Event-Driven

KLine is the cheapest of the three Japan majors in terms of forward consensus PER. And forward EPS ratios are improving as the company buys back shares.
The CEO mentioned in December the possibility of additional shareholder return this fiscal year based on cashflow.
In this insight, we look at what he knew then, and what he might know now, and the chances for an additional buyback (and how it might work).

YFO To Take the Fight To Toyo Construction’s Board

YFO offered another Press Release yesterday. This one outlines what they see as Corporate Governance failures and offers a NEW POLICY.
The Corporate Governance failures are indeed, failures. Toyo’s Board has failed to be transparent with shareholders, and in not at least addressing the takeover proposal, has failed its duties.
NEW POLICY? Elect new independent directors “capable of improving the long-term corporate value and maximizing the interests of the general shareholders.” Soft war starts now.

KRX New Deal Index Rebalance Preview: Some Big Impact Names

The review period for the March rebalance ends on 31 January, the changes will be announced towards end February and implemented at the close of trading on 9 March.
We forecast one add/delete for the Game Index, and a couple of adds/deletes for the BBIG Index. There will be a lot of capping changes.
The largest inflows are expected on Posco Chemical (003670 KS) and Douzone Bizon (012510 KS); the largest outflows are expected on SK Innovation (096770 KS) and KMW (032500 KS).

Norwest Energy (NWE AU): The Board Perplexing Succumbs to MinRes’ Revised Offer

Mineral Resources (MIN AU) has revised its offer from 1 MinRes share for every 1,367 NWE shares to 1 MinRes share for every 1,300 NWE shares. The offer is unconditional.
The Norwest Energy NL (NWE AU) Board now recommends the offer. Most of the value uplift is due to the 17.4% increase in MinRes’ share price since 15 December.
MinRes’ revised off-market takeover offer is fair in comparison to Warrego Energy (WGO AU)’s bids and historical ranges. However, this is predicated on the MinRes maintaining its share price run.

China Internet Investment (810 HK): 98% Downside

Bubble-Stock China Internet Investment Finance Holdings (810 HK) (CIIFH) was suspended on the 10 January pursuant to the Hong Kong Code on Takeovers and Mergers.
It has now announced a possible voluntary conditional takeover. No price was mentioned and terms remain indeterminate.
CIIFH, which invests primarily in listed Hong Kong securities, is trading at an eye-watering 59.5x NAV. 98% downside from here is conceivable.

Coway Is a Prime Candidate for Corporate Activism in Korea

In this insight, we discuss the major reasons why Coway Co Ltd (021240 KS) is a prime candidate for corporate activism in Korea.
Netmarble has done a poor job with Coway post its acquisition in 2019.
An action plan for Coway is to return at least half of its net profit through dividends and share buybacks/cancellations.

Quiddity Leaderboard STOXX Europe Mar 23: 5 ADDs/DELs and Potential Downweights for EDF and VTWR

In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EURO STOXX Indices for the March 2023 Rebalance.
Based on the latest available data, I see five ADDs/DELs for the STOXX Europe 600 Index during the March 2023 review.
Separately, Electricite De France Sa (EDF FP) and Vantage Towers (VTWR GR) could have index outflows triggered by extraordinary float adjustments before or during the March 2023 review.

A Tender Offer of Osstem Implant by MBK & Unison Capital?

On 24 January, it was reported in Maeil Business Daily that MBK and Unison Capital are ready to take over the management rights of Osstem Implant through a tender offer.
For now, Osstem Implant, MBK Partners, and Unison Capital have not confirmed on the validity of this news.
We would attach a 70-90% probability that indeed MBK Partners and Unison Capital Korea are ready to launch a tender offer on Osstem Implant.

Detailing Maekyung Report on MBK’s Tender Offer to Osstem Implant Shareholders at a 20% Premium

Maekyung exclusively reports MBK will do a tender offer to Osstem Implant shareholders at a 20% premium to buy a 15% stake.
As Maekyung is a first-tier news outlet in Korea, we have to see enough credibility in this report. We should expect to see it in an official regulatory filing soon.
We should design a play that actively utilizes the tender offer event very elaborately. Here, we need to consider immediate offerings and potential delisting from a longer-term perspective.

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Jan 24

Daily Brief Event-Driven: Seven & I: Activist ValueAct Seeking a Spin-Off of The US Business and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Seven & I: Activist ValueAct Seeking a Spin-Off of The US Business
Partial Tender for Sabana Industrial REIT – Large Additional Player to the Activist Mix
Toyo Construction (1890 JP): YFO Fires Another Salvo at the Board
Warrego (WGO AU): End-Game Scenarios
Five Most Aggressive Corporate Activists Moving the Korean Market: Align, KCGI, FCP, Truston, & LIFE
République Française/EDF: Squeeze-Out
NIFTY50 Index Rebalance Preview: No Changes Likely in March

Seven & I: Activist ValueAct Seeking a Spin-Off of The US Business

By Oshadhi Kumarasiri

New York-based hedge fund ValueAct has told Seven & I Holdings (3382 JP)’s shareholders to support them in their bid to spin off the 7-Eleven US convenience store business.
Spinning off the only growth driver of the business does not seem like an idea that Seven & I or its shareholders are likely to entertain.
We fear that ValueAct could be looking for reasons to call-off its investor-activism-campaign and perhaps is trying to squeeze out every last bit of gains as it exits its positions.

Partial Tender for Sabana Industrial REIT – Large Additional Player to the Activist Mix

On Friday, after the close, 5.4% owner of Sabana Industrial REIT (SSREIT SP) announced it had offered to buy another 10.0% in a Partial Offer at a recent high price.
The Price of the Tender Offer at S$0.465/share matches a recent (and 7-year) high and a 0.88x multiple against June 2022 NAV of S$0.53/share.
It’s a small deal (US$35mm) for a small REIT (US$350mm) but there’s an activist and an engaged not-quite sponsor, and this would make a third large unitholder in the mix.

Toyo Construction (1890 JP): YFO Fires Another Salvo at the Board

Due to the inability of getting a fair hearing from Toyo Construction (1890 JP)’s Board, YFO’s strategy now is to replace some of the Board at the June AGM.
YFO’s latest press release also catalogues the Board’s shockingly poor corporate governance in relation to its tender offer at JPY1,000. Crucially, a special committee is yet to be formed.
There is no timeline update on the tender which was set to start in late January. YFO continues to maintain that it will not withdraw its proposal.

Warrego (WGO AU): End-Game Scenarios

Warrego Energy (WGO AU)’s offers from Hancock and Strike Energy (STX AU) close on 31 January and 13 February, respectively. As time passes, the chance of a further bump is slim.
Mineral Resources (MIN AU) is the kingmaker. A MinRes/Strike pairing results in a combined min of 49.83% to a max of 73.93% of outstanding shares (if Hancock retains its stake).
A MinRes/Hancock pairing results in a combined min of 45.21% to a max of 69.32% of outstanding shares (if Strike retains its stake). This is the likely scenario.

Five Most Aggressive Corporate Activists Moving the Korean Market: Align, KCGI, FCP, Truston, & LIFE

In this insight, we discuss the five most aggressive corporate activist firms that have been moving the Korean equity market in the past year.
They include Align Partners Capital Management, KCGI, Flashlight Capital Partners, Truston, and LIFE Asset Management.
Share prices of 15 companies that the corporate activist firms have invested in Korea are up on average 9.7% YTD, outperforming KOSPI which is up 7.1% in the same period.

République Française/EDF: Squeeze-Out

On 6 July, the French Prime Minister said that France would have 100% of EDF. I recommended BUY at €8.98 in the wake of a very willing big-pocketed buyer.
The French state now holds 92.71% of voting rights in EDF, and intends to initiate the squeeze-out within three months from closing (up to 22 March).
Although the shares are still liquid, gross spread is 0-2 bps, and therefore there is no trade worth considering, in my view, just selling into the sustained purchase order/await squeeze-out.

NIFTY50 Index Rebalance Preview: No Changes Likely in March

With only 5 trading days to go in the review period, we see no constituent changes to the NIFTY Index (NIFTY INDEX) at the March rebalance.
Pidilite Industries (PIDI IN) is the highest ranked non-index constituent, but its free float market cap does not exceed 1.5x the free-float market cap of Bharat Petroleum Corp (BPCL IN).
We do not expect LTIMindtree (LTIM IN) to be added to the index in March post the merger between Larsen & Toubro (LT IN) and Mindtree Ltd (MTCL IN).

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Jan 23

Daily Brief Event-Driven: Fujitsu General (6755) – Fujitsu’s Stake On The Block and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Fujitsu General (6755) – Fujitsu’s Stake On The Block
Nikkei 225 Index Rebalance Preview (March): Potential Changes as Review Period Nears End
Merger Arb Mondays (23 Jan) – Origin Energy, Warrego, Golden Energy, Yashili, Kingston, O2Micro
Weekly Deals Digest (22 Dec) – Kingston, Fengxiang, Yashili, Golden Energy, Olam, SSREIT, Warrego
LG Energy Solution: Another MSCI Upweight Event Coming in May

Fujitsu General (6755) – Fujitsu’s Stake On The Block

10 days ago I wrote Fujitsu (6702) Subsidiary Selldowns To Come after Bloomberg carried an article with the CEO. Not new news, but I was struck by the implications.
Yesterday saw an article which pushed Fujitsu General (6755 JP) nearly 14% higher yesteday. Fujitsu Ltd (6702 JP) had launched an auction for its 42% stake. First round bids due imminently.
This takes the urgency to a new level. People jumped into an already illiquid stock. How far can this go?

Nikkei 225 Index Rebalance Preview (March): Potential Changes as Review Period Nears End

The review period for the Nikkei 225 (NKY INDEX) March rebalance ends next week. We highlight the 3 potential inclusions and exclusions for the index.
Lasertec Corp (6920), Oriental Land (4661) and Renesas Electronics (6723) remain our top inclusions, while Toyobo Co Ltd (3101), Nippon Light Metal (5703) and Toho Zinc (5707) could be deleted.
Due to the large size difference between the potential adds/deletes, there will be a large funding trade with passive trackers needing to sell over 1x ADV on many index constituents.

Merger Arb Mondays (23 Jan) – Origin Energy, Warrego, Golden Energy, Yashili, Kingston, O2Micro

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Golden Energy & Resources (GER SP), Genesis Minerals (GMD AU), Origin Energy (ORG AU), 111 Inc (YI US).
Lowest spreads – Essential Metals (ESS AU), Nitro Software Ltd (NTO AU), Norwest Energy NL (NWE AU), Chip Eng Seng Corp (CHIP SP), Conexio Corp (9422 JP), Nippon Steel Trading.

Weekly Deals Digest (22 Dec) – Kingston, Fengxiang, Yashili, Golden Energy, Olam, SSREIT, Warrego

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – iQIYI Inc (IQ US), Bilibili Inc (BILI US) placements, VinFast (1905332D VN) continues to pre-market a US$1bn IPO.
Event-Driven developments – China Internet (810 HK), Shandong Fengxiang (9977 HK), Kingston Financial (1031 HK), Golden Energy & Resources (GER SP), Olam Group (OLG SP), Sabana Industrial REIT (SSREIT SP).

LG Energy Solution: Another MSCI Upweight Event Coming in May

MSCI will likely reflect the ESOP selling in the upcoming rebalancing. Since MSCI’s rounding magnitude is 5%p, a similar passive impact as that of the previous IR may appear.
This means that the remarkable price rally up to last November’s announcement date can be repeated this time closer to the announcement time in May.
Conservatively assuming MSCI Korea’s tracking fund size to be ₩60T, LG Energy’s 5%p up-weight is expected to induce about ₩330B of passive inflow, which is 2.09x ADTV.

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Jan 22

Daily Brief Event-Driven: Sabana REIT (SSREIT SP): Partial Offer from Volare and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Sabana REIT (SSREIT SP): Partial Offer from Volare
EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades
Last Week In SPACE: Bank of Kyoto, WM Motors, Japanese Banks, Hong Kong Aerospace, CP ALL/MAKRO
China Internet Investment Finance’s (810 HK): A Vague Offer Leads to a Sinking Feeling
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Relia, Kingston, Fengxiang, Jafco, Esso, Golden Energy

Sabana REIT (SSREIT SP): Partial Offer from Volare

Sabana Industrial REIT (SSREIT SP) disclosed a partial offer from Volare to acquire a maximum of 109.6 million units at $0.465 per unit, a 9.4% premium to the undisturbed price.
The partial offer is conditional on minimum acceptances representing 10.00% of outstanding units. Quarz Capital, the activist fund, says the offer is attractive.
ESR Group (1821 HK), the sponsor, is unlikely to tender. Based on a proration of 13.54% and at the last close price of S$0.425, the breakeven price is S$0.420.

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades

By Simon Harris

Weekly summary of vol changes and moves across Global Markets
Analysing ATM volatility and skew changes over the last 5 days
We suggest a few trades to take advantage of the implied vol surfaces

Last Week In SPACE: Bank of Kyoto, WM Motors, Japanese Banks, Hong Kong Aerospace, CP ALL/MAKRO

Japanese banks are the hottest new thing but unless you think Bank of Kyoto is going to change its spots, it’s still best thought of as a range trade.
WM Motors opts for a backdoor listing via merging with WE Solutions Limited (860 HK). There’s probably a good reason for doing so.
You pay for the liquidity of Japanese banks by paying a higher PBR against not as much improvement in ROE. That’s life.

China Internet Investment Finance’s (810 HK): A Vague Offer Leads to a Sinking Feeling

China Internet Investment Finance Holdings (810 HK)/CIIF disclosed that it received a letter from a potential offeror, stating that it is considering making a voluntary conditional cash offer.
The possible offer will have two conditions – a 50% minimum acceptance condition and that the shares remain listed. No price or timeline has been disclosed.
An offer if it materialises, will likely be a take-under due to the presence of a willing seller (Chairman) seeking a liquidity event and CIIF’s unjustified share price run.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Relia, Kingston, Fengxiang, Jafco, Esso, Golden Energy

There are 43 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal was discussed on Smartkarma in the past week: Mitsui & Co’s tilt for Relia Inc (4708 JP).
Key updates took place for: Kingston Financial (1031 HK), Shandong Fengxiang (9977 HK), Jafco Co Ltd (8595 JP), Golden Energy & Resources (GER SP), and Esso Thailand (ESSO TB).

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Jan 21

Daily Brief Event-Driven: Introducing KODEX Top 5 Plus ETF Rebalancing Event and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Introducing KODEX Top 5 Plus ETF Rebalancing Event
KOSPI 200 Ad Hoc Rebalance for Meritz Securities: DGB Financial Will Be Added
Golden Energy (GER SP): Long-Stop Date Extended as the Offer Looks Increasingly Light
Sun Capital Partners/K3 Capital Group: Agreed Underwhelming Offer
Sun Pharmaceutical Ind (SUNP IN): Acquisition Adds Late-Stage Biopharma Product in Derma Franchise
KCGI Formally Goes Activist on Osstem Implant

Introducing KODEX Top 5 Plus ETF Rebalancing Event

At this point, one constituent change is expected, and LG Chem is expected to replace KT&G.
The return of the equal-weighted long/short basket trade for the constituent changes in the past two years was recorded from 2.3% to 3.8%.
Both LG Chem and KT&G are expected to have a significant rebalancing flow impact. It can be an event that brings a juicy day trading return.

KOSPI 200 Ad Hoc Rebalance for Meritz Securities: DGB Financial Will Be Added

With JB Financial Group gone for Meritz Fire, the next one in line will enter KOSPI 200 in place of Meritz Securities. And the lucky one is DGB Financial.
DGB can expect an inflow of 8.23x ADTV and will face a 2.8x ADTV in one day on March 31.
Given the size of the preemptive flow that JB Financial is currently attracting, we should prepare for DBG to start receiving a similar level of price impact earlier than usual.

Golden Energy (GER SP): Long-Stop Date Extended as the Offer Looks Increasingly Light

The long-stop date for the satisfaction of the offer conditions has been extended from 9 April to 9 August, to help Dian Swastatika Sentosa (DSSA IJ) obtain shareholder approval.
An alternative explanation is that the Widjaja family’s offer for Golden Energy & Resources (GER SP) is increasingly looking unattractive in light of Stanmore Coal (SMR AU)’s share price rally.
The offer remains light and we think that there is a good chance that the Widjaja family will raise its offer (likely a bump to the delisting price) to succeed.

Sun Capital Partners/K3 Capital Group: Agreed Underwhelming Offer

Sun Capital offers 350p/share for K3, 10.7x EV/NTM EBITDA, lower than median of peers at 11.3x and lower than my DCF-based estimate of 404.7p (implied 12.4x EV/NTM EBITDA).
In spite of the underwhelming figure, the deal is likely to go ahead: top shareholders/managers (30.4%) will contribute to Bidco, and irrevocables total 10%. Court/GM meetings are on 26 January.
Gross spread is 0.71%. Assuming it all goes smoothly, the estimated annual return assuming settlement by 28 February is 7%. Long.

Sun Pharmaceutical Ind (SUNP IN): Acquisition Adds Late-Stage Biopharma Product in Derma Franchise

By Tina Banerjee

Sun Pharmaceutical Industries (SUNP IN) is acquiring the U.S.-based late-stage biotechnology company, Concert Pharmaceuticals (CNCE US) for $576M in equity value. The transaction is expected to be completed in 1Q23.
Concert has completed the evaluation of the efficacy and safety of its lead candidate, deuruxolitinib in adult patients with moderate to severe Alopecia Areata in its phase 3 clinical program.
With the disease affecting up to ~1.5M people in the U.S., Alopecia represents potential blockbuster opportunity. Sun Pharma plans to file NDA for deuruxolitinib to the FDA in 1H23.

KCGI Formally Goes Activist on Osstem Implant

On 20 January, KCGI private equity fund formally started its corporate governance activist campaign on Osstem Implant (048260 KS).
KCGI officially going activist on the company, its strong fundamentals and deep discount valuations suggest that Osstem Implant’s price is likely to outperform KOSPI by a wide margin in 2023.
KCGI has demanded Kyoo-Ok Choi (Chairman of Osstem Implant) to resign.

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Jan 20

Daily Brief Event-Driven: Quiddity Primer for HSTECH Rebalance Events and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Quiddity Primer for HSTECH Rebalance Events
Olam Group (OLG SP): Entering the Final Stages to Unlock Value
Esso Thailand: Ignore Bangchak Corp’s Takeunder
MSCI Korea: Potential Inclusions & Exclusions in February 2023 Highlighted by Locals
KOSPI200 Index Rebalance: JB Financial (175330 KS) To Replace Meritz F&M (000060 KS)
Quiddity Final Expectations for NIFTY Mar 23: Pidilite Could Be an Interesting Pre-Event Bet
EQT/Va-Q-Tec: Generous Agreed Offer
Hong Kong CEO & Director Dealings (20 Jan): Asymchem Labs, Honbridge, Flat Glass, Gushengtang
EQD | KOSPI2 Index: Buy Calls/Call Spreads into CPI Release

Quiddity Primer for HSTECH Rebalance Events

The Hang Seng Tech Index (HSTECH INDEX) represents the 30 largest technology companies listed in Hong Kong which have high business exposure to certain technology themes.
This index was launched in 2020 and has gained significant passive tracking over the last two years.
In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

Olam Group (OLG SP): Entering the Final Stages to Unlock Value

On 10 January, Olam Group (OLG SP) announced the potential IPO of Olam Agri through a dual primary listing in SGX ST and Saudi Arabia as early as 1H2023.
The Olam Agri IPO could raise US$1 billion, according to press reports. Olam will seek shareholder approval at an EGM for the transaction.
The IPO marks the final stages of the strategy to unlock value. Our SoTP valuation is S$1.85 per share, a 19% upside to the last close price of S$1.56.

Esso Thailand: Ignore Bangchak Corp’s Takeunder

Back on the 11 January, refiner/retailer Bangchak Corporation (BCP TB)‘s board approved the purchase of a 65.99% stake in Esso Thailand (ESSO TB) from Exxon Mobil.
The purchase price remains indeterminate (the indicative price is Bt8.84/share), based on a pricing adjustment mechanism as it relates to Esso’s financial accounts at the close of the stake purchase.
Esso is down 17% since the announcement, and 37% from its recent (Oct-22) high. That seems excessive.

MSCI Korea: Potential Inclusions & Exclusions in February 2023 Highlighted by Locals

We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 February) that are being highlighted by the locals.
The potential candidates for inclusion in the MSCI Korea Index emphasized by locals in February 2023 include Kakao Pay and Hanwha Aerospace.
The potential exclusion candidates in the MSCI Korea Index emphasized by locals include S-1 Corp, Celltrion Pharm, and Cheil Worldwide.

KOSPI200 Index Rebalance: JB Financial (175330 KS) To Replace Meritz F&M (000060 KS)

Jb Financial Group (175330 KS) will replace Meritz Fire & Marine Insurance (000060 KS) in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the close on 27 January.
We estimate passive KOSPI2 INDEX trackers will need to buy 3.494m shares (KRW 36.34bn; 4.04 days of ADV) of Jb Financial Group (175330 KS) at the close on 27 January.
DGB Financial Group (139130 KS) could be added to the KOSPI2 INDEX in April, replacing Meritz Securities (008560 KS) following its merger with Meritz Financial Group (138040 KS).

Quiddity Final Expectations for NIFTY Mar 23: Pidilite Could Be an Interesting Pre-Event Bet

With roughly a week left in the reference period, we take a look at the potential ADDs/DELs for the NIFTY 50, 100, and 500 Indices for the March 2023 Rebalance.
For NIFTY 50, Pidilite Industries (PIDI IN) is the highest-ranked Potential ADD while Bharat Petroleum Corp (BPCL IN) is the highest-ranked Potential DELETE according to our estimates.
In this insight, we take a look at the recent price performance of names that can potentially be involved in index changes and our flow expectations.

EQT/Va-Q-Tec: Generous Agreed Offer

The acceptance period for EQT’s €26/share offer (46% premium, 16.1x EV/23eEBITDA) runs until 16 February. Minimum acceptance is 62.5% (49.4% of the float). EQT intends to implement a domination agreement.
The deal makes sense from a strategic standpoint, although there are potential antitrust issues. The price offered seems generous considering my fair-value estimate of €18.67 (DCF-based).
Gross spread is 3.7% (8.6% estimated annual return assuming settlement by 30 June), which is okayish for a not so liquid stock in the European space. Long.

Hong Kong CEO & Director Dealings (20 Jan): Asymchem Labs, Honbridge, Flat Glass, Gushengtang

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
Stocks mentioned include Asymchem Laboratories (6821 HK), Honbridge Holdings (8137 HK), Flat Glass (6865 HK), and Gushengtang (2273 HK).

EQD | KOSPI2 Index: Buy Calls/Call Spreads into CPI Release

By Simon Harris

Korean equities have recovered from the December sell-off but are still playing catch up versus other Asian indices over the last year
We see the upcoming CPI release as an underpriced event in the vol space
We consider some cheap derivative strategies on the upside to play the disinflation theme

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Jan 19

Daily Brief Event-Driven: LG Energy IPO Lock-Up – Last of the Lockups at US$3bn and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

LG Energy IPO Lock-Up – Last of the Lockups at US$3bn
HDFC/HDFC Bank Mega Merger: Foreign Holdings Move Lower; Foreign Room Higher
StubWorld: CPALL Trading “Cheap” To MAKRO
Hanwha Aerospace: A Surprise in MSCI’s February QCIR?
Fengxiang (9977 HK): Delisting Resolution Fails, MGO Closes 1 February
JAFCO (8595) Tender Offer Close Imminent – Decent Conviction to Not Be Long
S&P BSE/Sensex Quiddity Leaderboard Jun 23: Adani Enterprises, Wipro, & The Usual F&O Questions
KOSPI 200 Rebalance: JB Financial In & Meritz F&M Insurance Out

LG Energy IPO Lock-Up – Last of the Lockups at US$3bn

By Sumeet Singh

LG Energy Solution (373220 KS) (LGES) raised US$10.8bn in its South Korea IPO, after pricing at the top-end of the IPO price range.
The stock was listed on 27th Jan 22. Its one-year lockup is set to expire soon.
In this note, we will talk about the lock-up dynamics and updates since our last note

HDFC/HDFC Bank Mega Merger: Foreign Holdings Move Lower; Foreign Room Higher

Foreign shareholding in HDFC Limited (HDFC IN) and HDFC Bank (HDFCB IN) has dropped over the December quarter resulting in higher foreign room.
The merger is expected to complete in Q2/Q3 when we expect there will be large buying from MSCI trackers.
The merger (and the timing of implementation) will have implications for changes to the NIFTY Index (NIFTY INDEX) and S&P BSE SENSEX Index (SENSEX INDEX) at the forthcoming rebalances.

StubWorld: CPALL Trading “Cheap” To MAKRO

7-11 play CP ALL PCL (CPALL TB) is coming up “cheap” on my monitor versus cash & carry subsidiary Siam Makro Public (MAKRO TB).
Preceding my comments on CPALL/MAKRO 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%.

Hanwha Aerospace: A Surprise in MSCI’s February QCIR?

Hanwha Aerospace is still narrowly across the borderline. It is especially painful that the share price was corrected by more than 4% today.
But suppose the cutoff MC is set at less than ₩2.7T, and Aerospace succeeds in recovering slightly. In that case, it will likely manage to come within the borderline.
Given that the preemptive flow must not have been significant and the profit forecast has been upwards until recently, a price shooting may appear at the time of the announcement.

Fengxiang (9977 HK): Delisting Resolution Fails, MGO Closes 1 February

Shandong Fengxiang (9977 HK)‘s delisting resolution was overwhelmingly voted against by independent H Shareholders. The results were not helped by the poor turnout.
PAG’s MGO at HK$1.5132 per H Share is not conditional on the approval of the delisting resolution. The MGO remains open with a final closing date of 1 February.
PAG currently holds 85.44% of the outstanding shares. At the last close and for a 10 February payment, the gross and annualised spread is 1.6% and 28.9%, respectively.

JAFCO (8595) Tender Offer Close Imminent – Decent Conviction to Not Be Long

The Jafco Co Ltd (8595 JP) Greenmail Tender Offer to take Murakami-san out of his position is nearing its close.
Investors should make a decision imminently about where they believe the stock should trade in Price/NAV terms after the buyback is complete, once management is “stabilised.”
My earlier piece written on the day of the announcement needs a few corrections. Those are below.

S&P BSE/Sensex Quiddity Leaderboard Jun 23: Adani Enterprises, Wipro, & The Usual F&O Questions

In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the June 2023 Rebalance.
Adani Enterprises (ADE IN) could be added and Wipro Ltd (WPRO IN) could be deleted from the SENSEX Index. There could be multiple changes for BSE 100, 200, and 500.
Below is a look at our estimated rankings for potential ADDs/DELs, their recent price performance vs peers, and potential trading opportunities.

KOSPI 200 Rebalance: JB Financial In & Meritz F&M Insurance Out

On 18 January, the KRX announced rebalance to KOSPI 200 index. The new addition to KOSPI 200 is JB Financial Group and the deletion is Meritz Fire & Marine Insurance.
We expect JB Financial to continue to outperform the market in the first half of this year.
However, we do not expect the sharp appreciation of JB Financial versus the other leading Korean banking stocks post JB Financial’s inclusion in KOSPI 200 on 30 January.

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Jan 18

Daily Brief Event-Driven: Hong Kong Aerospace Tech’s (1725 HK) US$1bn Rocket-Launch Site and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Hong Kong Aerospace Tech’s (1725 HK) US$1bn Rocket-Launch Site
Meritz Fire & Marine Insurance: Treasury Shares Cancellation of 5.9% of Outstanding Shares
Kingston Financial’s (1031 HK) Vote on 9 February
DAX/MDAX/SDAX Quiddity Leaderboard Mar 23: Vantage Tower and Other Interesting Names
ETF Arbitrage in Korea: Names Suitable for Pair Trades
Kingston Financial (1031 HK): 9th Feb Scheme Vote. IFA Says Fair

Hong Kong Aerospace Tech’s (1725 HK) US$1bn Rocket-Launch Site

On the 9th of January, 2023, the Republic of Djibouti signed an MOU with Hong Kong Aerospace Technology (1725 HK) (HKAT) to develop a (reported) US$1bn international commercial “spaceport”.
In the middle of last year, Djibouti announced plans to launch two nanosatellites to facilitate farming and other related activities.
HKAT, a recent back-door listing, has a market cap of US$258mn. Wholly-owned subsidiary Gang Hang Ke (Shenzhen) Space Technology, has been successfully involved in the launch of ten satellites.

Meritz Fire & Marine Insurance: Treasury Shares Cancellation of 5.9% of Outstanding Shares

After the market close today, Meritz Fire & Marine Insurance announced that it will cancel 6.57 million treasury shares, representing 5.9% of its outstanding shares.
This treasury shares cancellation by Meritz F&M Insurance should have a continued positive impact on its share price.
Share cancellation by Meritz F&M Insurance and the need to adjust to higher merger ratio are likely to lead to Meritz F&M Insurance outperforming MFG in the next few days.

Kingston Financial’s (1031 HK) Vote on 9 February

The Kingston Financial (1031 HK) scheme document is out with the scheme meeting scheduled for 9 February. The IFA considers the offer to be fair and reasonable.
Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and the headcount test. No shareholder holds a blocking stake.
Peer re-rating increases the headcount test risk. At the last close and for the 10 March payment, the gross and annualised spread is 5.3% and 42.2%, respectively.

DAX/MDAX/SDAX Quiddity Leaderboard Mar 23: Vantage Tower and Other Interesting Names

In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
Vantage Towers (VTWR GR) is currently undergoing a Tender Offer and this could have interesting index consequences over the next few weeks.
As it stands, there seems to be one change between MDAX and SDAX and there are multiple names hovering close to the border for DAX, MDAX, and SDAX.

ETF Arbitrage in Korea: Names Suitable for Pair Trades

As for the one using the creation/redemption mechanism, the tracking error (market value – NAV) is still too tight to call this an arbitrage opening.
Then, at this point, we need to pay attention to ETF arbitrage from a pair trade perspective. There are a total of 3 pairs we can consider for this.
The mean reversion cycle is still not short. However, the diversion range is not extensive, so we can aim for a relatively stable setup in a market with increased volatility.

Kingston Financial (1031 HK): 9th Feb Scheme Vote. IFA Says Fair

The Scheme Booklet is now out and Kingston Financial (1031 HK)‘s shareholders can vote on Chu Yuet Wah’s Offer on the 9 February.
The Cancellation price of HK$0.30/share was a 47.78% premium to the undisturbed prices. It will not be increased.
Currently trading at a gross/annualised spread of 5.3%/44.4%, assuming payment on the 10 March.

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Jan 17

Daily Brief Event-Driven: Thinking About Japanese Banks – Go Big and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Thinking About Japanese Banks – Go Big, Go Small, Go Insurance
Mitsui & Co To Buy Out Relia (4708) – Moshi Moshi Is TOO CHEAP
Quiddity Primer for HSCEI Rebalance Events
EQD | Alibaba (BABA US): Leverage up Longs Using Call Ratios
Osstem Implant: Potential M&A Fight Between KCGI And Founder Choi
Liquid Universe of European Ordinary and Preferred Shares: January ‘23 Report
WM Motor Reverse Merger and Placement – The US$2bn Merger and US$500m Planned Placement

Thinking About Japanese Banks – Go Big, Go Small, Go Insurance

Japanese Banks have had a good run recently. From the day before the BOJ changed the 10yr yield target in December in its YCC programme to today, +30% vs TOPIX.
The question is how that is spread out. There are lots of banks. Some are cheaper than others. Some are better than others. Can we draw conclusions to trade better?
If you are looking at Japanese Banks to play a change in BOJ policy when Governor Kuroda’s term ends shortly, there are definitely conclusions one can draw. I offer comments.

Mitsui & Co To Buy Out Relia (4708) – Moshi Moshi Is TOO CHEAP

Mitsui&Co has been in Relia Inc (4708 JP) for a long time. As part of investing in BPO/RPA/AI services, they are buying out Relia, merging it with a KDDI sub.
They are buying it at an all-time high, and a 50% premium. Looks nice. But it’s not nice enough.
This is one of those times when I can reiterate, Japan Needs More Cowbell.

Quiddity Primer for HSCEI Rebalance Events

The Hang Seng China Enterprises Index (HSCEI INDEX) is one of the most widely discussed indices in the Hang Seng Indices family.
The HSCEI serves as a benchmark to reflect the overall performance of “Mainland” Securities listed in Hong Kong.
In this insight, we take a brief look at the selection criteria and the historical price performance of past Rebalance Events.

EQD | Alibaba (BABA US): Leverage up Longs Using Call Ratios

By Simon Harris

BABA US is up 85% from October lows and continues to trade well in 2023 up 32% in January
Stock has benefitted from not only improved economic sentiment but also an end to the 2-year crack down on the Internet Sector
We suggest using call ratios to increase upside leverage prior to earnings release

Osstem Implant: Potential M&A Fight Between KCGI And Founder Choi

The case involving KCGI (a local corporate activist private equity fund) and Osstem Implant (048260 KS) is one of the more interesting situations rising in the Korea’s M&A/corporate activism markets.
Osstem Implant is the number one dental implant company in Korea/Asia and the fourth largest player in this segment globally.
We believe Osstem Implant could outperform the market in 2023 due to improving fundamentals, cheap valuations, and a potential M&A fight between KCGI and Chairman Choi.

Liquid Universe of European Ordinary and Preferred Shares: January ‘23 Report

Since mid-December, spreads have shown a mixed performance across our liquid universe (9 have widened, 9 tightened, 1 at same level).
Trade recommendations long ords / short prefs: Fuchs Petrolub, Henkel, Handelsbanken, SSAB Svenska Stal.
Trade recommendations long prefs / short ords: Sixt, VW, Danieli, MFE-Media for Europe, Grifols, Atlas Copco, Ericsson.

WM Motor Reverse Merger and Placement – The US$2bn Merger and US$500m Planned Placement

By Sumeet Singh

On 11th Jan 2023, WM Motor Technology Co Ltd announced its intention to merge with Apollo Future Mobility (860 HK) .
WM Motor failed to list in Hong Kong last year and this is essentially its attempt to undertake a reverse merger at a valuation well below its previous funding rounds.
In this note, we will talk about the deal dynamics and take an early look at its implications.

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Jan 16

Daily Brief Event-Driven: Bank of Kyoto (8369) – Not a Normal Regional Bank and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Bank of Kyoto (8369) – Not a Normal Regional Bank
Misunderstandings & Truth About Samchully & Daesung Holdings Entering KOSPI 200

Bank of Kyoto (8369) – Not a Normal Regional Bank

Bank of Kyoto (8369 JP) is a classic “deep value” trade. It has a low PBR, and… “Dude, it’s equity portfolio alone is worth more than the whole bank.”
It has a larger market cap than most super-low PBR Japanese regional banks, is more liquid, and the narrative is quite easy to tell.
Japanese Banks are the hottest new thing but unless you think This Particular Leopard is going to change its spots, it is still best thought of as a range trade.

Misunderstandings & Truth About Samchully & Daesung Holdings Entering KOSPI 200