Most Read

• Yesterday, with earnings, Tata Motors Ltd (TTMT IN) announced that it would delist its ADS, making an application on or around 13 January.
• This sounds relatively benign because since 2004 when the ADS was listed, local funding capacity has increased substantially. It may no longer be needed. 
• But it is MUCH more interesting than that. There is lots of fun to be had here. 

• MSCI announced the changes as part of the November SAIR. For Asia Pacific, there are 48 adds and 55 deletes (including one nationality change).
• The deletion of Wharf Holdings (4 HK) is the biggest surprise. The stock should trade weak given the large flow and days of ADV to sell.
• There are listing changes for BeiGene (BGNE US), Li Auto (LI US), Xpeng (XPEV US) and Hutchison China MediTech Ltd (HCM US) to their Hong Kong listed lines.

• Carlyle has launched a bid for business news and data service owner Uzabase Inc (3966 JP). The bid is far below the price of a couple years ago. 
• But the price clears the 2022 high by 1 tick. Some will be OK with this, but some may not be. 
• At a 72% premium, optically it appears attractive, but given circumstances, it is not a total knockout, though I don’t know who would come in.

• Post market close yesterday, Tata Motors Ltd (TTMT IN) announced that it intended to delist Tata Motors ADR (TTM US) and terminate its ADS program.
• The easiest option for most ADS holders will be to sell the ADS. That could take the ADS lower and to trade at a discount to the underlying shares.
• Sell Tata Motors ADR (TTM US) outright or sell the ADS/buy Tata Motors Ltd (TTMT IN) for an arb trade.

• Nexon (3659 JP) reported Q3 earnings and full-year forecasts today. Revenue came in at the bottom end of August guidance, despite the higher-than-forecast USD/yen rate. 
• The forecast for full-year is below consensus. This may be seen as disappointing. The stock may fall on this. 
• But a buyback announcement and relative valuation suggests time to cover the short. 

• In August, BHP Group Ltd (BHP AU) launched a $25/share bid – a price it saw as attractive and what target OZ Minerals Ltd (OZL AU) saw as opportunistic. 
• Copper had fallen, and peer stock prices had fallen too. Since then, copper has rebounded and peers have too so what was a 25-30% premium no longer exists.
• This means the price of OZL should “enjoy” different dynamics going forward.

• Perpetual Ltd (PPT AU) has announced – and subsequently rejected – a revised non-binding proposal from EQT/BPEA/ Regal Partners (RPL AU) of A$33/share, up from the initial Offer of $30/share.
• PPT factored in the value, high conditionality, transaction, and execution risks, and determined the proposal was not in the best interests of shareholders.
• Against PPT’s request for a delay, Pendal (PDL AU) will proceed to the first court hearing for this week to convene a Scheme Meeting, which may occur in mid-December. 

• The Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI) is offering 46.53m shares of Axis Bank Ltd (AXSB IN) at a floor price of INR 830.63/share.
• This will take SUUTI’s stake in Axis Bank Ltd (AXSB IN) to zero and remove an overhang on the stock.
• Coming in close to Bain’s partial stake sale last week, the stock could trade heavy. But Axis Bank Ltd (AXSB IN) still trades cheaper than peers.

• The Government of India (GoI) aims to raise around US$500m via selling a 1.4% stake in Axis Bank Ltd (AXSB IN). 
• This won’t be the first selldown by GoI as it has been reducing its stake since 2019. We have covered a number of the past deals in the name.
• In this note, we will run the deal through our ECM framework and comment on other deal dynamics.

• Golden Energy & Resources (GER SP) has proposed in-specie-ing its holding in Golden Energy Mines (GEMS IJ), subsequent to which the Widjaja family will undertake an Exit Offer.
• Ex-GEMS, the family is Offering S$0.16/share. That’s insulting. And the Offer was announced after GEAR’s share price had fallen 26%.  The Exit Offer has been declared final.
• GEAR’s jewel is the stake in GEMS, and shareholders are afforded future exposure. However, the stub ops are worth considerably more than S$0.16/share. 

• Media reported last night that JIP would bid ¥2.2trln for Toshiba. That’s about ¥5,000-5,100/share. 
• This morning, there is a bit more clarification. Funnily, that means there is less info here than people think.
• But it is not a great look for either JIP or Toshiba at this point.

• Jardine Cycle & Carriage (JCNC SP) was deleted from the SIMSCI Index in November 2020 and could be added back to the index at the upcoming SAIR.
• If added to the index, we estimate passive MSCI trackers will need to buy 7.9m shares (US$176m; 11 days of ADV) at the close on 30 November.
• Jardine Cycle & Carriage (JCNC SP) is trading at a tight discount to its listed holdings and the spread could widen post the MSCI implementation.

• Delhivery (DELHIVER IN) raised US$675m in its IPO and started trading on 24 May. The stock dropped below its IPO price a couple of weeks ago.
• Lock-Ups on pre-IPO investors expire on 20 November with 598m shares (US$2.89bn) becoming available for sale. Sell before then or hold off on buying.
• Delhivery (DELHIVER IN) is a potential inclusion to the MSCI Small Cap and FTSE All-World indices in the next month. Passive buying will be overshadowed by lock-up expiry.

• The Nikkei reported on Monday that JIP’s bid values Toshiba at roughly ¥2.2trn. 
• The stock has dropped to a level just below this valuation suggesting some anticipation of a Bain/JIC bid above that valuation. 
• While that is plausible, the cautiousness of JIP’s bid highlights the fundamental downside risk here in our view.

• Golden Energy & Resources (GER SP)‘s proposal from the Widjaja family – The distribution proposal (1.3936 GEMS share per share or IDR5,500 per GEMS share) and the delisting proposal (S$0.160).
• For minorities, the good news is that the distribution share ratio is in line with the control ratio and offers are at a premium to historical share prices/multiples. 
• The bad news is that the distribution cash alternative is unattractive and the delisting offer values GEAR at a discount to the Stanmore Coal (SMR AU) stake adjusted for debt.

• Five Star Business Finance (0958461D IN) is looking to raise around US$250m in its upcoming India IPO. 
• Five-Star Business is a non-banking financial company (NBFC-ND-SI) that provides secured business loans to micro-entrepreneurs and self-employed individuals.
• We have looked at various aspects of the deal in our previous note, in this note, we talk about valuations.

• Yesterday, Carlyle announced a buyout of Totoku Electric (5807 JP) at ¥5,660/share, which was a cool 155% premium to Tuesday’s close of ¥2,215. The stock was limit up today. 
• It will be limit up tomorrow, and the next day. And probably the next day. 
• This is a very interesting outcome. But it is actually not as expensive as it “looks.”

• A Brookfield/MidOcean consortium has made a conditional, non-binding, indicative proposal to acquire 100% of the shares in Origin Energy (ORG AU) at A$9/share in cash.
• The offer values Origin Energy (ORG AU)‘s equity at A$15.5bn and is a 54.9% premium to the last close. The premium is over 50% even using longer term VWAPs.
• There will be changes to the S&P/ASX family of indices to maintain the number of index members. We will know more once an indicative timeline is published.

• Back on the 27th of September, PRC-incorporated property management play Jinke Smart Services (9666 HK) announced a voluntary cash offer from Boyu at HK$12/share, a 33.04% premium to last close.
• The Offer was contingent on SAMR and 7.71% of shares out tendering. Matters were somewhat complicated by Boyu buying 7.15% of shares out before dispatching the Composite Document. 
• Jinke has now announced SAMR approval and waiving the acceptance condition. The Offer is unconditional. The final closing date is the 22nd of November. This may trade through terms. 

• Hangzhou Great Star Industrial Co., (002444 CH) is looking to raise around US$150m in its Swiss GDR listing. Huatai is the sole bookrunner in the deal. 
• The firm is offering 11.5m GDRs (1 GDR to 5 A-shares) for sale at a 16.1-18.7% discount to last close.
• The deal would represent just 2.3 days of three month ADV and 4.3% of the firm’s current mcap.

• We see two inclusions and two exclusions for the MSCI Australia Index at the November SAIR. Passive trackers will need to trade between 5-8x ADV on the stocks.
• Cumulative excess volume on the stocks has been increasing steadily over the last few months, indicating a fair amount of pre-positioning.
• Short interest on the potential deletions has spiked over the last couple of months and pre-positioning could be close to (or larger than) the estimated passive selling.

• Media reported last night that JIP would bid ¥2.2trln for Toshiba. That’s about ¥5,000-5,100/share. 
• This morning, there is a bit more clarification. Funnily, that means there is less info here than people think.
• But it is not a great look for either JIP or Toshiba at this point.

• Jardine Cycle & Carriage (JCNC SP) was deleted from the SIMSCI Index in November 2020 and could be added back to the index at the upcoming SAIR.
• If added to the index, we estimate passive MSCI trackers will need to buy 7.9m shares (US$176m; 11 days of ADV) at the close on 30 November.
• Jardine Cycle & Carriage (JCNC SP) is trading at a tight discount to its listed holdings and the spread could widen post the MSCI implementation.

• The two names in LONG (LG Energy Solution and Celltrion) and the two names in SHORT (Shinhan Financial and KB Financial) are almost a foregone conclusion.
• POSCO Holdings is now ahead of Kakao Corp due to the recent sharp rise in its share price. But the gap between them is still quite tight.
• This rebalancing will likely aggravate LG Energy’s flow crunch as it also awaits an MSCI up-weight (2x ADTV) in end-November and a KOSPI 200 up-weight (2x ADTV) on December 8.

• Kawasaki Kisen Kaisha (9107 JP) had a shareholder return program in place in May. Earnings forecasts on 3 Nov were slightly disappointing so the stock sold off but…
• The large buyback allowed investors to try to game the situation. Some may have, but this morning on the execution, VERY few Real World Float holders sold. 
• That leaves the stock squeezy going into a buyback to repurchase 20% of the Max Real World Float (including short-created longs). 

• Korea’s partial short-selling system, implemented in May last year, created a new trading pattern, a surge in short selling for new additions, immediately after index rebalancing.
• Canaria Bio, HPSP, and SungEel Hitech are highly likely to be the primary targets for short selling, but there is one more thing we need to consider.
• KODEX will likely begin rebalancing buying on HPSP and SungEel on December 9, the same day the short-selling starts for them. So, we need a more flexible setup.

• The 20th National Congress highlighted the importance of autonomy and controllability of key supply chains. So, the most obvious opportunity in China healthcare is import substitution.
• For the investment logic of import substitution, we’re more inclined to focus on medical devices sector rather than pharmaceutical sector due to more obvious policy catalysts and higher certainty.
• We analyzed our top picks (both medical device sector and others in 2023). After a challenging year, we think that China healthcare in 2023 would be very promising.

• Softbank Group (9984 JP) massively ramped up share buybacks in October driving a 31% increase in the share price
• Average Daily Volume (ADV) was 28% higher in October and 46% higher for the last half of the month. October buyback volumes were the second highest for a month ever
• Whether Softbank announces additional buyback plans likely depends on the timing of the ARM IPO and that partly depends on Q2 performance

• Japan-Based System-On-Chip designer and IP purveyor Socionext (6526 JP) was listed in the “Prime” section of the Tokyo Stock Exchange (TSE) on 12th October 2022.
• When a company gets listed in the Prime section, it subsequently gets included in the TOPIX Index requiring TOPIX-tracking funds to purchase the stock during an Inclusion Event.
• Usually, this presents interesting trading opportunities to generate sharp market-neutral returns in the space of few trading days. Below is a look at the details for Socionext’s TOPIX Inclusion Event.

• Jinke Smart Services (9666 HK)’s VGO from Boyu Capital at HK$12.00 per share has been declared unconditional. Boyu has waived the 7.71% valid acceptances condition. 
• Boyu has likely two aims for the unusual VGO – secure anti-trust approval and a re-rating by becoming the largest shareholder. Anti-trust approval was received on 8 November.  
• Acceptances of 0.0081% of outstanding shares reflect the unattractive offer. The final closing date is 22 November. At the last close price, the spread to the offer is 2.7%. 

• There are several bits of news in the past few weeks indicating financing commitments might not meet the 7 Nov deadline. Principal among them the JIC/JIP split many weeks ago. 
• That suggested the 30 Sep and subsequent deadlines would be delayed. And it appears we now have the reason for it, and that is another cause of financing commitment delay.
• This development suggests activists have another quiver in their arrow should privatisation not succeed. Toshiba has cheapened in the meantime.

• Mitsui & Co Ltd (8031 JP) on 1 November reported its results for H1 2022. H1 Revenue +37.1%yoy, OP+27.2%yoy, NP+33.2%yoy to ¥539bn. Full-year NP forecast +22.5% to ¥980bn.
• Mitsui raised its dividend forecast (previously scheduled to rise from ¥105/share to ¥120/share) to ¥130/share and announced a ¥140bn buyback, adding to the ¥100bn announced in May completed in September.
• The first ¥58.6bn was done in a ToSTNeT-3 buyback. Now there is another ¥79.4bn to go. There’s also a fair bit of index selling the next 6mos.

• There should be quite a few deletions for South East Asia Emerging Markets. The number of potential inclusions is smaller and have a smaller probability of being added.
• While the passive flow on the potential deletions is not massive, the impact in terms of days of ADV to trade is very high in most cases.
• There has been a steady increase in cumulative excess volume on a few of the potential deletions and there will be unwinding against the passive flow.

• The Nikkei Asia reports that JIP has submitted a formal proposal to privatise Toshiba Corp (6502 JP) for about JPY2.2 trillion (US$15 billion) based on “Toshiba’s current share price.” 
• JIP’s offer is below expectations of around a JPY6,000 bid which is likely driven by the inability to secure sufficient debt financing. JIP remains in negotiations with banks. 
• While there is a risk that JIP will be unable to improve its offer to secure Board approval, the downside is low as Toshiba/peers’ current price ratio is attractive. 

• We see 1 potential inclusion and 12 potential deletions for the MSCI Korea Index at the November SAIR. The final changes will depend on what day MSCI uses.
• Nearly all the stocks have over 4 days of ADV to trade from passive trackers. There have been big moves on short interest and excess volume on some stocks.
• The announcement will be made Friday morning pre-market open and there could be some big moves in the stocks this week.

• We see two inclusions and two exclusions for the MSCI Australia Index at the November SAIR. Passive trackers will need to trade between 5-8x ADV on the stocks.
• Cumulative excess volume on the stocks has been increasing steadily over the last few months, indicating a fair amount of pre-positioning.
• Short interest on the potential deletions has spiked over the last couple of months and pre-positioning could be close to (or larger than) the estimated passive selling.

• Post the end of the review period, we see 7 potential adds and 2 potential deletes for the MSCI India Index at the November SAIR.
• Inclusion in the index will require passive trackers to buy 6-21 days of ADV on the stocks. That increases to 16-45 days of delivery volume.
• Cumulative excess volume indicates pre-positioning on most potential adds. Foreign Portfolio Investors (FPI) have increased their holding on all potential adds over the July-September quarter.

• Tencent and Alibaba are rumored to be acquired by state-owned companies.
• Tencent charges for originally free function and JD.com re-organized to cut cost.
• Autohome’s revenue stopped declining in 3Q22 and it is time to accumulate.

• On Thursday, Kawasaki Kisen Kaisha (9107 JP) announced earnings, lower-than-consensus guidance and a ¥100bn buyback via ToSTNeT-3 this week, and on market if not filled via ToSTNeT-3.
• The stock fell 5+%. I wrote I thought it was a buy and that the buyback was “game-able.” It rose 10+% from then til now. 
• That was the fun. Now we get the games. Positioning strategy matters. 

• PT Global Digital (BliBli) raised around US$517m in its Indonesian IPO, after using the upsize option and pricing its deal just below the top-end.
• BliBli provides e-commerce services across Indonesia to both retail consumers and institutions.
• In our previous notes, we have looked at the company’s past performance. In this note, we will talk about the trading dynamics.

• Strong but slightly disappointing Q2 earnings from Kawasaki Kisen Kaisha (9107 JP), and full-year forecasts are higher, but not as high as consensus. 
• The company has announced a buyback, to be executed on ToSTNeT-3. Effissimo and Mizuho Bank will participate. Other crossholders could too. 
• Strategy depends on whether you think they will. If they do not, post-buyback float drops sharply.

• There is potentially a premium of about 20-25% being assessed for the possibility of a deal for Toshiba Corp (6502 JP), but there is also fundamental risk beyond this.
• Perpetual Ltd (PPT AU) rejects EQT/BPEA/Regal’s Offer, a proposal that is contingent on PPT ceasing its Scheme with Pendal Group (PDL AU) 
• News Corp (NWS AU) is trading rich. The net EV/EBITDA for the stub ops trades closely matches to Fox (FOXA US). And Fox is preferable over NWS’ print media business. 

• MSCI announces the changes at the November SAIR pre-market open (Asia time) on 11 November. That day is also the market cap cutoff for the FTSE December QIR.
• There are some pretty big changes to the flows for the FTSE TWSE Taiwan Div+ Index following changes to forward dividend estimates and stock prices.
• Quiet week for ETF flows with large inflows to Huatai-PB CSI 300 ETF (510300 CH) and Tracker Fund of Hong Kong Ltd (2800 HK). 

• We see 1 potential inclusion and 12 potential deletions for the MSCI Korea Index at the November SAIR. The final changes will depend on what day MSCI uses.
• Nearly all the stocks have over 4 days of ADV to trade from passive trackers. There have been big moves on short interest and excess volume on some stocks.
• The announcement will be made Friday morning pre-market open and there could be some big moves in the stocks this week.

• Mitsui & Co Ltd (8031 JP) on 1 November reported its results for H1 2022. H1 Revenue +37.1%yoy, OP+27.2%yoy, NP+33.2%yoy to ¥539bn. Full-year NP forecast +22.5% to ¥980bn.
• Mitsui raised its dividend forecast (previously scheduled to rise from ¥105/share to ¥120/share) to ¥130/share and announced a ¥140bn buyback, adding to the ¥100bn announced in May completed in September.
• The first ¥58.6bn was done in a ToSTNeT-3 buyback. Now there is another ¥79.4bn to go. There’s also a fair bit of index selling the next 6mos.

• There should be quite a few deletions for South East Asia Emerging Markets. The number of potential inclusions is smaller and have a smaller probability of being added.
• While the passive flow on the potential deletions is not massive, the impact in terms of days of ADV to trade is very high in most cases.
• There has been a steady increase in cumulative excess volume on a few of the potential deletions and there will be unwinding against the passive flow.

• We have seven constituents of KOSPI 200, which are subject to a float rate adjustment due to major shareholder stake sales and lockup release in the upcoming rebalancing in December
• In terms of passive impact x ADTV, LG Energy Solution, KT Corp, and Shinhan Financial are expected to receive the most attention from flow traders.
• The preemptive setups of flow traders will likely be more inclined toward these float rate changes since this December rebalance will have the lowest number of constituent changes ever.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front,  a number of companies in India have launched thier IPOs recently, even as HK and rest of Asia remains dormant.
• The only notable placement this week was the selldown in Axis Bank Ltd (AXSB IN) by Bain Capital.

• Blibli (1437710D IJ) priced its IPO at IDR450 per share to raise net proceeds of US$508 million. The shares will start trading on 8 November.
• We have previously discussed the IPO in Blibli IPO: The Bull Case, Blibli IPO: The Bear Case, Blibli Vs Tokopedia Vs Bukalapak Vs Lazada Vs Shopee, Blibli IPO: Valuation Insights.   
• Despite peer multiple derating, the IPO price remains unattractive compared to global and Asian-focused e-commerce peers. 

• I-Tail (ITC TB), Thai Union Group (TU TB)’s pet care division, has started pre-marketing an up to US$600 million SET IPO, according to press reports.
• I-Tail is one of the largest original equipment manufacturers (OEMs) for wet cat & dog food in Asia, according to Frost & Sullivan.
• The key elements of the bull case rest on strong top-line growth, market share gains, ambitious growth plans and the highest margin profile among peers.

• Updated forward dividend estimates and price moves lead to changes in adds/deletes and to estimated flows at the December rebalance. We now see 26 adds and 5 deletes in December.
• The estimated one-way turnover due to adds, deletes, funding and capping is 46.6% and will result in a one-way trade of TWD 72.7bn (US$2.26bn).
• Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 14 stocks. There will be trading opportunities galore.

• With a day left in the review period, we forecast 50 changes (the maximum permitted) for the CSI500 Index at the close on 9 December.
• We estimate a one-way turnover of 13.53% at the December rebalance leading to a one-way trade of CNY 8.01bn. The Materials, Consumer Discretionary and Information Technology sectors are net gainers.
• The potential adds and potential deletes have performed in line over the last few weeks, and we’d look to position for outperformance post the end of the review period.

• At the end of the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. The impact on the potential deletions is higher on average.
• The potential adds have outperformed the potential deletes over the last six months, though there has been a sharp narrowing of the gap over the last few weeks.

• Float and capping changes will require passive trackers to sell Bank Central Asia (BBCA IJ) and Emtek (EMTK IJ) while buying GoTo (GOTO IJ) and Telekomunikasi Indonesia (TLKM IJ). 
• There will be passive changes to other stocks too, though the impact is not material on most of the stocks.
• The passive buying on GoTo (GOTO IJ) on Monday offers an avenue to exit the stock ahead of the huge lock-up expiry on 30 November.

In the next webinar, we have Smartkarma Insight Provider Eric Fernandez, CFA who will be taking us through his top short trade ideas in the US. Have your burning questions answered in the live Q&A session that will follow after Eric’s presentation. 

The webinar will be hosted on Wednesday, 16 November 2022, 17:00 SGT/HKT.

Eric Fernandez, CFA, has 30+ years of research and investment banking experience in company modeling, equity valuation and credit is the backbone of Two Rivers Analytics analytical approach. He founded Two Rivers to remedy a shortfall of traditional short idea generation which relies primarily on thematic, top-down processes. Instead, Two Rivers combines a methodical framework to sift through the universe looking for markers of various types of short candidates, which are subsequently vetted via traditional fundamental analysis. Our Stocks at Risk (SAR 2.0) models are a comprehensive framework for identifying short sale candidates. Each model is tailored to the various types of short situations. The models generate ideas to match different client preferences in shorting styles, from lower beta, long horizon Declining Businesses, to higher volatility Breaking Growth short types. They help in diversifying short portfolios by type, beta, time horizon, risk/return, and other characteristics. On net, this framework produces more ideas, boosting returns, and saving time for portfolio managers and analysts.

• Tianqi Lithium (9696 HK) and JD Health (6618 HK) could be inclusions while XPeng (9868 HK) and Longfor Properties (960 HK) are near certain deletions.
• There are a few stocks that are close to the deletion threshold and could be deleted from the index if they continue to sell off over the next few weeks.
• Tianqi Lithium (9696 HK) is also a high probability inclusion to the FTSE All-World Index at the December rebalance. That will bring in additional inflows to the stock.

• MSCI announces the changes at the November SAIR pre-market open (Asia time) on 11 November. That day is also the market cap cutoff for the FTSE December QIR.
• There are some pretty big changes to the flows for the FTSE TWSE Taiwan Div+ Index following changes to forward dividend estimates and stock prices.
• Quiet week for ETF flows with large inflows to Huatai-PB CSI 300 ETF (510300 CH) and Tracker Fund of Hong Kong Ltd (2800 HK). 

• We have seven constituents of KOSPI 200, which are subject to a float rate adjustment due to major shareholder stake sales and lockup release in the upcoming rebalancing in December
• In terms of passive impact x ADTV, LG Energy Solution, KT Corp, and Shinhan Financial are expected to receive the most attention from flow traders.
• The preemptive setups of flow traders will likely be more inclined toward these float rate changes since this December rebalance will have the lowest number of constituent changes ever.

• Muji has been trying to both reduce prices and consumer perception of its price positioning in the past few years, both at home and abroad. 
• This has been hard but a new ¥500 chain will make it clear that Muji is shifting positioning.
• Muji will now even compete with discount and fixed price chains across food, home and clothing and the new price format will be much better suited to markets like China.

• Our base case valuation of the company is target price of 26,404 won per share, which represents 6% higher than the high end of the IPO price range.
• Given the low upside, we have a Negative view of this IPO.
• All in all, while we believe Millie’s Library is a solid company with excellent fundamentals, the IPO price range is not valued at meaningful discount to the intrinsic value.

• Updated forward dividend estimates and price moves lead to changes in adds/deletes and to estimated flows at the December rebalance. We now see 26 adds and 5 deletes in December.
• The estimated one-way turnover due to adds, deletes, funding and capping is 46.6% and will result in a one-way trade of TWD 72.7bn (US$2.26bn).
• Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 14 stocks. There will be trading opportunities galore.

• With the review period nearly complete, there could be 4 changes using a 12-month minimum listing history, and 5 changes using a 6-month minimum listing history.
• The market cap of potential adds using a 6-month minimum listing history is higher and there is a higher probability of a 6-month minimum listing history being used.
• The potential adds have outperformed the potential deletes and the index. Similar to the last few rebalances, we could see the adds outperform post the end of the review period.

• At the end of the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. The impact on the potential deletions is higher on average.
• The potential adds have outperformed the potential deletes over the last six months, though there has been a sharp narrowing of the gap over the last few weeks.

• With the review period complete, we expect 18 changes to the index in December – most deletions are Financials, most inclusions are Industrials.
• The market volatility over the last couple of weeks has altered the sectoral breakup of the potential changes with Industrials gaining index spots at the expense of Consumer Staples.
• We see 5 of the potential adds being added to the MSCI China Index in February and 6 of the potential adds being added to the FTSE All-World/All-Cap in March.

• In October 2022, FTSE Russell confirmed that the number of constituents in the FTSE TWSE Taiwan Dividend+ Index will be increased from 30 to 50 during the December 2022 Rebalance.
• The estimated one-way flow was ~US$2bn and I discussed my flow expectations for this event in FTSE TWSE Dividend+ Quiddity Leaderboard Dec 22: New Methodology! Massive Flow Implications! 
• With less than three weeks remaining to the base date, below is an updated look at my latest flow expectations for this event.

• Regal Partners and BPEA have made a conditional, non-binding indicative proposal to acquire Perpetual Ltd at A$30/share in cash. Perpetual would need to terminate the SID with Pendal Group.
• Perpetual Ltd (PPT AU)‘s Board has rejected the offer. Today’s price action is partially driven by arbs selling Pendal shares and buying back their Perpetual shorts. 
• The Pendal Group / Perpetual Ltd price ratio is trading below the levels from August and could move higher if Perpetual and/or the consortium decide not to move ahead.

• With the review period complete, we see 1 high probability change and 1 lower probability change for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in December.
• We estimate passive trackers will need to trade over 10 days of ADV on the high probability names. There are indications that there are pre-positions built on the stocks.
• With short-sell eligibility flipping post implementation of the changes, a lot of pre-positions will be unwound prior to implementation and there will be trading opportunities on the reverse side.

• Perpetual (PPT AU) has received an indicative proposal in which EQT/Baring Private Equity Asia takes Perpetual’s private clients and corporate trustee businesses, and Regal (RPL AU) the asset management arm. 
• The A$1.75bn buyout proposal, by way of a $30/share cash Offer – and an undefined Regal scrip alternative – was rejected by Perpetual as it “materially undervalues” the company.
• The twist in the proposal is that it is contingent on the termination of the earlier-announced Scheme between Perpetual and Pendal Group (PDL AU)

• Back on the 17 October, News Corp (NWS AU) announced it had begun exploring a potential combination with Fox Corporation (FOXA US).
• A merger of two parts of Rupert Murdoch’s media empire would combine Fox News and TMZ assets with NWS’ newspaper and online news operations.
• Murdoch split his empire in 2013, placing the print business in a newly created NWS, and the TV and entertainment under Fox,

• Tianqi Lithium (9696 HK) and JD Health (6618 HK) could be inclusions while XPeng (9868 HK) and Longfor Properties (960 HK) are near certain deletions.
• There are a few stocks that are close to the deletion threshold and could be deleted from the index if they continue to sell off over the next few weeks.
• Tianqi Lithium (9696 HK) is also a high probability inclusion to the FTSE All-World Index at the December rebalance. That will bring in additional inflows to the stock.

• Updated forward dividend estimates and price moves lead to changes in adds/deletes and to estimated flows at the December rebalance. We now see 26 adds and 5 deletes in December.
• The estimated one-way turnover due to adds, deletes, funding and capping is 46.6% and will result in a one-way trade of TWD 72.7bn (US$2.26bn).
• Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 14 stocks. There will be trading opportunities galore.

• At the end of the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. The impact on the potential deletions is higher on average.
• The potential adds have outperformed the potential deletes over the last six months, though there has been a sharp narrowing of the gap over the last few weeks.

• With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
• Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
• The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.

• With the review period complete, we expect 18 changes to the index in December – most deletions are Financials, most inclusions are Industrials.
• The market volatility over the last couple of weeks has altered the sectoral breakup of the potential changes with Industrials gaining index spots at the expense of Consumer Staples.
• We see 5 of the potential adds being added to the MSCI China Index in February and 6 of the potential adds being added to the FTSE All-World/All-Cap in March.

• In October 2022, FTSE Russell confirmed that the number of constituents in the FTSE TWSE Taiwan Dividend+ Index will be increased from 30 to 50 during the December 2022 Rebalance.
• The estimated one-way flow was ~US$2bn and I discussed my flow expectations for this event in FTSE TWSE Dividend+ Quiddity Leaderboard Dec 22: New Methodology! Massive Flow Implications! 
• With less than three weeks remaining to the base date, below is an updated look at my latest flow expectations for this event.

• Back on the 14 September, healthcare provider Singapore Medical (SMG SP) announced a  voluntary MBO from TLW at S$0.37/share.  The IFA concluded the Offer was “not fair but reasonable”. 
• The Offer is conditional on 90% of shares out held by the Offeror, and the TLW shareholders plus irrevocables hold 51.67% all-in. This 90% conditionality is firm. 
• As of the first close, TLW now has 77.37%. The Offer has been extended by a fortnight. The Offer price has NOT been declared final.

• Bikaji Foods (BIKAJI IN), an ethnic snacks company, is looking to raise approximately US$107m in its India IPO.
• Its product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, western snacks as well as other snacks which primarily include gift packs, frozen food, mathri range and cookies.
• In this note, we look at the company’s past performance.

• Singapore Medical (SMG SP)‘s voluntary conditional offer from management (chairman, CEO, exec director) has been increased from S$0.37 to S$0.40 per share (share option unchanged). 
• The revised offer is final unless there is a competitive situation. The offeror came to the realisation that a bump was required to meet the 90% minimum acceptance condition.
• Acceptances stand at 77.42% of outstanding shares. The revised offer is now reasonable and should be sufficient to nudge holdouts to accept. At last close, the gross spread is 5.3%.

• With the review period complete, we see 1 high probability change and 1 lower probability change for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in December.
• We estimate passive trackers will need to trade over 10 days of ADV on the high probability names. There are indications that there are pre-positions built on the stocks.
• With short-sell eligibility flipping post implementation of the changes, a lot of pre-positions will be unwound prior to implementation and there will be trading opportunities on the reverse side.

• In this insight, we discuss a pair trade between Orion Holdings (001800 KS) (go long) and Orion Corp (271560 KS) (go short). 
• Orion Holdings has a dividend yield of 4.6% versus 0.7% for Orion Corp. For the value investors that seek higher dividends, Orion Holdings is more attractive versus Orion Corp. 
• We believe the price gap between these two stocks have widened too much in the past several months and this gap is likely to decrease again.

• With Toshiba giving up its deal premium on news that the JIP consortium was struggling to secure financing it is worth assessing how much downside risk there is. 
• Prospects are deteriorating rapidly and we believe valuations for Kioxia and the HDD business are likely to lead the way down. 
• We estimate that there is still a premium of about 20-25% being assessed for the possibility of a deal but that there is fundamental risk beyond this.

• Updated forward dividend estimates and price moves lead to changes in adds/deletes and to estimated flows at the December rebalance. We now see 26 adds and 5 deletes in December.
• The estimated one-way turnover due to adds, deletes, funding and capping is 46.6% and will result in a one-way trade of TWD 72.7bn (US$2.26bn).
• Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 14 stocks. There will be trading opportunities galore.

• With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
• Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
• The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.

• At the end of the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in December.
• Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. The impact on the potential deletions is higher on average.
• The potential adds have outperformed the potential deletes over the last six months, though there has been a sharp narrowing of the gap over the last few weeks.

• Yashili International Holdings (1230 HK)‘s spread to China Mengniu Dairy Co (2319 HK)’s offer (HK$1.20) has widened to 10.1% due to doubts about the satisfaction of the remaining pre-condition.
• We think the delay in satisfying Dumex Key Condition is due to the glacial bureaucratic process. The pre-conditions long stop date is 31 July 2023, which provides sufficient time.
• Both Danone SA (BN FP) and Mengniu can waive conditions to satisfy the pre-condition. Both have the motivation to complete the transaction as it facilitates the unwinding of their partnership.

• Software outfit ReadyTech (RDY AU) has announced an indicative proposal from Pacific Equity Partners and affiliates, to acquire ReadyTech by way of a Scheme of Arrangement at $4.50/share.
• Pemba Capital, with 32.01% of shares out, are in discussion with PEP as to what appears to be the PE firm rolling over shares. 
• ReadyTech’s independent board has granted PEP non-exclusive due diligence to flesh out a firm Offer. According to media reports, Microequities, with ~13%, is not on board whatsoever.

• Betagro (BTG TB) raised about US$460m in its Thailand IPO. 
• Betagro is an integrated agro-industrial and food business in Thailand.
• In this note we will talk about the trading dynamics.

• Two-Thirds through the review period, we see 6 stocks moving from MidCap to LargeCap and vice versa, 7 stocks moving from SmallCap to MidCap, 8 moving from MidCap to SmallCap.
• There have been changes to the list of stocks over the last couple of months and there could be more, especially on stocks that are close to the cutoff ranks.
• There is a big gap in the performance of the stocks moving upward versus migrating downward and there could be some mean reversion over the next couple of months.

• SK On announced that it recently received 1 trillion won in investment, valuing the company at 22 trillion won, 29% higher than SK Innovation’s market cap of 17 trillion won. 
• The recent investment of nearly 1 trillion won in SK On was in the form of convertible preferred stock (CPS), which guarantees a minimum return of 7.5%.
• Our SoTP valuation of SK Innovation suggests a target price of 254,396 won per share, which represents a 39% higher levels than current price.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the December 2022 Rebalance.
• The reference period for the trading data used for the index selection ended on 31st October 2022.
• There have been a couple of key revisions to the index selection methodologies for SENSEX and SENSEX Next 50 which could have important consequences.

• With a day left in the review period, we forecast 50 changes (the maximum permitted) for the CSI500 Index at the close on 9 December.
• We estimate a one-way turnover of 13.53% at the December rebalance leading to a one-way trade of CNY 8.01bn. The Materials, Consumer Discretionary and Information Technology sectors are net gainers.
• The potential adds and potential deletes have performed in line over the last few weeks, and we’d look to position for outperformance post the end of the review period.

• With Toshiba giving up its deal premium on news that the JIP consortium was struggling to secure financing it is worth assessing how much downside risk there is. 
• Prospects are deteriorating rapidly and we believe valuations for Kioxia and the HDD business are likely to lead the way down. 
• We estimate that there is still a premium of about 20-25% being assessed for the possibility of a deal but that there is fundamental risk beyond this.

• Following its planned section transfer, LX Semicon (108320 KS) will be deleted from the KOSDAQ 150 Index at the close on 2 November and replaced by Nextin (348210 KS).
• Passive trackers will need to buy over 4.5 days of ADV on Nextin (348210 KS) and sell over 1.5 days of ADV on LX Semicon (108320 KS). 
• Belonging to the Information Technology sector, there is zero chance of LX Semicon (108320 KS) being added to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX).

• The NOC of MSCI Korea Standard is 111, and the market cap of the 111th-ranked company is ₩2.44T on Day 1 and ₩2.40T on Day 2.
• In addition to Hyundai Mipo, Ecopro passed the screening. On the other hand, only Meritz Securities and CJ ENM managed to stay inside the safe zone among the deletion candidates.
• The recently increased price fluctuations likely resulted in delaying the entry timing of flow trading. So, we should set the expected return of our basket trade a bit more aggressively.

• S&P DJI announced late 27 October 2022 that Twitter Inc (TWTR US) would be deleted from the S&P500, replaced by Arch Capital (ACGL US). 
• RXO would be added to the MidCap400 while Bread Financial Holdings (BFH) would move from MidCap400 to SmallCap600 and Unifi Inc (UFI US) would get deleted from the 600.
• This insight presents the issues and the flows, which are not to be separated. 

• On the 28 October, Potentia announced an improved (and final) off-market Offer of A$1.80/share for Nitro (NTO AU), a 13.9% improvement over its initial proposal on the 30 August. 
• Nitro has now concluded the Potentia Takeover Bid undervalues Nitro. The Offer, however, is still proceeding, and will open in two weeks.
• Separately, KKR’s Alludo has pitched a non-binding – subject to due diligence – Offer by way of  a Scheme (or off-market takeover) at A$2.00/share. Nitro is supportive of this Offer.

• With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
• Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
• The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.

• We discuss end of the mandatory lock-up periods for 54 stocks in Korea in November 2022, among which 2 are in KOSPI and 52 are in KOSDAQ.
• These 54 stocks on average could be subject to further selling pressures in November and could underperform relative to the market. 
• Among these 54 stocks, the top 5 market cap stocks include Enchem, Sebit Chem, DearU, Sillajen, and Sampyo Cement. They could be exposed to greater selling pressures in November. 

• China Vast Industrial Urban Development (6166 HK)‘s scheme document is out with the court meeting scheduled for 23 November. The IFA considers the offer to be fair and reasonable. 
• Key conditions include approval by at least 75% of independent shareholders (<10% rejection). Shareholders with blocking stakes either provided irrecovables or will likely support the offer.
• The offer is not great but headcount test is not applicable. At last close and for the 14 December payment, the gross and annualised spread is 0.8% and 6.7%, respectively.

• Metal recycler Chiho Environmental Group Limited (976 HK) was suspended this morning pursuant to Hong Kong’s Takeovers Code. 
• For more than a year, the controlling shareholder group has been implementing a potential restructuring. The ultimate controlling shareholder is Tu Jianhua, an executive director of Chiho.
• This long drawn-out reorganisation may finally result in an Offer for Chiho.