Smartkarma Daily Briefs

The September rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
The round-trip trade across all stocks across the four indices is estimated at HK$18.1bn (US$2.3bn).
Kuaishou, ASM Pacific Technology, JD.com, J&T Global, Sunny Optical and New Oriental Education are the largest buys while Alibaba, Tencent, Meituan, Xiaomi and HSBC Holdings are the biggest sells.

Hang Seng, HSCEI, HSTECH Sep24 Rebal Final Capping Flows

The close of 3 September 2024 was the final price to determine capping for the Hang Seng Index Rebalances which will take place this Friday 6 September 2024 at close.
The numbers are largely unchanged, though price changes in the interim cause more Kuaishou Technology (1024 HK) to be bought, and more Xiaomi Corp (1810 HK) to be sold.
The biggest name in flows is, of course, ASM Pacific Technology (522 HK) which sees 15 days to buy.

MSC Aug 24 Rebalance: Brazil Takes the EM Flow, SA & China Downweighted Again (Tencent)

By Charlotte van Tiddens, CFA

South Africa was downweighted in ACW, EM and EM ex China for a second consecutive quarter.
Brazil was the largest upweight in ACW, EM and EM ex China.
Tencent was downweighted in the EM index but upweighted in ACW.

ChiNext/ChiNext50 Index Rebalance Preview: 22 Changes & US$700m Trade

With 70% of the review period complete, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
There are overlapping names for the two indices and some of the stocks will also have flows from the CSI Smallcap 500 Index – Shang (SH000905 INDEX) trackers.
The potential adds have outperformed the potential deletes for both indices on a year-to-date basis, but near-term performance has been lackluster.

China TCM (570.HK) Update – The Disappointing 24H1 Results Will Not Affect the Privatization Process

By Xinyao (Criss) Wang

China TCM’s 24H1 results is weaker-than-expected. Net profit YoY growth for the whole year of 2024 could be negative. Based on calculation, without privatization, HK$3.26/share is fair for China TCM.
The remedial tax is a “one-time expenditure” to clear the “obstacle” so as to smooth the completion of privatization. Weak financial performance in 24H1 should help the shareholder vote.
Due to the low base in 2024, 2025 is expected to see an obvious performance rebound.Long-term outlook of TCM granules business is still promising, reasonable share price is above HK$5/share.

CPMC (906 HK): Champion Tech Walks

By David Blennerhassett

At the first close , SASAC/NCSSF-backed Champion Holdings failed to secure the 50% acceptance condition. No surprises there. What was a surprise was Champion Tech letting the Offer lapse.
Champion Tech could have extended the Offer to the 30th Sept, which would have achieved little. But they could have bumped terms. They did neither.
That leaves ORG Technology Co., Ltd. A (002701 CH) as the sole bidder for CPMC Holdings (906 HK) . And arguably, an unwilling bidder at that.

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): Chart Analysis Affirms Zhongsheng Is Too Cheap

By Mohshin Aziz

Historical valuation affirms that Zhongzheng is the cheapest it has been in the past 10 years
Chart analysis is to compliment our recent report Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play published yesterday
Our TP of HKD12.5 is based on FY25 PE of 5x. This implies an UPSIDE POTENTIAL of 33%. It also delivers a dividend yield of ~9% at current prices.

Midea A/H Listing – Thoughts on A/H Premium and past A/H Listings

Midea Group Co Ltd A (000333 CH) aims to raise up to US$3bn in its H-share listing, as per media reports.
Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
We have covered the company and deal background in our previous notes. In this note, we talk about the past A/H listing and possible premiums.

HK Exchanges: Position Cuts Deepen Among Asia Ex-Japan Funds

By Steven Holden

Asia Ex-Japan fund managers continue to reduce their positions in Hong Kong Exchanges & Clearing.
Percentage of funds invested and the average weight of the stock in portfolios have been on a downward trend since the recent peak in early 2023
Wave of position closures in 2024 by Allianz, T Rowe Price, and Baillie Gifford has resulted in over half of the historical investor base exiting the stock

Didi Global Q224 Results: EBITA Margin Up | OpCF Still Strong | But Growth Slowed Noticeably

By Daniel Hellberg

Estimated take rate up vs year ago and vs Q124, and EBITA margin turned +ive
However, revenue growth in core China market slowed considerably in Q224
Cash Flow and Liquidity both appear ample, little pressure to raise new funds

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Sep 04

Most Read: Ryohin Keikaku, Seven & I Holdings, Fuji Soft Inc, Shanghai Shenzhen CSI 300 Inde, Exedy Corp, NVIDIA Corp, Jio Financial Services, Kuaishou Technology, Samsung Biologics and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Sep24 Nikkei 225 Rebal – Last Minute Thoughts and Change in Predictions
Artisan Partners Writes a Letter To the 7&I Board (3382) – Meh…
KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
China ETF Inflows & Implications: YTD Inflows Near US$100bn
[JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run
Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn
India: Index Implications of Additions to the F&O Segment
Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer
HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)
Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off

Sep24 Nikkei 225 Rebal – Last Minute Thoughts and Change in Predictions

The last two reviews have been announced on the second business day of the month of the review. The one before that on the third business day.
The review could be announced today or tomorrow. Wednesday would seem to be “late.”
There are still questions about implementation – thus “care” in previous insights. Here I explore the possibilities/probabilities/issues around the edges. And a Dark Horse which may be lighter than thought.

Artisan Partners Writes a Letter To the 7&I Board (3382) – Meh…

On 30 August, 7&i shareholder Artisan Partners (holder since 2019, now at 1%) wrote an open letter to the Board of Directors of Seven & I Holdings (3382 JP)
There are several comments in bold. “It is imperative that the board of directors negotiate with ACT immediately to achieve the best possible outcome for shareholders” is one.
The letter is a bit preachy, a bit fluffy, and a bit misleading in parts. But it requests the Company brief shareholders on the negotiations by 19 September 2024.

KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid

KKR has announced its previously leaked takeover of Fuji Soft Inc (9749 JP). Two activists with 30+% between them have agreed to tender at ¥8,800.
Given what the founder, crossholders, and other arbs own, this gets done easily. Congrats on the win to the activists.
We will see more activism and more pressure on under-earning companies to go private to clean themselves up outside the public eye. Big opportunities for years.

China ETF Inflows & Implications: YTD Inflows Near US$100bn

Nearly US$100bn has flowed into mainland China listed ETFs year to date and could be driven by the National Team led by Central Huijin supporting the market.
Nearly all the net inflows have been focused on the CSI 300, CSI 1000, CSI 500, SSE50, ChiNext and STAR50 indices. Flows to sector ETFs have been mixed.
Over 70% of the net inflows have gone to the CSI 300 Index with another 18% going to the CSI 500 Index and CSI 1000 Index.

[JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run

In late May, Toyota Group member Aisin (7259 JP) announced it would sell its 37% stake in Exedy Corp (7278 JP) . The market dropped. But that was the opportunity.
On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.” It’s up 21.5% since (the day after). Peers are down 15-20%.
The company completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left.

Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn

The changes to the S&P 500 INDEX (SPX INDEX), S&P400 Index and S&P600 Index will be announced after market close on Friday.
The conclusions of the market consultation to change the index weighting methodology for the Select Sector Indices to reduce concentration and avoid reverse turnover should also be announced.
Changes in the index weighting methodology will result in a round-trip trade of US$35bn across the Select Sector indices. The largest turnover is in the XLP and XLK.

India: Index Implications of Additions to the F&O Segment

Following SEBI’s review of eligibility criteria for entry/exit of stocks in the derivatives segment, there could be 18 deletions/79 inclusions in the F&O segment over the next 6 months.
The introduction of some stocks in the F&O segment could lead to their inclusion in the NIFTY, SENSEX, Nifty Bank and CNXIT indices and weight changes in the Nifty Next50.
The inclusion of stocks in indices with a fixed number of constituents will result in deletion of some stocks from these indices. There should be methodology changes too.

Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer

By Arun George

Nikkei reports that Bain will launch a competing tender offer for Fuji Soft Inc (9749 JP) around JPY9,200-9,300 per share, around 5% higher than KKR’s offer.
The Board responded that Bain submitted a non-binding proposal on 26 July. The special committee will consider its feasibility if a binding proposal is submitted.
KKR has three options to respond to a higher Bain offer: revise it, launch a hostile offer at unchanged terms, or walk away. The first option is the most likely.

HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)

The September rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
The round-trip trade across all stocks across the four indices is estimated at HK$18.1bn (US$2.3bn).
Kuaishou, ASM Pacific Technology, JD.com, J&T Global, Sunny Optical and New Oriental Education are the largest buys while Alibaba, Tencent, Meituan, Xiaomi and HSBC Holdings are the biggest sells.

Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off

By Sanghyun Park

Samsung C&T’s holding company ratio is closing in on 50%, driven by the Biologics rally, which has Samsung on high alert for a forced conversion.
Watch Samsung’s moves to avoid forced holding company status. The old Biologics-for-Electronics swap isn’t viable, so they’ll likely sell Biologics shares to lower the ratio.
Samsung C&T might sell Biologics shares at a ₩80T market cap. They’ve boosted construction to manage assets and the holding ratio, but beyond ₩80T, risks increase.

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Sep 04

Daily Brief Utilities: Nrg Energy Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Utilities Sector

In today’s briefing:

NRG Energy Inc.: A Robust Retail Energy Strategy But Is It Enough?

NRG Energy Inc.: A Robust Retail Energy Strategy But Is It Enough?

NRG Energy, Inc. delivered a robust financial performance for the second quarter of 2024, marked by significant growth in earnings and aggressive strategic pursuits aimed at capitalizing on current market dynamics.
The company reported an Adjusted EBITDA of $935 million, a 14% increase year-over-year, and is trending toward the upper end of its financial guidance for the year.
Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

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Sep 04

Daily Brief Industrials: Auckland Intl Airport, Samsung C&T, Dongfang Electric, Sinotrans, On Assignment, Boels, Teledyne Technologies, Verisure Holding AB and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Auckland Airport Possible Placement – Getting Closer to a US$800m Cleanup
Samsung C&T: Corporate Value-Up + Reduced Overhang Post Final Lee Family Inheritance Tax in 2025
Dongfang Electric (1072 HK): Finding a Bottom
Sinotrans-(598.HK) – Interim Results Highlight Risks to Be Managed
ASGN Incorporated: Expansion Into IT Sector Consulting & Other Major Drivers
Boels – ESG Report – Lucror Analytics
Teledyne Technologies Incorporated: Will The Improving Trends in Test & Measurement Instruments Last? – Major Drivers
Verisure – ESG Report – Lucror Analytics

Auckland Airport Possible Placement – Getting Closer to a US$800m Cleanup

Almost exactly a year ago, Auckland City Council (ACC) raised around US$320m via selling around 7% of its stake in Auckland Intl Airport (AIA NZ).
ACC still has an 11% stake left, which it now plans to transfer to a future fund, which will be free to sell the shares
In this note, we will talk about the possible placement and other deal dynamics.

Samsung C&T: Corporate Value-Up + Reduced Overhang Post Final Lee Family Inheritance Tax in 2025

By Douglas Kim

We provide an updated NAV analysis of Samsung C&T, discuss the reduced overhang post final Lee family inheritance tax payment, and also provide further details of its Corporate Value-Up announcement.
Given 2025 will be the last year of major inheritance tax payment for the Lee family, there is likely to be reduced overhang associated with inheritance tax issue next year.
Our NAV analysis of Samsung C&T suggests NAV of 39.9 trillion won or NAV per share of 224,249 won which is 45% higher from current levels.

Dongfang Electric (1072 HK): Finding a Bottom

By Osbert Tang, CFA

Dongfang Electric (1072 HK) is now closer to the bottom after underperformance due to a weaker-than-expected 1H24 result dragged by low-margin coal-fired products.
New contract momentum, however, stayed resilient with a 14.8% YoY increase to Rmb56.1bn in 1H24. Forward backlog coverage is now at 1.8x FY24F revenue.
There is a significant Rmb6.3bn positive operating cash flow swing in 1H24. This helps to raise net cash (excluding contract liabilities) to 76.4% of the share price.

Sinotrans-(598.HK) – Interim Results Highlight Risks to Be Managed

By Rikki Malik

Volume and revenue grow as the company works with China’s new trading partners
Margins and cashflow under pressure due to a weak domestic economy and higher freight rates
Cross-Border e-commerce growing fast from a small base relative to other divisions

ASGN Incorporated: Expansion Into IT Sector Consulting & Other Major Drivers

ASGN Incorporated has released its earnings for the second quarter of 2024, revealing a mixture of steady performance amid challenging macroeconomic conditions.
The company reported revenues of $1.035 billion, aligned with the management’s guidance and demonstrating a cautious but steady demand environment similar to the previous quarter.
The adjusted EBITDA was $117.1 million, translating to a margin of 11.3%, which is at the higher end of expectations.

Boels – ESG Report – Lucror Analytics

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Boels’ ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

Teledyne Technologies Incorporated: Will The Improving Trends in Test & Measurement Instruments Last? – Major Drivers

Investors evaluating Teledyne Technologies Incorporated should consider both the achievements and challenges reported in their latest financial updates.
Notably, the company achieved record free cash flow, allowing for significant allocations towards debt repayment, acquisitions, and stock buybacks.
This demonstrates adept financial management and the capability to maintain operational flexibility.

Verisure – ESG Report – Lucror Analytics

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Verisure’s ESG as “Strong”, in line with its Social score, while the Environmental and Governance scores are “Adequate”. Controversies are “Immaterial” and Disclosure is “Strong”.

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Sep 04

Daily Brief Health Care: Samsung Biologics , China Traditional Chinese Medicine, Akeso Biopharma Inc, D.Western Therapeutics Institute Inc., Opthea Ltd, Merck & Co and more

By Smartkarma Daily Briefs | Daily Briefs, Healthcare

In today’s briefing:

Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off
China TCM (570.HK) Update – The Disappointing 24H1 Results Will Not Affect the Privatization Process
[Akeso Inc. (9926 HK, BUY, TP HK$63) TP Change]: Too Many Positives to Count…Reiterate TOP BUY
D. Western Therapeutics Institute (DWTI) (4576 Jp) – 2Q Follow-Up
Opthea (OPT AU): Getting Closer to Commercialization of First Drug; Fund Raising Adds to Confidence
Merck & Co.: Expanding Market for GARDASIL

Trading Plays on Samsung C&T’s Holding Company Shift and Biologics Share Sell-Off

By Sanghyun Park

Samsung C&T’s holding company ratio is closing in on 50%, driven by the Biologics rally, which has Samsung on high alert for a forced conversion.
Watch Samsung’s moves to avoid forced holding company status. The old Biologics-for-Electronics swap isn’t viable, so they’ll likely sell Biologics shares to lower the ratio.
Samsung C&T might sell Biologics shares at a ₩80T market cap. They’ve boosted construction to manage assets and the holding ratio, but beyond ₩80T, risks increase.

China TCM (570.HK) Update – The Disappointing 24H1 Results Will Not Affect the Privatization Process

By Xinyao (Criss) Wang

China TCM’s 24H1 results is weaker-than-expected. Net profit YoY growth for the whole year of 2024 could be negative. Based on calculation, without privatization, HK$3.26/share is fair for China TCM.
The remedial tax is a “one-time expenditure” to clear the “obstacle” so as to smooth the completion of privatization. Weak financial performance in 24H1 should help the shareholder vote.
Due to the low base in 2024, 2025 is expected to see an obvious performance rebound.Long-term outlook of TCM granules business is still promising, reasonable share price is above HK$5/share.

[Akeso Inc. (9926 HK, BUY, TP HK$63) TP Change]: Too Many Positives to Count…Reiterate TOP BUY

By Eric Wen

Akeso reported C1H24 top line, non-IFRS operating loss and IFRS net loss 10% above, 13% narrower and 3.5% narrower than our estimates.
The most positive takeaway from the result is the Phase III start of CD-47 mAb (AK117), which can potentially be a global first-in-class (FIC).
We raised TP from HK$58 to HK$63 and reiterate our TOP BUY.

D. Western Therapeutics Institute (DWTI) (4576 Jp) – 2Q Follow-Up

By Sessa Investment Research

DWTI held a 1H results briefing via ZOOM webinar on Friday 8/23 at 13:30, hosted by President Hidaka.
Several important points came up in his answers to questions from analysts during Q&A at the end of the briefing.
1) Dosing in H-1337 PIIb trials in the US has been completed, and in the year-end publication of top-line results, the key expectation is to show non-inferiority of ROCK inhibitor H-1337 (1.0% once daily) versus existing beta blocker Timolol (0.5% twice daily).

Opthea (OPT AU): Getting Closer to Commercialization of First Drug; Fund Raising Adds to Confidence

By Tina Banerjee

Opthea Ltd (OPT AU) completed enrollment in two Phase 3 trials for sozinibercept in wet AMD. Topline data from these trials are expected by mid-2025.
During FY24, Opthea raised $295M to extend runway through topline data readouts of Phase 3 clinical trials. Further, in July, Opthea raised $38M through retail entitlement offer.
Although Opthea is well-funded through mid-2025, any fund requirement beyond that period will be easier to meet amid lower interest rate scenario.

Merck & Co.: Expanding Market for GARDASIL

Merck & Co.’s second quarter earnings call underscored both the progress and challenges faced by the company as it pushes forward in an increasingly complex pharmaceutical landscape.
The company reported a solid quarter with total revenues reaching $16.1 billion, marking a 7% increase.
This growth is particularly impressive when considering the 11% increase when excluding the impact of foreign exchange.

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Sep 04

Daily Brief Industrials: Auckland Intl Airport, Samsung C&T, Dongfang Electric, Sinotrans, On Assignment, Boels, Teledyne Technologies, Verisure Holding AB and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Auckland Airport Possible Placement – Getting Closer to a US$800m Cleanup
Samsung C&T: Corporate Value-Up + Reduced Overhang Post Final Lee Family Inheritance Tax in 2025
Dongfang Electric (1072 HK): Finding a Bottom
Sinotrans-(598.HK) – Interim Results Highlight Risks to Be Managed
ASGN Incorporated: Expansion Into IT Sector Consulting & Other Major Drivers
Boels – ESG Report – Lucror Analytics
Teledyne Technologies Incorporated: Will The Improving Trends in Test & Measurement Instruments Last? – Major Drivers
Verisure – ESG Report – Lucror Analytics

Auckland Airport Possible Placement – Getting Closer to a US$800m Cleanup

Almost exactly a year ago, Auckland City Council (ACC) raised around US$320m via selling around 7% of its stake in Auckland Intl Airport (AIA NZ).
ACC still has an 11% stake left, which it now plans to transfer to a future fund, which will be free to sell the shares
In this note, we will talk about the possible placement and other deal dynamics.

Samsung C&T: Corporate Value-Up + Reduced Overhang Post Final Lee Family Inheritance Tax in 2025

By Douglas Kim

We provide an updated NAV analysis of Samsung C&T, discuss the reduced overhang post final Lee family inheritance tax payment, and also provide further details of its Corporate Value-Up announcement.
Given 2025 will be the last year of major inheritance tax payment for the Lee family, there is likely to be reduced overhang associated with inheritance tax issue next year.
Our NAV analysis of Samsung C&T suggests NAV of 39.9 trillion won or NAV per share of 224,249 won which is 45% higher from current levels.

Dongfang Electric (1072 HK): Finding a Bottom

By Osbert Tang, CFA

Dongfang Electric (1072 HK) is now closer to the bottom after underperformance due to a weaker-than-expected 1H24 result dragged by low-margin coal-fired products.
New contract momentum, however, stayed resilient with a 14.8% YoY increase to Rmb56.1bn in 1H24. Forward backlog coverage is now at 1.8x FY24F revenue.
There is a significant Rmb6.3bn positive operating cash flow swing in 1H24. This helps to raise net cash (excluding contract liabilities) to 76.4% of the share price.

Sinotrans-(598.HK) – Interim Results Highlight Risks to Be Managed

By Rikki Malik

Volume and revenue grow as the company works with China’s new trading partners
Margins and cashflow under pressure due to a weak domestic economy and higher freight rates
Cross-Border e-commerce growing fast from a small base relative to other divisions

ASGN Incorporated: Expansion Into IT Sector Consulting & Other Major Drivers

ASGN Incorporated has released its earnings for the second quarter of 2024, revealing a mixture of steady performance amid challenging macroeconomic conditions.
The company reported revenues of $1.035 billion, aligned with the management’s guidance and demonstrating a cautious but steady demand environment similar to the previous quarter.
The adjusted EBITDA was $117.1 million, translating to a margin of 11.3%, which is at the higher end of expectations.

Boels – ESG Report – Lucror Analytics

Teledyne Technologies Incorporated: Will The Improving Trends in Test & Measurement Instruments Last? – Major Drivers

Investors evaluating Teledyne Technologies Incorporated should consider both the achievements and challenges reported in their latest financial updates.
Notably, the company achieved record free cash flow, allowing for significant allocations towards debt repayment, acquisitions, and stock buybacks.
This demonstrates adept financial management and the capability to maintain operational flexibility.

Verisure – ESG Report – Lucror Analytics

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Sep 04

Daily Brief Energy/Materials: Latin Resources, CPMC Holdings, Rio Tinto Ltd, Trigon Metals , Nickel Industries and more

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

In today’s briefing:

Latin Resources (LRS AU): Pilbara Minerals’ All-Scrip Offer
CPMC (906 HK): Champion Tech Walks
Selected European HoldCos and DLC: August’24 Report
Trigon Metals Inc – Mining Monthly: August Edition
Morning Views Asia: Meituan, New World Development, Nickel Industries

Latin Resources (LRS AU): Pilbara Minerals’ All-Scrip Offer

By Arun George

On 15 August, Latin Resources (LRS AU) disclosed a binding offer from Pilbara Minerals (PLS AU) at 0.07 PLS share per LRS share, a 66.3% premium to the undisturbed price.
The key condition is LRS shareholder approval. No disinterested shareholder holds the 25% blocking stake, and low retail ownership lowers the headcount test risk.
The Salinas definitive feasibility study, expected in September, provides option value. A strong result could draw a competing offer or force PLS into sweetening terms.

CPMC (906 HK): Champion Tech Walks

By David Blennerhassett

At the first close , SASAC/NCSSF-backed Champion Holdings failed to secure the 50% acceptance condition. No surprises there. What was a surprise was Champion Tech letting the Offer lapse.
Champion Tech could have extended the Offer to the 30th Sept, which would have achieved little. But they could have bumped terms. They did neither.
That leaves ORG Technology Co., Ltd. A (002701 CH) as the sole bidder for CPMC Holdings (906 HK) . And arguably, an unwilling bidder at that.

Selected European HoldCos and DLC: August’24 Report

By Jesus Rodriguez Aguilar

Discounts to NAV of covered holdcos did not follow a clear trend during August. Discounts to NAV: C.F.Alba, 46.2% (vs. 45.3% as of August 9); GBL, 41.1% (vs. 42.2%);
Heineken Holding, 16.5% (vs. 16%); Industrivärden C, 1.7% (vs. 2.2%); Investor B, 1.9% (vs.7.5%); Porsche Automobile Holding, 35.7% (vs. 34.6%). Rio DLC spread tightened to 19.8% (vs. 22.1%).
What seems interesting (unchanged views): Porsche SE vs. listed assets and the Rio DLC (long RIO LN/short RIO AU).

Trigon Metals Inc – Mining Monthly: August Edition

By Atrium Research

August was a mixed month for all metals, including the mining equities.
Gold continues to outperform other metals, up 2.3% on the month and up a staggering 29% over the last year.
Mining equities performed in line with broader markets, following significant outperformance in July.

Morning Views Asia: Meituan, New World Development, Nickel Industries

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

Meituan
New World Development
Nickel Industries

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Sep 04

Daily Brief TMT/Internet: NVIDIA Corp, Fuji Soft Inc, Kuaishou Technology, ASM Pacific Technology, Tencent, SK Inc, Electric Connector Technology, Intel Corp, Crowdstrike Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn
Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer
HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)
Hang Seng, HSCEI, HSTECH Sep24 Rebal Final Capping Flows
MSC Aug 24 Rebalance: Brazil Takes the EM Flow, SA & China Downweighted Again (Tencent)
Potential Sale of SK Specialty and Deleveraging of the SK Group – Impact on SK Inc and NAV Analysis
Fuji Soft (9749 JP) – Bain Bids More, The Market Goes Even Higher
ChiNext/ChiNext50 Index Rebalance Preview: 22 Changes & US$700m Trade
Intel’s Crisis Deepens: Is the Foundry Business Next on the Chopping Block?
CrowdStrike’s Post-Outage Reality: Navigating the Challenges Ahead!

Select Sector Indices – Updated Flows as Round-Trip Trade Hits US$35bn

The changes to the S&P 500 INDEX (SPX INDEX), S&P400 Index and S&P600 Index will be announced after market close on Friday.
The conclusions of the market consultation to change the index weighting methodology for the Select Sector Indices to reduce concentration and avoid reverse turnover should also be announced.
Changes in the index weighting methodology will result in a round-trip trade of US$35bn across the Select Sector indices. The largest turnover is in the XLP and XLK.

Fuji Soft (9749 JP): Bain’s Rumoured Counteroffer

By Arun George

Nikkei reports that Bain will launch a competing tender offer for Fuji Soft Inc (9749 JP) around JPY9,200-9,300 per share, around 5% higher than KKR’s offer.
The Board responded that Bain submitted a non-binding proposal on 26 July. The special committee will consider its feasibility if a binding proposal is submitted.
KKR has three options to respond to a higher Bain offer: revise it, launch a hostile offer at unchanged terms, or walk away. The first option is the most likely.

HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Sep 2024)

The September rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
The round-trip trade across all stocks across the four indices is estimated at HK$18.1bn (US$2.3bn).
Kuaishou, ASM Pacific Technology, JD.com, J&T Global, Sunny Optical and New Oriental Education are the largest buys while Alibaba, Tencent, Meituan, Xiaomi and HSBC Holdings are the biggest sells.

Hang Seng, HSCEI, HSTECH Sep24 Rebal Final Capping Flows

The close of 3 September 2024 was the final price to determine capping for the Hang Seng Index Rebalances which will take place this Friday 6 September 2024 at close.
The numbers are largely unchanged, though price changes in the interim cause more Kuaishou Technology (1024 HK) to be bought, and more Xiaomi Corp (1810 HK) to be sold.
The biggest name in flows is, of course, ASM Pacific Technology (522 HK) which sees 15 days to buy.

MSC Aug 24 Rebalance: Brazil Takes the EM Flow, SA & China Downweighted Again (Tencent)

By Charlotte van Tiddens, CFA

South Africa was downweighted in ACW, EM and EM ex China for a second consecutive quarter.
Brazil was the largest upweight in ACW, EM and EM ex China.
Tencent was downweighted in the EM index but upweighted in ACW.

Potential Sale of SK Specialty and Deleveraging of the SK Group – Impact on SK Inc and NAV Analysis

By Douglas Kim

In this insight, we discuss the potential sale of SK Specialty by SK Inc (034730 KS) which owns 100% stake in the company.
If SK Inc could sell SK Specialty at about 3 trillion won to 4 trillion won, this could reduce significantly reduce debt burden of SK Inc.
Our base case NAV value per share for SK Inc is 203,288 won per share, representing 38% upside from current levels.

Fuji Soft (9749 JP) – Bain Bids More, The Market Goes Even Higher

The original Target Opinion Statement for KKR’s bid at ¥8,800/share offered a glimpse at a non-binding, questionably feasible offer at a slightly higher price, which 3DIP might have rejected.
That was apparently Bain, and now we know Bain has consistently had the higher price. Fuji Soft Inc (9749 JP) handled this whole process badly, perhaps cowed by 3DIP.
Now the cat is amongst the pigeons. This is less hostile than it looks IMO. The market thinks it will be a bun fight.

ChiNext/ChiNext50 Index Rebalance Preview: 22 Changes & US$700m Trade

With 70% of the review period complete, we forecast 8 changes for the ChiNext Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
There are overlapping names for the two indices and some of the stocks will also have flows from the CSI Smallcap 500 Index – Shang (SH000905 INDEX) trackers.
The potential adds have outperformed the potential deletes for both indices on a year-to-date basis, but near-term performance has been lackluster.

Intel’s Crisis Deepens: Is the Foundry Business Next on the Chopping Block?

Intel Corporation finds itself at a critical juncture as it heads into its mid-September 2024 board meeting, grappling with a series of severe challenges that threaten the company’s stability and future prospects.
Once a titan of the semiconductor industry, Intel has been beset by financial difficulties, including continuous losses, declining market share, and an increasingly competitive landscape.
The situation has been exacerbated by the recent departure of key executives, adding to the uncertainty surrounding the company’s strategic direction.

CrowdStrike’s Post-Outage Reality: Navigating the Challenges Ahead!

CrowdStrike, a leader in cybersecurity known for its AI-driven Falcon platform, now finds itself grappling with significant challenges in the wake of a global IT outage that has shaken its foundations.
While the company has long been recognized for its robust growth, technological innovation, and a solid client base, the recent incident has exposed vulnerabilities that could impact its future trajectory.
The outage, which disrupted services across critical sectors, has raised questions about the resilience of CrowdStrike’s operations and the reliability of its platform.

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Sep 04

Daily Brief Financials: Virgin Money UK Plc, Capitaland Integrated Commercial Trust, Erie Indemnity Company Cl A, HKEX, Ethereum, Travelers Cos, Wr Berkley Corp, Georgia Capital PLC, Metlife Inc, Old Republic Intl and more

By Smartkarma Daily Briefs | Daily Briefs, Financials

In today’s briefing:

Nationwide/Virgin Money (VUK AU): At The Pointy End Of The Offer
CICT Placement – Accretive Acquisition, Should Be Favored by Existing Unitholders
S&P 500 September 2024 Forecasts: Dull for DELL. Brighter for ERIE, LII and TPL
HK Exchanges: Position Cuts Deepen Among Asia Ex-Japan Funds
Crypto Crisp: Macro Is Not Your Friend
The Travelers Companies: How Is The Management Focusing on Competitive Positioning? – Major Drivers
W. R. Berkley Corporation: A Bear’s Perspective! – Major Drivers
Georgia Capital – Business as usual despite political turmoil
MetLife Inc.: How Are They Adapting To The Interest Rate Environment? – Major Drivers
Old Republic International Corporation: Strategic Acquisitions

Nationwide/Virgin Money (VUK AU): At The Pointy End Of The Offer

By David Blennerhassett

Back on the 21st March, Virgin Money UK (VUK AU/VMUK LN), UK’s sixth largest retail bank, entered into a Scheme with Nationwide Building Society, at 220 pence/share, in cash.
The consideration is a solid 38% premium to undisturbed. And shareholders backed terms at the 22nd May Court Meeting. Plus UK’s CMA signed off on the 19th July.
What now? FCA/PRA approvals are the key remaining conditions. These regulatory approvals are imminent.

CICT Placement – Accretive Acquisition, Should Be Favored by Existing Unitholders

By Clarence Chu

Capitaland Integrated Commercial Trust (CICT SP) is looking to raise around S$350m (US$267m) in its primary placement. Included in the issuance is a preferential offering to raise an additional S$757m.
The proceeds will be geared towards acquiring a 50% interest in the ION Orchard mall from its Sponsor.
In this note, we run the deal through our ECM framework and comment on deal dynamics.

S&P 500 September 2024 Forecasts: Dull for DELL. Brighter for ERIE, LII and TPL

By Dimitris Ioannidis

Dell Technologies (DELL US) is the main addition by transition candidate with a reduced probability due to no longer passing the S&P 500 transition threshold.
Erie Indemnity (ERIE US) and Lennox International (LII US) are the main addition by migration candidates with an increased probability due to weak transition candidates.
Addition by migration candidates have more inconsistent selection patterns. Other addition candidates include Texas Pacific Land (TPL US), Carlisle Cos (CSL US) and Dick’s Sporting Goods (DKS US) .

HK Exchanges: Position Cuts Deepen Among Asia Ex-Japan Funds

By Steven Holden

Asia Ex-Japan fund managers continue to reduce their positions in Hong Kong Exchanges & Clearing.
Percentage of funds invested and the average weight of the stock in portfolios have been on a downward trend since the recent peak in early 2023
Wave of position closures in 2024 by Allianz, T Rowe Price, and Baillie Gifford has resulted in over half of the historical investor base exiting the stock

Crypto Crisp: Macro Is Not Your Friend

By Mads Eberhardt

As we enter a new month, it is a good time to reassess the market outlook.
Throughout August, we held the belief that the crypto market would gradually recover from its early-month lows.
While this expectation was partly fulfilled, we now recognize several indicators suggesting a downward trend or, at best, sideways movement throughout September.

The Travelers Companies: How Is The Management Focusing on Competitive Positioning? – Major Drivers

Travelers Companies Inc. has reported its second quarter 2024 earnings with quite robust financial outcomes, characterized by strength across most of its operational dimensions.
The firm registered substantial top line growth, with net written premiums increasing by 8% to reach $11.1 billion compared to the previous periods.
This positive trajectory was primarily fueled by effective field execution and strong retention rates across all business segments.

W. R. Berkley Corporation: A Bear’s Perspective! – Major Drivers

W.R. Berkart Corporation began the year 2024 with exceptionally strong quarterly financial performance, marked by record levels of operating income, net investment income, and underwriting income.
The positive outcomes from this first quarter reveal a company that is harnessing its capabilities effectively across various areas of its operations.
During the quarter, W.R. Berkley Corporation manifested a commendable growth in net premiums written, which escalated to nearly $2.9 billion, marking an increase of 10.7% over the previous period.

Georgia Capital – Business as usual despite political turmoil

By Edison Investment Research

Georgia Capital’s (GCAP’s) net asset value (NAV) per share decreased by 12.8% quarter-on-quarter in Q224 in Georgian lari (down 16.5% in sterling terms). This was mostly due to the widening of bond yields and credit spreads amid the latest political turmoil in Georgia. The de-rating of Bank of Georgia’s (BoG’s) shares had a 7.1pp impact on GCAP’s NAV, while higher discount rates applied to value the private portfolio companies contributed a further 7.5pp drag. Meanwhile, portfolio companies continue their expansion and dividend distributions, with GEL105m collected by GCAP to 12 August 2024, and management reiterated its dividend income outlook of GEL180–190m in FY24 (c 5% yield on the opening portfolio value). GCAP has recently increased its share buyback programme, with US$16.7m remaining to be repurchased as of 30 August 2024.

MetLife Inc.: How Are They Adapting To The Interest Rate Environment? – Major Drivers

MetLife demonstrated strong financial performance in its second quarter of 2024, reflecting robust underwriting results and solid variable investment income.
Despite navigating economic fluctuations, MetLife’s diversified business operations played a key role.
The company reported adjusted earnings of $1.6 billion or $2.28 per share, marking an 18% increase from the prior year.

Old Republic International Corporation: Strategic Acquisitions

In the second quarter of 2024, Old Republic International Corporation showcased a mix of strong financial performance and ongoing challenges.
The company reported a consolidated pretax operating income of $254 million, an improvement from $227 million in the same period of 2023, indicating a positive trend in profitability.
The consolidated combined ratio was 93.5%, slightly higher than last year’s 92.6%, but still below 100%, which is a sign of continued underwriting profitability.

Before it’s here, it’s on Smartkarma

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Sep 04

Daily Brief Consumer: Exedy Corp, Nextage Co Ltd, Zhongsheng Group, BrainBees Solutions, Midea Group Co Ltd A, DiDi Global, Li Auto , Ginebra San Miguel , Las Vegas Sands, Deckers Outdoor and more

By Smartkarma Daily Briefs | Consumer, Daily Briefs

In today’s briefing:

[JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run
Nextage (3186): One Analyst, Two Valuations, Both Wrong
Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): Chart Analysis Affirms Zhongsheng Is Too Cheap
Brainbees (FIRSTCRY IN): First Results Fail to Cheer. Lock-In Expiry May Test Stock Resilience
Midea A/H Listing – Thoughts on A/H Premium and past A/H Listings
Didi Global Q224 Results: EBITA Margin Up | OpCF Still Strong | But Growth Slowed Noticeably
Li Auto (LI US): 2Q24, Look at Monthly Deliveries, But Not Quarterly Revenue
Shortlist of High Conviction Philippines Equity Ideas – September 2024
Las Vegas Sands Corp.: Competitive Positioning and Market Recovery Dynamics Driving Our Optimism! – Major Drivers
Deckers Outdoor Corporation: What Are Its Latest Brand and Market Expansion Strategies? – Major Drivers

[JAPAN ACTIVISM] Murakami Group Now 19+% on Exedy (7278) – LOTS of Room Left To Run

In late May, Toyota Group member Aisin (7259 JP) announced it would sell its 37% stake in Exedy Corp (7278 JP) . The market dropped. But that was the opportunity.
On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.” It’s up 21.5% since (the day after). Peers are down 15-20%.
The company completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left.

Nextage (3186): One Analyst, Two Valuations, Both Wrong

By Michael Allen

Simply Wall Street published an article on Aug 20, 2024, suggesting the fair value of Nextage was ¥1,772 or 16% below the previous day’s closing price.
Yet, on the Simply Wall Street website’s stock page for Nextage, updated on August 26, they calculate the fair value at ¥5,726, or 189% above the close on Aug 19.
Both cannot be right. Here’s an interesting window into how markets mis-price stocks.

Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): Chart Analysis Affirms Zhongsheng Is Too Cheap

By Mohshin Aziz

Historical valuation affirms that Zhongzheng is the cheapest it has been in the past 10 years
Chart analysis is to compliment our recent report Zhongsheng Group Holdings (881 HK, BUY, TP:HKD12.5): A Contrarian Play published yesterday
Our TP of HKD12.5 is based on FY25 PE of 5x. This implies an UPSIDE POTENTIAL of 33%. It also delivers a dividend yield of ~9% at current prices.

Brainbees (FIRSTCRY IN): First Results Fail to Cheer. Lock-In Expiry May Test Stock Resilience

By Devi Subhakesan

BrainBees Solutions (FIRSTCRY IN) reported marginal decline in 1QFY2025 revenues and GMV (India operations) versus previous quarter, though both were up 17% YoY; fell short of market expectations.
Key operating metrics for India business too were soft with Average Order Value slipping both on a QoQ and YoY basis, impacting GMV growth and segment margins.
With 0% promoter holding, nearly 30%-50% shares could possibly start trading post lock-in expiry and this could test the stock’s resilience. Softbank Group(9984 JP), the biggest stake holder, owns 19.99%.

Midea A/H Listing – Thoughts on A/H Premium and past A/H Listings

Midea Group Co Ltd A (000333 CH) aims to raise up to US$3bn in its H-share listing, as per media reports.
Midea Group is one of the world’s largest home appliance manufacturing companies with a presence in over 200 countries. Its A-shares have been listed since 2013.
We have covered the company and deal background in our previous notes. In this note, we talk about the past A/H listing and possible premiums.

Didi Global Q224 Results: EBITA Margin Up | OpCF Still Strong | But Growth Slowed Noticeably

By Daniel Hellberg

Estimated take rate up vs year ago and vs Q124, and EBITA margin turned +ive
However, revenue growth in core China market slowed considerably in Q224
Cash Flow and Liquidity both appear ample, little pressure to raise new funds

Li Auto (LI US): 2Q24, Look at Monthly Deliveries, But Not Quarterly Revenue

By Ming Lu

Monthly deliveries recovered to the 2023 level in the three months – June, July, and August 2024.
Li Auto’s deliveries growth outperformed the China NEV market size in July.
We set the price target at US$26.90, which is 38% above the market price.

Shortlist of High Conviction Philippines Equity Ideas – September 2024

By Sameer Taneja

We are slowly building out a high-conviction coverage of ideas for the mid and small-caps in the Philippines.
We set criteria for high ROCE, reasonable growth (10-15% YoY), strong balance sheets, and reasonable capital allocation (dividend yields), all ingredients for being multi-baggers.
We like Ginebra San Miguel (GSMI PM), The Keepers Holdings (KEEPR PM), and DigiPlus Interactive (PLUS PM). We are building our library and will cover more names in the future.

Las Vegas Sands Corp.: Competitive Positioning and Market Recovery Dynamics Driving Our Optimism! – Major Drivers

The latest financial results from Las Vegas Sands reflect a company navigating a complex landscape with both successes and ongoing challenges.
The corporation, which is heavily invested in both Macao and Singapore, is experiencing different dynamics in these markets.
These factors present a balanced view of the company’s performance and ongoing strategies.

Deckers Outdoor Corporation: What Are Its Latest Brand and Market Expansion Strategies? – Major Drivers