/SHORT basket trading on this event over the past decade has shown a fairly high persistence and winning rate, substantial enough for us to have a careful look.

Link Admin’s In-Specie Distribution of PEXA: Potential ASX200 Inclusion

Following the termination of the proposed scheme with Dye & Durham, Link Administration (LNK AU) is working towards a potential in-specie distribution of PEXA Group (PXA AU) shares.
Link Administration (LNK AU) owns 42.8% of PEXA Group (PXA AU) and intends to distribute at least 80% of its holding following ATO tax roll-over relief.
The increased float will put PEXA Group (PXA AU) firmly in the running for S&P/ASX 200 (AS51 INDEX) membership where passive trackers will need to buy a lot of stock.

KOSPI 200 Rebalance in December Highlighted by Locals

This article discusses the potential inclusions and exclusions of KOSPI 200 rebalance in December 2022 (especially those that are highlighted by the locals).
Stocks that are expected to be included in the KOSPI 200 index include Samyang Foods (003230 KS) and Lotte Confectionery (280360 KS).
Stocks that are expected to be excluded in the KOSPI 200 index include Samyang Holdings (000070 KS) and Boryung Pharmaceutical (003850 KS).

MBK Partners Joins JIC Consortium to Acquire Toshiba

It was announced today that MBK Partners will join a consortium led by Japan Investment Corporation (JIC) to acquire Toshiba Corp (6502 JP).
The sharp appreciation of the USD vs JPY could make a stronger case for JIC consortium (now backed by both Bain Capital and MBK Partners) to become the main bidder.
Including the premium for management rights, the acquisition price of Toshiba is expected to reach about 3 trillion JPY (US$21 billion).

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: Market Consultation Driven Changes

A market consultation could result in an increase in the number of index constituents for the FTSE TWSE Taiwan Dividend+ Index from 30 to 50.
As of the close on 4 October, we see 23 potential inclusions and 2 potential deletions in December. That could change to +24/-3 depending on the rank cutoff thresholds.
FTSE plans to implement the changes in a single step at the December rebalance. That could lead to one-way turnover of TWD 62bn (US$1.97bn).

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Oct 04

Daily Brief TMT/Internet: Nexon, Tencent, O2Micro International, NTT (Nippon Telegraph & Telephone), Mobileye Global, Taiwan Semiconductor (TSMC) – ADR, AXT Inc, Peer Metaverse Coin and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Saudi Arabia Gaming: Plans to Invest $38 Billion in Global Game Industry
China Internet Weekly (3Oct2022): Tencent, NetEase, Alibaba, Kuaishou, Uxin
EQD | Tencent (700 HK): Time to Take off Hedges and Leverage up Using Options
O2Micro’s “Reasonable” Homecoming Offer
O2Micro Enters into a Definite Privatisation Agreement at US$5.00 Per ADS
NTT (Buy) – Investor Day Highlights Global Data Center Business
Mobileye Global IPO Preview
Taiwan Tech Weekly: Trying to Recover After a Week of Deep Declines
AXTI: The Fruit of a Preview
Sporting Crypto – October 3rd 2022: What does the Metaverse mean for Sports?

Saudi Arabia Gaming: Plans to Invest $38 Billion in Global Game Industry

Saudi Arabia’s Savvy Games Group has a grand ambition to invest in the global gaming industry. It recently announced that it will invest US$37.8 billion in the global gaming industry.
There has been a sharp appreciation of the USD and Riyal versus JPY which could help to accelerate more M&As of Japanese game companies by SGG.
Saudi Arabia’s aggressive push to expand into the global gaming industry could aid this sector in the coming months as it could result in further major M&As in this sector.

China Internet Weekly (3Oct2022): Tencent, NetEase, Alibaba, Kuaishou, Uxin

By Ming Lu

The global game market can shrink in 2022, which will impact Chinese game companies’ global diversification.
NetEase formally launched its own social networking service to compete with Tencent.
Kuaishou announced that it would launch an e-commerce channel on its App’s homepage.

EQD | Tencent (700 HK): Time to Take off Hedges and Leverage up Using Options

By Simon Harris

Stock has fallen 17% since Sep 15th, and implied vols have picked up
The fundamentals remain strong and tech momentum may be shifting
We suggest two directional trades using options to play earnings

O2Micro’s “Reasonable” Homecoming Offer

By David Blennerhassett

O2Micro International (OIIM US), an integrated circuits play, has announced a definitive privatisation transaction.
The acquirer, led by the CEO and CFO of O2Micro, are offering US$5.00/ADS, a 68.9% premium to the undisturbed price.
The Offer requires shareholders representing at least two-thirds of O2Micro vote FOR. Roughly 30% of shares out appear to be supportive. This Offer is expected to close in the 1Q23.

O2Micro Enters into a Definite Privatisation Agreement at US$5.00 Per ADS

By Arun George

O2Micro International (OIIM US) entered into a definitive agreement for going private with FNOF Precious Honour Limited at US$5.00 per ADS, a 54.8% to the undisturbed price (17 March).
Shareholders representing two-thirds of shares present and voting need to approve the deal. The rollover shareholders represent 16.90% of voting rights.
The offer is attractive in the context of O2Micro’s weakening performance and grim market conditions. At the last close, the gross spread is 18.2%. Expect a 1Q23 deal close.

NTT (Buy) – Investor Day Highlights Global Data Center Business

By Kirk Boodry

NTT’s global data center business has 6% market share with annual revenue growth of 20% that is twice the industry average
We have updated our model and valuation summary to reflect the transfer of NTT Ltd, which operates the GDC business, into NTT Data
Our valuation remains unchanged although we have lowered our target price ¥4,500 to ¥4,450 for payment of the H1 dividend. NTT remains a top pick in our coverage

Mobileye Global IPO Preview

Mobileye Global (MBLY US) is getting ready for an IPO in the US in late 2022 at an expected market cap valuation of about US$30 billion.
Mobileye Global was acquired by Intel for US$15.3 million in 2017. Intel currently owns a 100% stake of the company’s outstanding common shares.
Mobileye has world-class technologies in the advanced driver assistance systems (ADAS) and autonomous driving technologies and solutions.

Taiwan Tech Weekly: Trying to Recover After a Week of Deep Declines

By Vincent Fernando, CFA

Taiwan’s tech space fell hard last week, with the tech sector down 5.4%, compared to a 4.9% drop for the overall market. Semiconductors performed the worst, down 6.2%.
Hon Hai, Delta, Lite-On — EV a major theme for the first-ever Taiwan Expo USA coming October 12th.
Taiwan wafer exports were at an all-time high in August. We note that wafer names have underperformed TSMC.

AXTI: The Fruit of a Preview

By Hamed Khorsand

Third quarter results could serve as an inflection point for AXT Inc. (AXTI) after the Company reported a rebound in gross margin in the second quarter
When AXTI reported second quarter results, management described a design win that would be part of a consumer electronic device with a feature in a higher end model
We believe the reference could have been to the iPhone 14 Pro and Pro Max having different a different display feature compared to the iPhone 14.

Sporting Crypto – October 3rd 2022: What does the Metaverse mean for Sports?

By Sporting Crypto

Anything that augments your physical life, to the digital, is in some way or form linked to what currently is, and what will become, ‘The Metaverse’.
So a Zoom call or a free world game — whilst they don’t wholly agree with the notion of interoperability or persistence —they still are in essence part of the Metaverse.
Now, to give further context, there is the idea of ‘Metaverses’ — aka, Decentraland, Sandbox or any company building their own virtual world.

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Oct 04

Daily Brief Energy/Materials: Tianqi Lithium and more

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

In today’s briefing:

FTSE All-World/All-Cap Index Rebalance Preview (Dec): Quieter Than Usual as IPOs Dry Up

FTSE All-World/All-Cap Index Rebalance Preview (Dec): Quieter Than Usual as IPOs Dry Up

We see 4 potential inclusions to the FTSE All-World and All-Cap indices that will be implemented at the close of trading on 16 December.
There are a couple of other recent listings that are close to the investable market cap threshold and could be added to the All-Cap index.
Given the lack of IPO in the April to August period, the rebalance will be quieter than usual though lock-up expiries will keep things interesting.

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Oct 04

Daily Brief Consumer: Pola Orbis Holdings, ASICS Corp, Tesla Motors, Betagro Group, Kakao Pay, K Car, Tokyo Stock Exchange Tokyo Price Index Topix, Zegna, Cubic City Service Apartment Group and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

Japanese Cosmetics: Trading Around Q3 Earnings
Asics (7936) | Nike Air Pockets
Tesla Q3 Deliveries Trail Even Sharply Reduced Market Consensus—And It’s Own Best Guess
Betagro IPO: The Bull Case
Kakao Pay Placement Lockup Expiry – Alipay Is Soon Going to Be Free to Shed Its US$1.6bn Stake
Noteworthy Lockup Releases for the Next Two Months in Korea
Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional
Breaking SPAC Convention
Cubic City Service Apartment Group Pre-IPO Tearsheet

Japanese Cosmetics: Trading Around Q3 Earnings

By Oshadhi Kumarasiri

The latest rally in Japanese cosmetics, driven by improving domestic market conditions has strangely avoided two of the big names in the market, Shiseido Company (4911 JP) & Pola Orbis.
Although both of these names seem to offer big upside potential, we think Pola Orbis Holdings (4927 JP) has a significantly better risk-reward profile in the short term.
We would also be inclined to hedge the market risk using Kose Corp (4922 JP) on the short side as the name has the biggest downside potential.

Asics (7936) | Nike Air Pockets

By Mark Chadwick

NIKE reported Q1 results post close on Thursday sending the shares down 9% after hours and hitting the stock price of Asics on Friday (-10.7%).
ASICS is unlikely to face ALL of the same problems that impacted NIKE, but investors should be aware of the rising inventory risk
ASICS is less risky given less exposure to apparel. Even so, we remain bearish for now

Tesla Q3 Deliveries Trail Even Sharply Reduced Market Consensus—And It’s Own Best Guess

By Vicki Bryan

Q3 deliveries were an impressive 343,830, a bit better vs my cautious 331,104 est;
But results trailed plunging market projections & Tesla’s own guidance by 20,000-50,000;
Even worse, the shortfall meant sales trailed production by record 22,100.

Betagro IPO: The Bull Case

By Arun George

Betagro Group (1737144D TB), Thailand’s leading integrated food company, is seeking to raise US$554 million through a SET IPO, according to press reports
Betagro plans to offer 500 million shares or 25% of the total issued shares after IPO. This will be Thailand’s second-largest listing this year after Thai Life Insurance (TLI TB).
The key elements of the bull case rest on top quartile growth rates, a well-functioning core business, rising profitability, cash generation and declining leverage.

Kakao Pay Placement Lockup Expiry – Alipay Is Soon Going to Be Free to Shed Its US$1.6bn Stake

By Sumeet Singh

In early Jun 2022, Alipay raised around US$386m via selling 3.3% of outstanding shares of Kakao Pay (377300 KS). That was the first selldown by Alipay (Alibaba (ADR) (BABA US)).
Despite pricing the shares at an enticing 11.8% discount to last close, the stock failed to hold the deal price and hasn’t looked back since.
In this note, we will talk about the previous deal and the upcoming lockup expiry.

Noteworthy Lockup Releases for the Next Two Months in Korea

By Sanghyun Park

K Car’s major shareholder is Hahn & Company, which has already fully recovered the initial investment. So, there is an actual probability that it will make an aggressive exit.
SingEel’s 3-month IPO institutional and VCs will be released, 6.18% of SO. All of them are in a profit zone, there is a possibility that an aggressive overhang will occur.
Kakao’s 47% holdings in Kakao Pay will be released. The possibility of lowering the stake seems quite low. Nevertheless, we must consider the risk that this will affect market sentiment.

Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

By Aki Matsumoto

With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.
Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.
Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.

Breaking SPAC Convention

By subSPAC

Over the last two years, SPACs have emerged as an alternative to the traditional IPO process, especially for those who’ve found it challenging to raise money from the public markets in the past.
In fact, SPACs have been a great investment vehicle for Space Launch firms, Electric Vehicle Upstarts and even Quantum Computing firms.
It is surprising then that Italian Luxury Fashion House Zegna, which has a rich 110-year heritage, has decided to take the SPAC route to make its debut in the US markets rather than list in Europe or in Asia like most of its peers.

Cubic City Service Apartment Group Pre-IPO Tearsheet

By Ethan Aw

Cubic City Service Apartment Group (CCSAG HK) is looking to raise about US$500m in its upcoming Hong Kong IPO. The deal will be run by Morgan Stanley and CCB International.
Cubic City Service Apartment Group (CCSAG) is a rental apartment services platform, which pioneered the centralized rental apartment model in China, according to the company.
It provides rental apartments in centrally managed buildings with modern facilities. As of 30 Jun 2022 (1Q23), the company operates 76,190 apartments nationwide across 394 locations in 26 cities.

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Oct 04

Daily Brief Industrials: Toshiba Corp, Lasertec Corp, ACCO Brands, CRB Commodity Index and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Two Bits of Non-Bullish Toshiba News
Lasertec (6920 JP): Accumulate for the Long Term
ACCO: Adjusting for Macroenvironment
The Commodity Report #71

Two Bits of Non-Bullish Toshiba News

On Friday, Toshiba investors got two bits of news which have been taken as non-bullish.
Affiliate and former subsidiary Kioxia (6600 JP) announced it would cut wafer input volume by 30% starting in October, and Toshiba’s announcement on the Privatisation process status implied some delay.
Today the shares are getting hit vs Peers. It’s still a problem of lots of moving parts.

Lasertec (6920 JP): Accumulate for the Long Term

By Scott Foster

The shares are down 58% from their January high. Our 3-year forecast brings valuations down to levels not seen since FY Jun-18.
The great surge in orders is coming to an end, but EUV lithography and SiC power devices should keep demand for Lasertec’s mask inspection systems at high levels.
The severity of the emerging semiconductor down-cycle and global recession remain to be seen, but the company’s long-term potential warrants another look.

ACCO: Adjusting for Macroenvironment

By Hamed Khorsand

The business climate has not improved for Acco Brands (ACCO) in Europe since the Company reported second quarter results, and thus could result in lower than expected third quarter numbers
The macroenvironment has been volatile in a quarter dependent on back-to-school sales and more people working from their offices.
We are updating our earnings model for the rest of the year. Our third quarter sales estimate is now $517.1 million

The Commodity Report #71

By The Commodity Report

We expect the oil crisis to worsen once economic activity resumes again. Till then some months will probably pass.
Nevertheless, the industry hasn’t increased production significantly enough, and the SPR release by the Biden administration veiled the actual grim picture in the oil market.
Those stories from Bloomberg show how relaxed the sentiment seems to be again. I have the feeling that this sentiment won’t age well at all.

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Oct 04

Daily Brief Industrials: Toshiba Corp, Lasertec Corp, ACCO Brands, CRB Commodity Index and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Two Bits of Non-Bullish Toshiba News
Lasertec (6920 JP): Accumulate for the Long Term
ACCO: Adjusting for Macroenvironment
The Commodity Report #71

Two Bits of Non-Bullish Toshiba News