Event-Driven

Trend Micro Inc (4704 JP) shares rose 14.8% on Friday after Reuters reported that it is exploring a sale after attracting buyout interest.
The interest is unsurprising due to the weak share price. Since ValueAct disclosed a stake on 8 August 2022, the shares are down 0.7% vs the Nikkei 225’s 23.6% increase.
The lack of a controlling shareholder and increased cybersecurity M&A activity support the buyout interest. A privatisation price is likely to be around JPY9,000. Valuation is undemanding at last close.

Last Week in Event SPACE: Toyota, Swire, Fancl, Barito Complex, Descente

The trade in Toyota Motor (7203 JP)‘s Tender offer Buyback is to understand what YOU can do in your particular position.
Despite Swire Properties (1972 HK)‘s recent share buyback, Swire Pacific (A) (19 HK) is still preferable on a look-through P/B of 0.34x.
Kirin bumps the Offer for Fancl (4921 JP). Given market gyration, it may represent enough of a switching opportunity to let those who still object in principle to re-allocate elsewhere.

(Mostly) Asia-Pac M&A: Fuji Soft, C.I. TAKIRON, Pacific Smiles, GaPack, Asia Cement, Shinko Electric

I tally 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three new deals were discussed this week on Smartkarma: KKR’s tilt for Fuji Soft (9749 JP); and Itochu’s Tenders Offers for Descente (8114 JP) and C.I. TAKIRON Corporation (4215 JP).
Key updates took place on Pacific Smiles (PSQ AU), Greatview Aseptic Packaging (468 HK), L’Occitane (973 HK), Fancl Corp (4921 JP), Shinko Electric Industries (6967 JP), and Isetan Singapore (ISET SP).

Weekly Deals Digest (11 Aug) – GA Pack, Trend Micro, Descente, Fancl, Fuji Soft, C.I. TAKIRON

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: BrainBees Solutions (0172540D IN) and WeRide (WRD US) IPOs.
Event-Driven developments: Greatview Aseptic Packaging (468 HK), C.I. TAKIRON Corporation (4215 JP), Descente Ltd (8114 JP), Fancl Corp (4921 JP), Fuji Soft Inc (9749 JP), Trend Micro Inc (4704 JP).

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Aug 10

Daily Brief Event-Driven: Thoughts On Swire Properties (1972 HK)’s Buyback and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Thoughts On Swire Properties (1972 HK)’s Buyback
Trend Micro (4704) Up For Sale? Would Be a HUGE Buyout But How Huge? And Who?
Targeting Spreads by Leveraging the High Predictability of the Celltrion Merger
Block Deal Sale of About 98 Billion Won Worth of Acushnet Holdings by Fila Holdings
Reddit (RDDT): Post-IPO Inclusion in US & Global Indices
EQD | The HSI Rebound Can Reach Higher Prices in August

Thoughts On Swire Properties (1972 HK)’s Buyback

Swire Pacific (A) (19 HK), 82%-held Swire Properties (1972 HK), and Cathay Pacific Airways (293 HK) all announced interim results this week.
Of interest was Swire Prop announcing a HK$1.5bn share buyback. Shares popped 12% on the news.
Swire Pac remains cheap on a look-through P/B of 0.34x. However, the implied stub and simple ratio (Pac/Props) have just rolled over from multi-year peaks.

Trend Micro (4704) Up For Sale? Would Be a HUGE Buyout But How Huge? And Who?

A Reuters article overnight says Trend Micro might be up for sale. This caused the ADRs to jump 10% overnight. The remaining co-founders are 65 and 70 this year.
The stock has effectively gone sideways the last few years as Value Act has been activisting. Now one has to exercise one’s imagination to think about a possible sale price.
On a DCF basis, a PE fund couldn’t reasonably do this. Multiples are too high. That means a strategic buyer would be more likely. But Who? Why? And How much?

Targeting Spreads by Leveraging the High Predictability of the Celltrion Merger

Local market views Celltrion’s shareholder survey as the start of the merger process, with a decision expected from the boards within two to three months if there’s no major opposition.
Under Korean law, if Celltrion Pharm’s market cap is under one-tenth of Celltrion’s, the merger can proceed as a small-scale merger, allowing Celltrion to avoid shareholder approval and appraisal rights.
We should leverage the merger’s high predictability to proactively target merger swap and appraisal rights spreads and build a strategy in advance.

Block Deal Sale of About 98 Billion Won Worth of Acushnet Holdings by Fila Holdings

Fila Holdings announced that its subsidiary Magnus Holdings plans to sell a 1.8% stake in Acushnet Holdings in a block deal sale worth about 98 billion won.
Our NAV valuation of Fila Holdings suggests an implied value per share of 49,192 won, representing 18.2% upside from current levels. Fila Holdings’ 51.9% stake in Acushnet Holdings.
The block deal sale of Acushnet Holdings by Magnus Holdings is likely to have a positive impact on Fila Holdings as it could result in higher capital returns to shareholders.

Reddit (RDDT): Post-IPO Inclusion in US & Global Indices

By Dimitris Ioannidis

Reddit (RDDT US) is ineligible for inclusion for the upcoming August review because of fcap failing the fcap threshold if it qualifies for the standard segment.
Reddit (RDDT US) is ineligible for inclusion for the upcoming September review because of failing the minimum public voting rights threshold.
The IPO lock-up expiry increases the probability for inclusion in November and December review for US and Global indices. Forecasted demand in December is ~$360m and 2.1 ADV.

EQD | The HSI Rebound Can Reach Higher Prices in August

By Nico Rosti

In a previous insight we forecasted a rally for the Hang Seng Index in August. The picture has not changed, a positive close above 17344.60 is still possible.
Looking at our MRM SHORT WEEKLY model for the HSI we can see that it has not yet reached overbought levels, so it could rise further in the next weeks.
Conversely a SHORT trade will be possible from the levels we will indicate below.

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Aug 09

Daily Brief Event-Driven: StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI
KKR ¥8,800 Takeover of Fuji Soft (9749) – Details and Arb Grid
Trading Opportunities from the Rise of Sector Pairs Trading Using SSFs & MM Unwinding at Expiry
Fuji Soft (9749 JP): KKR Pre-Conditional Tender Offer at JPY8,800
Tata Motors (TTMT IN): Index Impact of DVR Cancellation
SK Innovation: Considering on Using Its Treasury Shares to Inject Capital into SK On
Quiddity Leaderboard F100/250 Sep 24: High-Impact F250 Potential ADDs Could Outperform the Index

StubWorld: Barito Renewables Rolling Over – More To Come. Also Kyocera/KDDI

Barito Renewables Energy (BREN IJ) is down 19% in the past month. But still accounts for ~730% of parent Barito Pacific (BRPT IJ)‘s market cap. Still unsustainable.
Preceding my comments on the Barito complex AND the Kyocera Corp (6971 JP) / KDDI Corp (9433 JP) Holdco, are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation (sub/parent) >20%.

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.

Trading Opportunities from the Rise of Sector Pairs Trading Using SSFs & MM Unwinding at Expiry

Trading opportunities arise when overseas traders’ SSF positions face unwinding by local market makers, who enter SSF positions and take opposing spot positions, unwinding at expiry.
August-Expiry SSF data shows reverse flow impact by local market makers today, with varying degrees of impact per stock but an observable overall trend.
With ongoing market volatility in Korea, consider setups targeting price impacts from reverse flows of sector pairs trading on the next SSF expiration date.

Fuji Soft (9749 JP): KKR Pre-Conditional Tender Offer at JPY8,800

Following media reports, Fuji Soft Inc (9749 JP) announced a pre-conditional tender offer from KKR at JPY8,800 per share, a 1.0% discount to the last close price of JPY8,890 (8 August).
The pre-condition is approvals under competition laws of Japan, Vietnam and possibly Belgium. The offer is anticipated to commence in mid-September.
The offer is a knockout bid and the culmination of an auction process. The board’s recommendation and the irrevocables from activist shareholders ensure this deal is done.

Tata Motors (TTMT IN): Index Impact of DVR Cancellation

The Tata Motors Ltd (TTMT IN) / Tata Motors DVR (TTMT/A IN) scheme of arrangement has received shareholder approval and regulatory approvals and should be implemented in the short-term.
There will be small buying from global passive trackers while there will be much bigger buying from NIFTY Index (NIFTY INDEX) and S&P BSE SENSEX Index (SENSEX INDEX) trackers.
In total, we estimate passive trackers will need to buy 25.2m shares (US$308m; 1.9x ADV) of Tata Motors Ltd (TTMT IN) with buying coming in at different times.

SK Innovation: Considering on Using Its Treasury Shares to Inject Capital into SK On

SK Innovation is considering on using its treasury shares to inject capital into its EV battery making subsidiary SK On.
The appraisal rights exercise price is 111,943 won per share (15% higher than current price). Many minority shareholders are likely to exercise their appraisal rights in SK Innovation.
We remain Bearish on SK Innovation. We continue to be negative on the SK Innovation and SK E&S merger. Plus, we are concerned about the continued weakness at SK On.

Quiddity Leaderboard F100/250 Sep 24: High-Impact F250 Potential ADDs Could Outperform the Index

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the potential index changes for F100 and F250 in the run-up to the September 2024 index rebal event.
There could be up to three M&A-related intra-review changes in the next few weeks.
Apart from that, there could be two changes for the F100 index and two other changes for the F250 index during the September 2024 review.

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Aug 08

Daily Brief Event-Driven: JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade
Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?
Fuji Soft (9749 JP): A Rumoured KKR-Sponsored MBO
JPX-Nikkei 400 Rebal Aug 2024 – 44 IN, 41 OUT, ¥500bn of Capping, Just Under ¥1trn to Trade
China: Passive Selling Expected Later This Month
EURO STOXX 50: Exclusion by Sector
[JAPAN ACTIVISM] KKR Reportedly Plans Takeover of Fuji Soft (9749) – Relief from Activist Pressure
MSC Aug 24 Rebalance: South Africa Post-Election Tailwind? MRP, ARI Potential Adds
CR Sanjiu (000999.CH) To Acquire Tasly Pharma (600535.CH) – SOEs Have High Enthusiasm for TCM Assets

JPX Nikkei 400 Index Rebalance: A Bunch of Chunky Adds & US$6bn Trade

There are 44 adds/41 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. There are stocks with multiple days ADV to trade.
Based on the adds, deletes and capping changes, we estimate one way turnover of 7.9% and a round-trip trade of JPY 880bn (US$6bn).
The adds have outperformed the deletes over the last year though that has been faded over the last couple of months. Breaking with history, there could be outperformance near-term.

Alibaba (9988 HK/BABA) Dual Primary Listing: Are We There Yet?

In its last update, Alibaba Group announced that the company was preparing for its primary listing in Hong Kong and the process was expected to complete by the end August.
The Board meets on 14 August to approve results for the three months ending June. Could there be an announcement on the dual primary listing too?
Mainland Chinese own between 3.5%-15.5% of companies that converted from Secondary to Dual-Primary in the last few years. Similar buying in Alibaba could take the stock higher from here.

Fuji Soft (9749 JP): A Rumoured KKR-Sponsored MBO

Nikkei and Bloomberg report that Fuji Soft Inc (9749 JP) will be privatised through a KKR-sponsored MBO at a price just below JPY9,000, a 21.8% premium to the last close.
The rumoured privatisation proposal is the culmination of a sale process initiated by 3D Investment Partners, the largest shareholder, in September 2023.
The Board will meet tomorrow to discuss the proposal. The rumoured offer represents an all-time high and a knockout bid, suggesting a done deal if a binding proposal materialises.

JPX-Nikkei 400 Rebal Aug 2024 – 44 IN, 41 OUT, ¥500bn of Capping, Just Under ¥1trn to Trade

Janaghan Jeyakumar, CFA who does the predictions for this index got 10/10 of his high conviction names, 8/10 of his medium conviction, and 50% of low conviction ADDs.
This year, there are fewer caps but some big ones. Nearly ¥500bn of capping flow to sell.
I see just over $6.3bn in buying and selling to be done. A half dozen names with both high ADV impact to buy and decent size.

China: Passive Selling Expected Later This Month

The China equity markets have continued to trade lower with the CSI 300 Index outperforming other mainland indices as the National Team continues to pump money into ETFs tracking the index.
We currently estimate selling of around US$1.39bn across 74 stocks listed on the mainland and in Hong Kong. There could be fewer deletions depending on the review date chosen.
The potential deletes have dropped a lot since the start of the calendar year with big underperformance versus the HSCEI Index, CSI 300 Index and CSI Smallcap 500 Index.

EURO STOXX 50: Exclusion by Sector

By Dimitris Ioannidis

Cap Gemini SA (CAP FP) is estimated to be excluded from the selection list in the long-run due to being pushed way above 60% coverage in the Technology sector.
Merck KGaA (MRK GR) switches between in and out of the selection list because it fluctuates close to the 60% coverage of the Health Care sector.
Nokia OYJ (NOKIA FH) has a higher probability of deletion from SX5E if Merck KGaA (MRK GR) qualifies to the selection list. Forecasted passive fund supply is ~15 ADV.

[JAPAN ACTIVISM] KKR Reportedly Plans Takeover of Fuji Soft (9749) – Relief from Activist Pressure

Last year into early 2024, Fuji Soft Inc (9749 JP) – partially at the prodding of 3D Investment Partners – took in 4 subs and conducted a strategic review.
In January, I explored the situation here suggesting the stock had run, FujiSoft needed to liquidate more assets, but a PE firm would look at a valuation of ¥600bn.
Last night, the Nikkei reported that US PE Firm KKR planned to take Fuji Soft private with a TOB valued at ¥600bn. Limit up will take us to ¥560bn+.

MSC Aug 24 Rebalance: South Africa Post-Election Tailwind? MRP, ARI Potential Adds

By Charlotte van Tiddens, CFA

MSC indices are due for rebalancing in the closing auction on Friday the 30th of August. Constituent changes will be announced after the close next week Monday.
In this note we flag Mr Price Group Ltd (MRP SJ) & African Rainbow Minerals (ARI SJ) as possible additions to the MSC SA index.
Since our last discount update on the 22nd of July, Prosus has underperformed Naspers. The discount has widened by 1.7 percentage points to 39.6%.

CR Sanjiu (000999.CH) To Acquire Tasly Pharma (600535.CH) – SOEs Have High Enthusiasm for TCM Assets

China Resources Sanjiu plans to acquire 28% stake in Tasly for RMB6.21 billion at RMB14.85/share. The acquisition of Tasly is in line with the strategic direction of 14th Five-Year Plan.
China Resources is positioned as a leading enterprise in modern industrial chain of TCM by the SASAC.Due to policy support, TCM assets are more likely to be favored by SOEs.
The deal is positive for Tasly, whose valuation has room to rise further, but the market seems “skeptical” about China Resources Sanjiu’s decision, leading to a lackluster share price reaction.

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Aug 07

Daily Brief Event-Driven: Thinking About The Toyota Tender Offer Buyback and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Thinking About The Toyota Tender Offer Buyback
Go-To Arbs Amid Market Carnage
Technology Select Sector Index (XLK US): Market Consultation to Avoid Reverse Turnover (NVDA/AAPL)
Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800
Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled
How Has the Index Rebalance Strategy Performed During Market Turmoil?
GA Pack (468 HK): Stalemate Broken as Management Considers a Possible Counteroffer
The Unusual Flow Trading Development Caused by SK Innovation’s Appraisal Rights Premium
GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk
Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success

Thinking About The Toyota Tender Offer Buyback

In May when shares were trading near ¥3,500-3,600, Toyota announced a ¥1trln buyback. When shares fell, they announced a Tender Offer Buyback at a large discount (¥2,781/share).
Subsequently, the shares fell very sharply on Thursday 1 August, then again Friday and yesterday. That put shares WELL below the Tender Offer Price. That creates possible opportunity.
This insight discusses modalities (talk to your advisor for specific advice/info) who might do what and why. It sets parameters. But I think Toyota is cheap here.

Go-To Arbs Amid Market Carnage

As global market roil, clean M&A deals come into focus.
This insight briefly summarises those transactions in Asia/Oceania which are expected to comfortably complete, irrespective of the background noise.
Standout deals include APM Human Services (APM AU), Huafa Property Services Group (982 HK), Alps Logistics (9055 JP), I’Rom Group (2372 JP), and Arvida (ARV NZ).

Technology Select Sector Index (XLK US): Market Consultation to Avoid Reverse Turnover (NVDA/AAPL)

NVIDIA Corp (NVDA US) and Apple (AAPL US) switched positions in June setting off huge flows. Those flows could reverse in September if the current index methodology is used.
To avoid frequent reverse turnover, S&P DJI have started a market consultation to change the index weighting methodology. We believe feedback will be positive and the proposals will be approved.
Apple (AAPL US) will have inflows in September while there will be outflows from Microsoft Corp (MSFT US) and NVIDIA Corp (NVDA US).

Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800

Kirin Holdings (2503 JP) has increased the Fancl Corp (4921 JP) tender offer price by 4.1% to JPY2,800 and extended the offer period to 28 August. The price is final.
Kirin tried to get the required acceptances by refusing to bump and extending the offer period. However, these tactics failed, as the shares continued to trade above terms.
The Board twice asked Kirin to raise its offer higher than JPY2,800, but eventually recommended the revised offer. Nevertheless, the bump should be sufficient for Kirin to succeed.

Doosan Group Revises Merger Report and Increasing Probability of Merger Getting Cancelled

On 6 August, the Doosan Group announced a revised merger report. Despite some changes in the merger report, there was no change the merger ratios.
Many minority shareholders of Doosan Enerbility and Doosan Bobcat are likely to oppose this merger. The net result is an increasing probability that this merger gets cancelled, in our view.
Doosan Enerbility has set aside about 600 billion won for exercise of appraisal rights and if it exceeds this amount, the merger may be cancelled.

How Has the Index Rebalance Strategy Performed During Market Turmoil?

The market turmoil over the last few trading sessions has not been kind to a simple index rebalance strategy of buying the forecast adds and selling the forecast deletes.
The overall returns and stock specific returns indicate that trades are more crowded in some indices as compared to others and traders should consider that when position sizing.
Anecdotally, periods of negative returns are followed by periods of strong returns for the strategy as weak hands are shaken out of their positions.

GA Pack (468 HK): Stalemate Broken as Management Considers a Possible Counteroffer

Greatview Aseptic Packaging (468 HK) disclosed that Mr Bi Hua Jeff (CEO) and Mr Hong Gang (co-founder) are contemplating a possible voluntary conditional offer. The terms and conditions were not disclosed.
Due to the recent AGM protest votes, management needed to provide a credible alternative to shareholders to ensure that Shandong Xinjufeng Technology Packaging (301296 CH)’s offer failed.
Shandong Xinjufeng’s likely game plan is to wait for a binding counteroffer, focus on satisfying the preconditions, and requisition an EGM again to get Board representation.

The Unusual Flow Trading Development Caused by SK Innovation’s Appraisal Rights Premium

Exceeding the ceiling doesn’t cancel the merger; SK Innovation can still proceed. With their decision confirmed, focus should shift to appraisal rights flows rather than cancellation risk.
We should focus on flow trading given the notable exercise size and potential for unprecedented market activity if institutions, including the NPS, exercise their rights due to the juicy premium.
The large exercise size and SK Innovation’s KOSPI large-cap status may create unique flow trading opportunities, with potential repurchases after new shares list.

GAPack (468 HK)’s Co-Founders (Almost) Walk The Walk

To say Greatview Aseptic Packaging (468 HK)‘s management and Shandong Xinjufeng (301296 CH) (XJF) don’t get along is an understatement. GAPack has labelled XJF’s pre-conditional Offer hostile and unwelcome.
Last night (6th August), co-founders Jeff Bi and Gang Hong tabled a non-binding Offer. No price was mentioned. Collectively they hold 14.72% of shares out compared to XJF’s 26.8%.
A firm Offer (and price) would have been welcome, and this probably reflects on-going funding negotiations. But the announcement will give minorities pause if/when tendering into XJF’s Offer.

Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success

By Oshadhi Kumarasiri

Sapporo Holdings (2501 JP)‘s strategic position in the domestic market, coupled with untapped potential in international markets, makes the company an interesting prospect for the long-term.
3D Investment Partners’ July 2024 letter praising Sapporo’s intention to divest its real estate business has reignited investor interest in Sapporo as a play focusing on Japan’s investor activism.
Therefore, Sapporo seems interesting both in the short term and long term, as we think shares could break out to a new high with trading volumes showing signs of improvement.

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Aug 06

Daily Brief Event-Driven: Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
Kokusai Electric (6525): Global Index Inclusion Highly Dependent on Free Float
Itochu Buying Out Sub CI Takiron (4215) Below Book – Too Cheap And Weak Process/Transparency
Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
China TCM (570.HK) Privatization Update – Things Are Still Manageable
Technology Select Sector Index (XLK US): Reversing the Huge Flows from June
C.I.TAKIRON (4215 JP): Itochu’s (8001 JP) Light Tender Offer at JPY870
Potential Additions and Deletions to KOSPI 200 in December 2024 Amid Market Downturn
TOPIX Inclusions: Who Is Ready (August 2024)
EQD | The S&P500 WEEKLY Smashed The Tails Barrier, Reversal Due Soon

Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap

Today, Itochu Corp (8001 JP) announced it would launch a Tender Offer when approvals were received, to buy out minorities in Descente Ltd (8114 JP) at ¥4,350/share.
Itochu was buying at that price or higher, in the market, in October 2023. Earnings and book are up since then. Outlook for the Descente China Holdings affiliate? Great.
The valuation transparency is disappointing. Activists would have 3mos or so to push for more. But with friendly holders, they get very close to the minimum anyway.

Kokusai Electric (6525): Global Index Inclusion Highly Dependent on Free Float

By Dimitris Ioannidis

IPO lock-up expiry of Kokusai Electric (6525 JP) results in a forecasted increase in free float to 35% and fcap of $2.9bn for the August 2024 review.
Secondary offering of Kokusai Electric (6525 JP) results in a forecasted increase in free float to 60-65% and latest fcap of $3.4bn- $3.7bn for the November 2024 review.
Inclusion will be determined based on fcap against the fcap threshold. Fcap uncertainty for November is largely driven by stock price fluctuations and the Greenshoe Option.

Itochu Buying Out Sub CI Takiron (4215) Below Book – Too Cheap And Weak Process/Transparency

Itochu Corp (8001 JP) today announced another TOB to buy out minorities of a sub other than Descente Ltd (8114 JP). C.I. TAKIRON Corporation (4215 JP) at ¥870. A takeunder.
The stock was up a lot today I assume on news I didn’t see. Slightly lower than the close. Low EV/EBITDA multiple. Lacking transparency.
The Board is OK selling at below book, but if one takes out net cash, securities, net receivables, and inventory/materials of one quarter of sales, the rest is 0.54x book.

Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer

Descente Ltd (8114 JP) has recommended a pre-conditional tender offer from Itochu Corp (8001 JP) at JPY4,350, 16.6% premium to the undisturbed price.
The pre-condition is approval under the competition laws of Japan and China. The offer is anticipated to commence in early November. In January 2019, Itochu completed a hostile partial offer.
While the offer is attractive vs peer multiples, it is light vs historical trading ranges. Securing the required acceptance rate could prove challenging as the price is light.

China TCM (570.HK) Privatization Update – Things Are Still Manageable

What disappoints investors is that privatization progress is slower-than-expected. Since approval is in “advanced stage”, August update is eye-catching. Investors may need more patience with this type of SOE deal.
The key to the success of this privatization lies in whether CNPGC is willing to abide by its commitments. If yes, CNPGC will take all measures to solve the problems.
According to our valuation calculation, even without this privatization, HK$3.5/share is fair for China TCM. Reasonable share price is above HK$5/share. Don’t forget, the privatization is still on the agenda.

Technology Select Sector Index (XLK US): Reversing the Huge Flows from June

The Technology Select Sector SPDR (XLK US) ETF tracks the Technology Select Sector Index and has an AUM of over US$65bn.
The recent drop in NVIDIA Corp (NVDA US) has taken its market cap and free float market cap lower than Microsoft Corp (MSFT US) and Apple (AAPL US).
If that continues to be the case on 13 September, there will be huge outflows for NVIDIA (NVDA) and huge inflows for Apple (AAPL) at the close on 20 September.

C.I.TAKIRON (4215 JP): Itochu’s (8001 JP) Light Tender Offer at JPY870

C.I. TAKIRON Corporation (4215 JP) has recommended a tender offer from Itochu Corp (8001 JP) at JPY870, a 9.7% premium to the undisturbed price of JPY793 (2 August).
The lower limit of the tender offer is set at a 10.97% ownership ratio. The tender offer runs from 6 August to 18 September, with payment from 26 September.
While attractive vs peer multiples, the offer is light due to a skinny takeover premium, an implied P/B below 1x, and 9% below the mid-point IFA DCF valuation.

Potential Additions and Deletions to KOSPI 200 in December 2024 Amid Market Downturn

We discuss the potential additions and deletions to KOSPI 200 in December 2024 amid big declines in share prices of many stocks in KOSPI in the past week.
The eight potential additions are up on average 8.5% from end of 2023. The eight potential deletion candidates are down on average 39.1% YTD.
The average market cap of the seven potential additions is 1.9 trillion won. The average market cap of the seven potential deletion candidates is 0.6 trillion won.

TOPIX Inclusions: Who Is Ready (August 2024)

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.
SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) moved to the Prime market in July 2024 which means there will TOPIX Inclusions at the end of August 2024.
Our pre-event pick CELSYS (3663 JP) has seen its price fall by more than 20% during the recent market sell-off and it is close to a key share price threshold.

EQD | The S&P500 WEEKLY Smashed The Tails Barrier, Reversal Due Soon

By Nico Rosti

The S&P 500 INDEX is massively oversold WEEKLY (and DAILY).
Our models indicate the index is trading in the “Tails” area of the LONG model, a reversal is probably imminent, but forecasts in this price area are less reliable.
Accumulation can start from Monday’s low prices (around 5100), the reversal will probably come next week.

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Aug 05

Daily Brief Event-Driven: Update: Shinko Electric (6967) Shorter-Dated and Break Risk Small but GAP RISK Now Much Higher and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Update: Shinko Electric (6967) Shorter-Dated and Break Risk Small but GAP RISK Now Much Higher
Sumitomo Forestry (1911 JP): Selloff Provides Entry for Potential Index Inclusion
China Healthcare Weekly (Aug.4)- Taiji Group & China TCM, TCM Formula Granules VBP, Keymed’s Trouble
Local Market Observations on Timing Samsung Electronics 1P Discount Narrowing
Merger Arb Mondays (05 Aug) – Henlius, Asia Cement, Canvest, GA Pack, CPMC, A8, Fancl
Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Nuvoton Deletion & Positioning
Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Aug24)
CPMC Holdings (906.HK) Privatization Update- Due to Risk Behind ORG’s Offer, Baosteel Is a Wiser Bet
EQD / NSE Vol Update / Coffee Boost for Sleepy Vol Mkts as Risk Sentiment Sours into the Weekend

Update: Shinko Electric (6967) Shorter-Dated and Break Risk Small but GAP RISK Now Much Higher

When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
Nearly 7mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5mos ago, recommended taking profits.
Ibiden has now underperformed Shinko by 25+% in 2-plus weeks. GAP RISK is higher but this is a short-timer. HUGE yield to “expected” start date, so everyone assumes a delay.

Sumitomo Forestry (1911 JP): Selloff Provides Entry for Potential Index Inclusion

Sumitomo Forestry (1911 JP) is a potential inclusion to a global index at the August rebalance. If added, passive trackers will need to buy over 6x ADV.
Sumitomo Forestry (1911 JP) has traded lower on risk-off sentiment and further downside provides an entry point that could pay off if the stock is added to the index.
Sumitomo Forestry (1911 JP) has outperformed its peers but trades at similar valuations to some stocks. A long/short trade could protect the downside.

China Healthcare Weekly (Aug.4)- Taiji Group & China TCM, TCM Formula Granules VBP, Keymed’s Trouble

TCM formula granules VBP would cause some disturbance to related enterprises’ performance, but the substitution of TCM formula granules for TCM decoction pieces is a trend, indicating long-term optimistic growth.
Keymed’s CM310 would probably miss the NRDL negotiation this year, which will put the Company in passive situation. Based on competitive landscape, we are worried about the performance of Keymed.
Unsatisfactory performance of Taiji’s shares is related to concerns on China TCM’s privatization/24H1 results.However, even without the integration with China TCM, Taiji’s market value should be more than RMB20 billion.

Local Market Observations on Timing Samsung Electronics 1P Discount Narrowing

Local traders see interest rate cuts and value-up disclosures as key for timing Samsung Electronics 1P discount narrowing.
Samsung’s only realistic value-up goal beyond 50% FCF return is improving ROE, likely through a pref-skewed buyback or cancellation program.
If Samsung announces a value-up plan during the Bank of Korea’s rate cuts, local traders expect the 1P discount to reverse, targeting October-November for position entry.

Merger Arb Mondays (05 Aug) – Henlius, Asia Cement, Canvest, GA Pack, CPMC, A8, Fancl

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Shanghai Henlius Biotech (2696 HK).
Lowest spreads: Fancl Corp (4921 JP), Second Chance Properties (SCE SP), Tatsuta Electric Wire & Cable (5809 JP), Mimasu Semiconductor Industry (8155 JP), Alps Logistics (9055 JP).

Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Nuvoton Deletion & Positioning

Nuvoton Technology (4919 TT) should be deleted from the Yuanta/P-Shares Taiwan Dividend Plus ETF in September and that will trigger selling of over 4 days of ADV.
Nuvoton Technology (4919 TT) has underperformed most of its peers since the start of the calendar year and shorts have started to increase in the stock.
Positioning appears light and the recent deletion from an index has increased the real float of the stock. Recent semiconductor weakness could further pressure the stock.

Japan CorpGovReport Details: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Aug24)

July saw 825 new Corporate Governance Reports filed and 8 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed. June saw 1,673 and 5, respectively. That’s 2500 cos.
We created a tool show every report, provide links to every document, and now a new diff file tool. Put in a name, see the difference between the Old/New Reports.
We hope this tool will help. It is designed to be a shelf reference. We update the tool once a month, a couple of weeks ahead of the TSE.

CPMC Holdings (906.HK) Privatization Update- Due to Risk Behind ORG’s Offer, Baosteel Is a Wiser Bet

Baosteel’s choice to maintain its original Offer may partly reflect its “confidence” in the deal. If investors bet that Huarui Offer will succeed, they need to bear some risks.
If investors choose to arbitrage at HK$7.21/share, annualized return is 9% assuming privatization would be completed in mid-Jan 2025.Such return may not be attractive considering the uncertainties behind the deal.
If investors are optimistic about Baosteel’s final acquisition of CPMC, they can consider buying Baosteel shares, as Baosteel will become the new industry leader, with greater upside potential for valuation.

EQD / NSE Vol Update / Coffee Boost for Sleepy Vol Mkts as Risk Sentiment Sours into the Weekend

By Sankalp Singh

Implied Volatilities (IVs) fell post-FOMC, but reversed course as market sentiment worsened late -week. IV-jump expected as Indian markets catch up to Friday’s U.S. price action
Vol-Regime Model still in a “High & Down” vol state. Will switch if large IV change on the open. Short Vega & Risk-Reversal positions will need to be reevaluated.
Low PCR, OI call bias & Skew compression: All point to unguarded downside in Nifty50. Next stop 24000.

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Aug 04

Daily Brief Event-Driven: (Mostly) Asia-Pac M&A:Ansarada and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

(Mostly) Asia-Pac M&A:Ansarada, Southern Cross Gold, A8 New Media, CPMC, Mandala Multifinance, Fancl
HK Connect SOUTHBOUND Flows (To 2 Aug 2024); ETFs Get Sold; Tencent, SOEs, Utilities Bought
A/H Premium Tracker (To 2 Aug 2024): Policy Commentary Supports Consumers, AH Premia Drifting Wider
Asia Cement China (743 HK): Scheme Vote on 26 August Has a High Deal Break Risk
Asia Cement (743 HK): 26th August Vote. Shareholders Should Reject Terms
Last Week in Event SPACE: Rio Tinto, Ryohin Keikaku/Fast Retailing, WH Group, ThaiBev/F&N, PCCW
Mainland Connect NORTHBOUND Flows (To 2 Aug 2024): Small Net Positive Week But…

(Mostly) Asia-Pac M&A:Ansarada, Southern Cross Gold, A8 New Media, CPMC, Mandala Multifinance, Fancl

I tally 45 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Quite week – no new deals were discussed this week on Smartkarma ….
Key updates took place on Ansarada Group (AND AU), Southern Cross Gold (SXG AU), A8 New Media (800 HK), CPMC Holdings (906 HK), Mandala Multifinance (MFIN IJ), and Fancl (4921 JP).

HK Connect SOUTHBOUND Flows (To 2 Aug 2024); ETFs Get Sold; Tencent, SOEs, Utilities Bought

SOUTHBOUND was again a net buyer, for HK$9.2bn this week (now 26wks in a row of net buying), on smallish two-way volumes.
I’ve thought national team was buying banks for months. They were gone for a couple of weeks. Feels like they are back.
There were three ETFs in the top five SOUTHBOUND sells this past week, reversing last week. Energy, Utilities, Telecoms bought.

A/H Premium Tracker (To 2 Aug 2024): Policy Commentary Supports Consumers, AH Premia Drifting Wider

The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND inflow strong. SOEs, Tencent, and Xiaomi leading. NORTHBOUND down four of five days this week, but net inflows on the week. Consumer discretionary bad.
Hs underperformed As again. 20d AH Premia performance is at the top of its multi-year range. I’d expect AH Premia to decline the next couple of weeks.

Asia Cement China (743 HK): Scheme Vote on 26 August Has a High Deal Break Risk

Asia Cement China (743 HK)’s IFA opines that Asia Cement (1102 TT)’s HK$3.22 privatisation offer is fair and reasonable. The scheme vote is on 26 August.
The IFA valiantly justifies that an offer materially below net cash is fair and reasonable. The crux of the justification lies in the fortuitous disclosure of material capex requirements.
While no shareholder holds the 10% blocking stake, the high AGM minority participation rates, retail opposition and unconvincing IFA report suggest a high chance of a deal break.

Asia Cement (743 HK): 26th August Vote. Shareholders Should Reject Terms

Back on the 5th June, Chinese cement play Asia Cement China (743 HK) announced a rubbish HK$3.22/share Offer from its parent Asia Cement (1102 TT).
This best & final cash Offer was a ~ 45% premium to undisturbed, and a 37% discount to FY23’s net cash. It’s a 39% discount to 1H24’s net cash.
The Scheme Doc is now out, with a 26th August independent shareholder vote. And payment (if it were to occur) on 20th September. The IFA (unsurprisingly) says fair and reasonable.

Last Week in Event SPACE: Rio Tinto, Ryohin Keikaku/Fast Retailing, WH Group, ThaiBev/F&N, PCCW

At a time when the LSE has dumbed down the checks and balances for listed companies, now may be the right time to consider collapsing Rio Tinto (RIO AU)‘s DLC.
Re: Sep24 Nikkei 225 Rebal, long Ryohin Keikaku (7453 JP) vs. Fast Retailing (9983 JP), but this may not last. It has worked very well.
Unless we see a significant (and sustainable) reversal in WH Group (288 HK)‘s US/Mexican ops in the interim results, now hardly appears the opportune time for a Smithfield IPO.

Mainland Connect NORTHBOUND Flows (To 2 Aug 2024): Small Net Positive Week But…

The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts with which to play.
Last week saw NORTHBOUND net BUY RMB 3.2bn of A-shares. Wednesday was a BIG buy day. Every other day was a net sell.
HK and Mainland large caps generally performed equally, down but much better than the rest of the world, but Hs in H/A pairs underperformed.

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Aug 03

Daily Brief Event-Driven: StubWorld: PCCW’s Premium To NAV Is Unsustainable and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

StubWorld: PCCW’s Premium To NAV Is Unsustainable
Alpha Generating Opportunities from the Corporate Value Up Disclosures on the KIND System

StubWorld: PCCW’s Premium To NAV Is Unsustainable

Continued stub losses are one thing. Ballooning PCCW Ltd (8 HK) parent debt is another.
Preceding my comments on PCCW and HKT Ltd (6823 HK) 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%.

Alpha Generating Opportunities from the Corporate Value Up Disclosures on the KIND System

One of the key takeaways of the Corporate Value Up disclosures on the KIND system is that it could potentially lead to alpha generating investing opportunities.
Since the last week of May, there have been 7 companies that provided specific Corporate Value up programs; (4 major financials) have outperformed KOSPI.
Companies such as KB Financial and Shinhan Financial that provide more meaningful Corporate Value Up action plans are likely to have greater impact on their share prices.

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Aug 02

Daily Brief Event-Driven: [JAPAN ACTIVISM] – Murakami Group Bigger and Bolder on Exedy – STILL Room to Run and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

[JAPAN ACTIVISM] – Murakami Group Bigger and Bolder on Exedy – STILL Room to Run
Pacific Metals (5541 JP): Here We Go Again Murakami Becomes a Substantial Shareholder
Quiddity Leaderboard KOSPI 200 Dec 24: Up to 5 ADDs & 6 DELs Possible
Japan – Passive Selling in a Few Weeks & Shorts Build Up

[JAPAN ACTIVISM] – Murakami Group Bigger and Bolder on Exedy – STILL Room 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 an opportunity.
There was an announcement, a ToSTNeT-3 buyback, the offering, and more buyback to come. On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.”
Exedy is up 21% since. On 17 June, activist Murakami-san’s group went over 5%. Then they bought more. Now they have 15%. Or more. Still cheap. Still vulnerable.

Pacific Metals (5541 JP): Here We Go Again Murakami Becomes a Substantial Shareholder

Murakami’s entity, City Index Eleventh, and daughter reported a 5.40% stake in Pacific Metals (5541 JP). The shares were purchased from 27 May to 25 July.
Murakami’s average buy-in price is JPY1,259 per share, an 11.1% discount to the last close price. Murakami has been a substantial shareholder twice before.
Murakami’s previous dealings in Pacific Metals were a pump-and-dump where he built up around 8% stake, only to sell into the share price pop subsequently. Expect more of the same.

Quiddity Leaderboard KOSPI 200 Dec 24: Up to 5 ADDs & 6 DELs Possible

KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
In this insight, we take a look at the names leading the race to become ADDs and DELs during the upcoming semiannual review in December 2024.
We expect up to five ADDs and six DELs in the KOSPI 200 index during the December 2024 index rebal event based on the latest available data.

Japan – Passive Selling in a Few Weeks & Shorts Build Up