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Most Read: SK Telecom, Toshiba Corp, Gree Inc, Jardine Matheson Holdings, Ebook Initiative Japan Co Ltd and more

By | Daily Briefs, Most Read

In today’s briefing:

  • SK Telecom (017670 KS): Spin-Off and MSCI/ FTSE / KOSPI200 Index Treatment
  • Toshiba – Elliott Jumps Into The Fray
  • Greeeee… Wheeeee…..!
  • Jardine Matheson’s (JM SP) Turn To Buy Back Shares
  • E-Book Initiative (3658 JP) Tender Offer Takeout – This One Needs Cowbell Too

SK Telecom (017670 KS): Spin-Off and MSCI/ FTSE / KOSPI200 Index Treatment

By Brian Freitas

SK Telecom (017670 KS) shareholders will meet on 12 October to approve the spin-off of SK Square. For each share of SK Telecom (017670 KS) held, shareholders will receive 0.6073625 shares of the new SK Telecom (017670 KS) and 0.39296375 shares of SK Square. There will also be a 5:1 share split.

Trading in SK Telecom (017670 KS) will be halted from 26 October to 26 November and both stocks will resume trading on 29 November.

There are a few big implications of the spin-off (apart from the value unlocking angle):

  • Passive funds benchmarked to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) will need to sell SK Telecom (017670 KS) at the close of trading prior to suspension and buy back the stock at the close on relisting date. However, not all funds trade the same way and some just keep the parent stock.
  • SK Square will be included in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and there will be an extra deletion from the index at the December rebalance
  • SK Square will be included in the MSCI Korea index. That will not bring in any passive flows. But the stock will not be subject to an FOL. The increased FIF of the stock in the index will bring in a lot of passive flow.
  • SK Square will be included in the FTSE All-World index. Again, the increased investability weight of the stock due to lack of an FOL will being in substantial passive inflows.

In this Insight, we take a look at the current state of play in SK Telecom (017670 KS), the spin-off details and the index treatment of the stocks post spin-off. 


Toshiba – Elliott Jumps Into The Fray

By Travis Lundy

Toshiba Corp (6502 JP) has had a tough time of things for years, but they have been problems largely of the company’s own manufacture. 

Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. 

The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But “new management” in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they’d-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. 

Magically, he found someone – his old shop – to say “hey, we’d like to buy out Toshiba, but only if Kurumatani-san stays” (discussed in Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger and Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast (the first of which, coincidentally, followed on exactly a year after I wrote An MBO for Toshiba? Not As Silly As It Sounds)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in Toshiba – The King Is Dead, Long Live the King). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (Toshiba’s 2020 AGM Investigative Report Is Damning). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. 

In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. 

There are noises of either an IPO (more likely) or a take-private of the Kioxia (6600 JP) unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a press release regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). 

Today’s News Is BIG

The FT posted an article this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. “people close to Toshiba said that Elliott’s stake did not exceed 5 per cent.” Bloomberg touched base with Elliott who said that Elliott confirmed they were a “large shareholder.” Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren’t a 5% stakeholder today. 

But the FT article is super-interesting, and deserves to be read closely.

And I have some more thoughts about that below the fold.  


Greeeee… Wheeeee…..!

By Travis Lundy

Gree Inc (3632 JP) is an online media business and game developer (Switch and Facebook Messenger) and does a hodgepodge of other businesses. 

It has its good points, but nobody would call it a category killer or call it dominant in any way. And the stock has had a somewhat lacklustre 10 years. 

But it has its strong points, and it announced the exercise of one of those today.

More below the fold.


Jardine Matheson’s (JM SP) Turn To Buy Back Shares

By David Blennerhassett

On the 6th September, Hongkong Land (HKL SP) announced a US$500mn share buyback program, which will run until 31st December 2022. Based on the average daily volume over the last year of US$9-10mn, this buyback is roughly equivalent to ~15% of daily volume through to 2022 year-end. Pretty punchy.

In Hongkong Land’s (HKL SP) Big Buyback, I said the Jardine’s group evidently believes it makes good business sense to buy back its own shares in place of deploying capital into HKL’s investment and development property portfolio.

Now it’s Jardine Matheson Holdings (JM SP)‘s turn to buy back its own shares. 

Yesterday the conglomerate announced a US$250mn buyback which will run through to 30 June next year.

As with HKL, the holding of treasury shares is not permitted in JMH’s constitution, therefore any shares repurchased will be cancelled.

I see JMH’s discount to NAV at ~30%, around its lowest level since taking Jardine Strategic Holdings (JS SP) private.

We now have some indication as to what the Keswick family considers a cheap entry-level. 

More below the fold.


E-Book Initiative (3658 JP) Tender Offer Takeout – This One Needs Cowbell Too

By Travis Lundy

Back in April I discussed how those looking at Softbank Corp (9434 JP) on an EV/EBITDA basis would be measuring the company incorrectly. The insight was Softbank Corp – Accounting for The Accounting Is Complicated.

Yeah… it was an accounting thing. 

When you look at Softbank Corp and its consolidated revenues and EBITDA, you were looking at the parent co business of telecoms, then because Softbank Corp owned 50% of a company which owned 65% of Z Holdings (4689 JP) which itself consolidated Ebook Initiative Japan Co Lt (3658 JP) because of the 43% it held, it meant that Softbank Corp consolidated 100% of the top line but only 14% of the bottom line. 

That is about to get weirder as LINE Digital Frontier has just announced a Tender Offer to take out “minorities” in Ebook Initiative Japan at ¥4750/share. That takeout price is a lifetime high, a 4-bagger since covid-crash lows, 10x book, 550+x EBITDA and one could add more comments that suggest it is a superlative exit for investors. 

Those things are nice, but….

But it is likely to tick off some people. I discuss why in more detail below but a summary can be…

This kind of transaction is yet another situation where the METI Fair M&A Guidelines introduced in summer 2019 have been roundly ignored. There is a lack of good procedure and governance, the valuation is inadequate, the advise provided insufficient, the price manifestly too low, synergies explicitly unaccounted for, no fairness opinion, and the takeover premium is as low as I have seen. 

And other than that Mrs Lincoln, how was the play?

This situation begs for some cowbell (and, obviously, Japan Needs More Cowbell

Much more below the fold. 


Before it’s here, it’s on Smartkarma

Most Read: FTSE China A50 Index, Vedanta Ltd, Hulic Co Ltd, Chinese Estates Holdings, SK Telecom and more

By | Daily Briefs, Most Read

In today’s briefing:

  • FTSE China A Market Consultation: Reaction to MSCI China A50 Connect Index Launch?
  • Vedanta’s Plan to Eliminate ADRs – THE Trade
  • Hulic Co (3003 JP): Index Implications of New Issue + Placement
  • Chinese Estates (127 HK): Potential Privatisation?
  • SK Telecom (017670 KS): Spin-Off and MSCI/ FTSE / KOSPI200 Index Treatment

FTSE China A Market Consultation: Reaction to MSCI China A50 Connect Index Launch?

By Brian Freitas

Earlier today in Asia, FTSE announced a market consultation for its China A Index offering. The consultation covers a number of aspects related to index market representation, index weighting methodology and index constituent accessibility.

The market consultation comes just over a month after HKEX (388 HK) announced the launch of index futures based on the MSCI China A50 Connect Index. That contract is expected to commence trading on 18 October.

The MSCI China A50 Connect Index is constructed by choosing the top 2 stocks from each GICS Sector and the rest of the stocks are then chosen based on their free float weighted market cap. This makes it a lot more diversified as compared to the FTSE China A50 Index (XIN9I INDEX).

The FTSE China A50 Index (XIN9I INDEX) is one of the flagship China offshore indices and there are liquid index futures trading on the SGX (SGX SP) plus ETFs trading on the HKEX (388 HK). The market consultation seeks market participants views on a potential expansion of the number of index constituents to 100.

An increase to 100 stocks from the current 50 will trigger a large index trade. While the impact on the stocks is not large in terms of ADV to trade, FTSE could implement the changes in two tranches to reduce the turnover at a single rebalance.


Vedanta’s Plan to Eliminate ADRs – THE Trade

By Travis Lundy

On Thursday 23 September after the close, Vedanta Ltd (VEDL IN) announced it would eliminate its ADS program. I wrote about it in Vedanta To Eliminate Its ADRs – Creates VERY Interesting Possibilities.

Looking at it a little further and I see more.  


Hulic Co (3003 JP): Index Implications of New Issue + Placement

By Brian Freitas

Yesterday post market close, Hulic Co Ltd (3003 JP) announced an issuance of new shares and a secondary offering of shares amounting to JPY 127.464bn to expand the company’s stable business foundation and promote the strengthening of its business structure.

A maximum of 94m shares (JPY 127.46bn; US$1.15bn) will be issued and the price of the new issue and secondary placement will be determined between 6-11 October while settlement will take place between 14-19 October.

The Hulic Co Ltd (3003 JP) stock is near its highs and at a level from where it has retraced in the past on a few occasions. The stock has performed in line with its peers over the last year and trades marginally expensive on forward price to earnings.

The equity offering will increase the number of issued shares and the free float of the stock and will require MSCI, FTSE and Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) passive trackers to buy stock. This will provide near-term support for the stock with just over 30% of the issue being bought up by passive trackers.

Short interest on the stock is 3.36m shares and there could be some covering on a drop in the stock price.


Chinese Estates (127 HK): Potential Privatisation?

By David Blennerhassett

Chinese Estates Holdings (127 HK),  a leading property developer in Hong Kong – and avid securities investor – is currently suspended pursuant to the Hong Kong Code on Takeovers and Mergers. There are, as yet, no further details, although shares did gain 33% before being halted at 11.10am today. 

Joseph Lau and his wife Chan Hoi Wan control 74.99% of the company.

This insight provides some brief background on Chinese Estates, plus speculates on a fair price should a firm Offer unfold. 


SK Telecom (017670 KS): Spin-Off and MSCI/ FTSE / KOSPI200 Index Treatment

By Brian Freitas

SK Telecom (017670 KS) shareholders will meet on 12 October to approve the spin-off of SK Square. For each share of SK Telecom (017670 KS) held, shareholders will receive 0.6073625 shares of the new SK Telecom (017670 KS) and 0.39296375 shares of SK Square. There will also be a 5:1 share split.

Trading in SK Telecom (017670 KS) will be halted from 26 October to 26 November and both stocks will resume trading on 29 November.

There are a few big implications of the spin-off (apart from the value unlocking angle):

  • Passive funds benchmarked to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) will need to sell SK Telecom (017670 KS) at the close of trading prior to suspension and buy back the stock at the close on relisting date. However, not all funds trade the same way and some just keep the parent stock.
  • SK Square will be included in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and there will be an extra deletion from the index at the December rebalance
  • SK Square will be included in the MSCI Korea index. That will not bring in any passive flows. But the stock will not be subject to an FOL. The increased FIF of the stock in the index will bring in a lot of passive flow.
  • SK Square will be included in the FTSE All-World index. Again, the increased investability weight of the stock due to lack of an FOL will being in substantial passive inflows.

In this Insight, we take a look at the current state of play in SK Telecom (017670 KS), the spin-off details and the index treatment of the stocks post spin-off. 


Before it’s here, it’s on Smartkarma

Most Read: Softbank Group, FTSE China A50 Index, Nature Home Holding Company, TDCX, Hulic Co Ltd and more

By | Daily Briefs, Most Read

In today’s briefing:

  • The Not So Rare Bird – The (Still Large) Lesser Dividend Trade
  • FTSE China A Market Consultation: Reaction to MSCI China A50 Connect Index Launch?
  • Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out
  • TDCX Inc. Pre-IPO – Largest Client Is Growing Faster and Trading Cheaper
  • Hulic Co (3003 JP): Index Implications of New Issue + Placement

The Not So Rare Bird – The (Still Large) Lesser Dividend Trade

By Travis Lundy

Every year there are two of these. There is a Greater one at end-March, and a Lesser one at end-September. I often label these insights “Tuesday and Wednesday” because it has often been a Tuesday and Wednesday. Last year’s version was called “Monday and Tuesday.” 

This year is Tuesday and Wednesday again. Wednesday is a US$57+ billion payday. 

Market Impact is theoretically about ¥1.4-1.6 trillion on Tuesday’s close.

Historically, the impact in September is not as big as March, but it is worth knowing about. And if you have portfolios to adjust, there will be opportunities to take advantage of style bias seasonality in the next few days.

Then there is the GPIF factor which could throw a loop into expectations.


FTSE China A Market Consultation: Reaction to MSCI China A50 Connect Index Launch?

By Brian Freitas

Earlier today in Asia, FTSE announced a market consultation for its China A Index offering. The consultation covers a number of aspects related to index market representation, index weighting methodology and index constituent accessibility.

The market consultation comes just over a month after HKEX (388 HK) announced the launch of index futures based on the MSCI China A50 Connect Index. That contract is expected to commence trading on 18 October.

The MSCI China A50 Connect Index is constructed by choosing the top 2 stocks from each GICS Sector and the rest of the stocks are then chosen based on their free float weighted market cap. This makes it a lot more diversified as compared to the FTSE China A50 Index (XIN9I INDEX).

The FTSE China A50 Index (XIN9I INDEX) is one of the flagship China offshore indices and there are liquid index futures trading on the SGX (SGX SP) plus ETFs trading on the HKEX (388 HK). The market consultation seeks market participants views on a potential expansion of the number of index constituents to 100.

An increase to 100 stocks from the current 50 will trigger a large index trade. While the impact on the stocks is not large in terms of ADV to trade, FTSE could implement the changes in two tranches to reduce the turnover at a single rebalance.


Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out

By David Blennerhassett

Back on the 27 July, wood flooring manufacturer Nature Home Holding Company (2083 HK) announced an Offer from its founding shareholders, by way of a Scheme, at HK$1.70/share. The Offer Price will not be increased. Dehua Tb New Decoration A (002043 CH) has given an irrevocable rollover undertaking for its 19.6% stake. 

The Scheme Document was despatched on the 14 September with the Court Meeting scheduled for the 6 October. Provided all resolutions pass, cheques are expected to be despatched on or before the 26 October.

The Offer looked done and the gross/annualised spread tightened into 2%/26.5% on the 19 September.

Then the wheels fell off, with the gross spread widening out to 38% as I type, and trading well below the undisturbed price.

Nature Homes had previously flagged concerns with outstanding trade receivables with Evergrande Real Estate Group (3333 HK), and potentially the ubiquitous negative news surrounding China’s second-largest developer is having a knock-on-affect. Plus there are a number of other factors at work that could be bucketed under buyer’s remorse.

But the Offeror & concert parties cannot simply walk away from this deal. Not without breaching the Takeover’s Code. And which shareholder will not vote this through given where it is trading? 

More below the fold.


TDCX Inc. Pre-IPO – Largest Client Is Growing Faster and Trading Cheaper

By Sumeet Singh

TDCX Inc, a Singapore-headquartered digital customer experience (CX) provider, is looking to raise up to US$338m in its upcoming US IPO.

TDCX provides outsourcing services to clients in new economy sectors and traditional blue-chip clients undergoing digital transformation. As of Jun 21, it served 43 global clients and with 114 active campaigns. The firm has offices located in 10 geographies across Asia, Europe and Latin America, namely, Singapore, the Philippines, Malaysia, Thailand, China, Japan, Spain, India, Columbia and Romania.

TDCX has recorded very strong growth with revenue, EBITDA and PAT having increased by 2.5x over FY18-20. In addition, Facebook and Airbnb, combined, contributed 60.4% and 62.3% of TDCX’s total revenue for FY20 and 1H21. 

In this note we will talk about valuations


Hulic Co (3003 JP): Index Implications of New Issue + Placement

By Brian Freitas

Yesterday post market close, Hulic Co Ltd (3003 JP) announced an issuance of new shares and a secondary offering of shares amounting to JPY 127.464bn to expand the company’s stable business foundation and promote the strengthening of its business structure.

A maximum of 94m shares (JPY 127.46bn; US$1.15bn) will be issued and the price of the new issue and secondary placement will be determined between 6-11 October while settlement will take place between 14-19 October.

The Hulic Co Ltd (3003 JP) stock is near its highs and at a level from where it has retraced in the past on a few occasions. The stock has performed in line with its peers over the last year and trades marginally expensive on forward price to earnings.

The equity offering will increase the number of issued shares and the free float of the stock and will require MSCI, FTSE and Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) passive trackers to buy stock. This will provide near-term support for the stock with just over 30% of the issue being bought up by passive trackers.

Short interest on the stock is 3.36m shares and there could be some covering on a drop in the stock price.


Before it’s here, it’s on Smartkarma

Most Read: Vedanta Ltd, Zomato, Luk Fook Holdings Intl, Shanghai MicroPort MedBot Group, Nippo Corp and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Vedanta To Eliminate Its ADRs – Creates VERY Interesting Possibilities
  • MSCI India Nov SAIR Preview: Mouth-Watering Impact, Eye-Watering Valuations
  • HK Jewellers Pair Trade – All That Glitters Not Crypto, But Gold?
  • ECM Weekly (26th September 2021) – Hanyu Med, Abbisko, SenseTime, ANE, Nykaa, Prudential HK
  • NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More

Vedanta To Eliminate Its ADRs – Creates VERY Interesting Possibilities

By Travis Lundy

Yesterday after the close, Vedanta Ltd (VEDL IN) made an announcement of Intention to delist American Depositary Shares from the New York Stock Exchange and terminate its American Depositary Share Program.

This has been a big mover. 

The elimination of the ADS sets up a group of Very Interesting Possibilities and it is worthwhile working through what those possibilities are, and what the timing could be.


MSCI India Nov SAIR Preview: Mouth-Watering Impact, Eye-Watering Valuations

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October.

Based on the closing prices from 24 September, there are 6 potential inclusions to the MSCI India Index: Mindtree Ltd (MTCL IN), Srf Ltd (SRF IN), Mphasis Ltd (MPHL IN), Godrej Properties (GPL IN), Indian Railway Catering and Tourism (IRCTC IN) and Zomato (ZOMATO IN).

Passive MSCI trackers will need to buy between 1 to 6 days of ADV on the stocks. The impact is much larger in terms of days of delivery volume to buy – that ranges from 6 to 22 days to buy.

There is pre-positioning on the stock as seen from the cumulative excess volume that has built up over the last few weeks and months. That said, the stocks could continue to move higher as they flash on investors radars.

We look at the stocks in detail and recommend trades based on the excess volume, valuations and estimated impact of passive fund buying.


HK Jewellers Pair Trade – All That Glitters Not Crypto, But Gold?

By Jason Yap, CFA

In this insight, we discuss a long-short pair trade idea (long Luk Fook Holdings Intl (590 HK) and short Chow Tai Fook Jewellery (1929 HK)) amongst HK listed jewelers.  As China and HK based bitcoin holders scramble to protect their crypto assets in light of latest regulations, we build on a hypothetical premise that these investors would shift their crypto assets into an asset class that is both tactile and familiar to the Chinese – that is, physical gold / jewelry. 

There are two major reasons why we believe this is an attractive long-short pair trade: 

1) Relative Valuations – CTF has outperformed LF in the past year.  Year to date, CTF is up 56.3% while LF is up only 9.2%.  As a result, LF has become more attractive than CTF on a relative valuation basis: 

  • LF trades at a forward P/E of 9.8x, which is 56% discount to CTF’s  forward P/E of 22.2x. LF is also trading at EV/EBITDA of 5.3x, which is 63% discount to CTF’s EV/EBITDA of 14.3x. We believe this valuation discount is too excessive for LF as compared to CTF.
  • LF trades at a discount of 3% to past 3 year historical average P/E (10.1x) whereas CTF trades at a premium of 41% to past 3 year historical average P/E (15.8x).
  • Similarly,  LF trades at a discount of 17% to past 3 year historical average P/B (1.2x) whereas CTF trades at a premium of 72% to past 3 year historical average P/B (2.9x). Hence, CTF appears overvalued relative to its historical average P/E and P/B multiples. 
  • LF generates higher operating margins than CTF. LF generated operating margin of 11.5% versus 8.8% for CTF for last 12 months ended 31 March 2021.  Although, on an ROE basis, CTF beats LF (21.1% versus 9.4%) due to higher asset turnover (1.1x versus 0.6x) and higher debt leverage (43.2% versus 13.3%).  

2) Gradual improvement in HK and Macau, which benefits Luk Fook more

  • Mainland China sales account for 85% of CTF’s sales and 60% of LF’s sales. with the balance generated mainly from HK and Macau. CTF’s larger exposure to Mainland China likely explains its share price outperformance relative to LF given stable pandemic conditions in China, albeit these factors now appear fully discounted into CTF’s price.
  • Since 23 September 2020, China reinstated tourist visas, through which majority of visitors enter Macau, for all provinces and which is for quarantine free travel.  Visitors from greater China make up over 90% of tourists to the former Portuguese colony of Macau.
  • On 23 September 2021, HK announced quarantine free exemptions for non-HK residents travelling from Guangdong and Macao.  Returning visitors to China and Macau after HK visits remain subject to quarantine.  Nevertheless, this signals potential further easing of travel measures among China and the 2 Chinese territories. 
  • The upcoming October 2021 Golden Week would be a good barometer of visitor traffic to HK under current travel measures. If the pandemic situation remains stable after the massive passenger flows expected during this period, this could boost optimism of earlier and fuller relaxation of intra Greater China travel measures. 
  • In short, as visitor traffic to HK and Macau ramps up, LF stands to benefit more due to its larger exposure to these markets, with potential upside from further easing of travel measures.

ECM Weekly (26th September 2021) – Hanyu Med, Abbisko, SenseTime, ANE, Nykaa, Prudential HK

By Zhen Zhou, Toh

Aequitas Research puts out a weekly update on the deals that have been covered by the team recently along with updates for upcoming IPOs.

Events next week:

Hong Kong IPO is getting busier with a few IPOs looking to launch soon after getting approval from HKEX. They include Shanghai MicroPort MedBot Group (MMG HK), Shanghai Hanyu Medical Technology (SHM HK), Abbisko Cayman (ABB HK), ANE Logistics (1292621D CH), and Beijing Airdoc Technology (BAT HK), which we have covered this week:

This week, Tam Jai, a restaurant chain operator, launched its US$179m IPO on Thursday. The company will price on 28th and trading debut will be on 7th October.

Asymchem Laboratories (002821 CH) and Lingyi-iTech received CSRC approval for their potential US$1.5bn and US$2bn H-shares listing, respectively. We also covered SenseTime Group (1475539D HK) which is likely to try to list by the end of this year.

And the U.S. finally gets breath of life with FWD Group Holdings (FWD US),  the insurance business of Pacific Century Group, filing its prospectus with the SEC for a US$3bn IPO. 

In India, we initiated on FSN E-Commerce Ventures (Nykaa) (1003622D IN) which is looking to raise around US$550m. The company is the leader in Beauty and Personal Care Platform in India in terms of value of products sold in FY21.

In Korea, we compared Simone to peers and shared our final thoughts on IPO valuation. The IPO’s bookbuild was delayed till mid October.

For IPO debuts, Simplex Holdings (4373 JP) traded well closing 27% higher on the first day whereas Broncus (2216 HK), owing to its expensive valuation and relatively poor IPO demand, closed almost 20% below IPO price based on Friday’s close price.

Tearsheets for newly filed IPOs this week:

It’s another busy week in the placement space. Transurban raised about US$2bn for the acquisition of the remaining 49% stake in WestConnex with a shortfall bookbuild that was priced close (2% discount) to its undisturbed price. Prudential also launched its US$2.9bn international and public offering in Hong Kong which had been well flagged. The deal was reportedly priced at HK$143.80, about 2.8% discount to Friday’s close price. 

Accuracy Rate:

Our overall accuracy rate is 73.9% for IPOs and 67.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings this week

  • Shukun Technologies (Hong Kong, >US$100m)
  • GFT International (Hong Kong, US$100m)
  • Puranik Builders (India, re-filed, US$150m)

News on Upcoming IPOs

Hong Kong/China

US/China ADRs

India

Japan/Korea

Others

Analysis on Upcoming IPOs

NameInsight
Hong Kong
APM Monaco

APM Monaco Pre-IPO – China’s Resilience Shines 

Airdoc

Beijing Airdoc (北京鹰瞳科技) Pre-IPO – A Niche Field with Merits but Can It Sell? 

Anjuke

Anjuke Pre-IPO – Mixed (Positive and Negative) Developments 

Ambio

AmbioPharm (昂博制药) Pre-IPO: Peptide CDMO Leader Turning Licensor 

Biel Crystal

Biel Crystal (伯恩光学) Pre-IPO – Cash Flow Generative Business but Underlying Trend Is Worrying 

Biel Crystal

Biel Crystal (伯恩光学) Pre-IPO – Industry Landscape & Peer Comparison –  Auto Is the Wildcard 

ByteDance

ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)

ByteDance

ByteDance (字节跳动) Pre-IPO: How Has It Done in 1H? 

ByteDance

ByteDance: The Unlisted Company’s Video Apps Leading the Market and Threatening Internet Giants 

ByteDance

ByteDance (字节跳动) Pre-IPO: Why Facebook Should Worry About TikTok 

ByteDance

ByteDance (字节跳动) Pre-IPO – Globally the Most Downloaded App for Jan 2020 Driven by India 

ByteDance

ByteDance (字节跳动) Pre-IPO: Global Ambition Meets Regulatory Challenges 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Mixed PHIP Update, Updated Thoughts on Valuation 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Initial Thoughts on Valuation 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Tencent Music Peer Comp, Regulatory Impact 

Cloud Village

Cloud Village (NetEase Music) Pre-IPO – Was in the Slow Stream, Playing Catch-Up 

Edda 

EDDA Healthcare Pre-IPO – RoboDoc – Has Been Around for a While but Is Just Getting the Robo Going 

Dingdang

Dingdang Health Tech (叮当健康) Pre-IPO – Impressive Growth but Not Without Concerns 

Intco Med

Intco Medical (英科医疗) A+H: From China No.1 to Global No. 1 

Imeik

Imeik Tech (爱美客) A/H Pre-IPO – Dermal Filler Leader Capitalizing on Its Valuation 

Jenscare

Jenscare (宁波健世科技) Pre-IPO: Differentiated Heart Valve Portfolio 

MicroPort Medbot

MicroPort MedBot Pre-IPO – RoboDoc – Pre-Revenue, Has a Large Competitor but a Large Market as Well 

NewMed

NewMed (纽脉医疗) Pre-IPO: Uphill Battle for TAVR but Leads the TMVR 

Neusoft Xikang

Neusoft Xikang (东软熙康) Pre-IPO: A Long Way to Profit 

Neusoft Med

Neusoft Medical Systems (东软医疗系统) Pre-IPO: Unattractive Fundamentals 

WeDoctor WeDoctor (微医) Pre-IPO -App Walk Through – The Online Medical Directory and More 
WeDoctor WeDoctor (微医) Pre-IPO – A More Focused Online Medical Svc Provider than Ping An Good Doctor 
WeDoctor We Doctor (微医) Pre-IPO – Peer Comparison – Picking Its Battles Wisely 
WeDoctor We Doctor (微医) Pre-IPO – Forecasts, Early Thoughts on Valuation, and Acquisition Gripes 
Weilong Weilong Delicious Global Pre-IPO – The Positives – Fast Growth, Strong Backers 
Weilong Weilong Delicious Global Pre-IPO – The Negatives – Spicy Valuation 
WM Tech WM Tech Pre-IPO – Peer Comparison and Pre-IPO Valuation – Some Signs of Advantage 
WM Tech WM Tech Pre-IPO – Digitalization Efforts Coming Through but Not Well Substantiated 
India
Aadhar Housing Aadhar Housing Finance Pre-IPO – Decent past Growth but Comes with Weird Disclosures 
Aditya AMC Aditya Birla Sun Life AMC Pre-IPO – Strong Profit Growth but It’s Losing Market Share 
Anmol IndAnmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Bharat Hotel

Bharat Hotels Pre-IPO – Catching up with Peers 

Bajaj En

Bajaj Energy Pre-IPO – Supposed to Deliver Steady Performance if Only Its Sole Client Would Let It 

Crystal CropCrystal Crop Protection Pre-IPO – DRHP Raises More Questions than in Answers
ESAF SFB ESAF Small Finance Bank Pre-IPO – Growing Fast but Remains Highly Dependant on a Related Party 
Flemingo Flemingo Travel Retail Pre-IPO – Its a Different Business in Every Country
Emami Cem Emami Cement Pre-IPO – Still in Ramp Up Phase but Shares Pledge Might Lead to an Early IPO 
NSENSE IPO Preview- Not Only Fast..its Risky and Expensive
NSENational Stock Exchange Pre-IPO Review – Bigger, Better, Stronger but a Little Too Fast for Some

LIC

Life Insurance Corporation of India Pre-IPO – Early Take on India’s Largest IPO 
Penna Cem Penna Cement – Aggressive Expansion Plans Even Though Past Performance Has Been Tepid 
PNB MetPNB Metlife Pre-IPO Quick Take – Doesn’t Stack up Well Versus Its Larger Peers
Malaysia
QSRQSR Brands Pre-IPO – As Healthy as Fast Food

NIPPO (1881 JP) Gets Some Cowbell – It Probably Needs More

By Travis Lundy

Just under three weeks ago, Nippo Corp (1881 JP) parent company ENEOS Holdings (5020 JP) announced a slightly convoluted takeover of Nippo which was announced at a decidedly low price of ¥4,000/share. 

I wrote about this in ENEOS To Steamroll Nippo (1881 JP) Minorities, calling the bid “egregiously low.” I thought the “right price” was ¥1,500-2,000/share higher. 

I also thought that because of ENEOS’ starting point, anyone who wanted to block it needed to go big and public with their opposition. I have long thought the issue of parent-sub takeovers and MBOs required more active (and passive) investor stewardship, and have published Japan Needs More Cowbell about active investors and a kind of open letter to the former GPIF CIO Hiro Mizuno in the Financial Times, about The GPIF and the Complexity of Stewardship.

On Friday we got a little noise as a small fund called the Monex Activist Mother Fund, managed by a fund management firm called Japan Catalyst, where the CIO is Oki Matsumoto, the current CEO of Monex Group Inc (8698 JP), put out a press release.  

More discussion of the opportunity and its parameters to date below.


Before it’s here, it’s on Smartkarma

Most Read: Imugene Ltd, Evergrande Real Estate Group, L&F Co Ltd, Sandfire Resources Limited and more

By | Daily Briefs, Most Read

In today’s briefing:

  • ASX100/​200 Index Rebalance Preview: Potential December Changes With Large Impact
  • Evergrande (3333 HK) – Understanding Its Off-Balance Sheet Financing
  • Evergrande/ Xi/ Coal/ USA/ Hong Kong
  • MSCI Korea November SAIR Additions: L&F, F&F, Krafton, & Kakao Games
  • Sandfire Resources (SFR AU): Acquisition, ANREO and ASX200 Inclusion

ASX100/​200 Index Rebalance Preview: Potential December Changes With Large Impact

By Brian Freitas

S&P Dow Jones Indices will announce changes to the S&P/ASX 100 and S&P/ASX 200 (AS51 INDEX) as part of the December index review on 3 December and the changes will be effective after the close of trading on 17 December.

The review period for the rebalance ends on 19 November, so we are exactly two-thirds of the way through the review period.

As of the close on 20 September, we see Pilbara Minerals (PLS AU) as a potential inclusion to the S&P/ASX100 and Link Administration Holdings (LNK AU) as a potential deletion.

For the S&P/ASX 200 (AS51 INDEX), potential inclusions are Imugene Ltd (IMU AU), Paladin Energy (PDN AU), Event Hospitality and Entertainment (EVT AU), Liontown Resources (LTR AU) and Arena Reit (ARF AU), while potential deletions are Kogan.com (KGN AU), Redbubble Ltd (RBL AU), Monadelphous (MND AU), Imf Bentham Ltd (OBL AU) and Spark New Zealand (SPK AU).

With multiple M&A deal pending, including Afterpay Touch (APT AU), Sydney Airport (SYD AU), Ausnet Services (AST AU), Oil Search Ltd (OSH AU) and Spark Infrastructure (SKI AU), there could be more additions to the index if deals are completed or highly likely to be completed by end November.

Short interest on most potential inclusions is quite low, while the short interest on many potential exclusions is quite high.


Evergrande (3333 HK) – Understanding Its Off-Balance Sheet Financing

By Jason Yap, CFA

As at H1 2021, Evergrande Real Estate Group (3333 HK) had total assets of RMB2.37 trillion and total liabilities of nearly RMB2 trillion. Current liabilities (i.e. due and payable within the next 12 months) sum up to RMB1.57 billion (approximately 78% of total liabilities). 

For context, China’s real estate industry contributes approximately 29% of total GDP, which is in turn a shade under RMB100 trillion. As China’s 2nd largest property developer, Evergrande’s liabilities account for 7% and 2% of the real estate sector and GDP output respectively. 

Yet, the above reported financial figures still do not represent the economic reality and true financial obligations of the company. It is widely reported that real estate companies companies such as Evergrande usually have large off-balance sheet liabilities.

In this article, we delve into the following topics:

  • Overview of Off Balance Sheet (“OBS”) Financing and Why do Companies do it?
  • How did Evergrande debts grow so fast and so large?  What are its OBS liabilities?

We will conclude with a brief commentary on what investors can expect as the Evergrande situation continues to unfold. 


Evergrande/ Xi/ Coal/ USA/ Hong Kong

By Diana Choyleva

China News That Matters

  • Teetering and headline-making
  • Xi keeps eyes on party prize
  • Last call for coal? Xi won’t dig more overseas 
  • US steps to counter China
  • Hong Kong feels the squeeze
  • In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

MSCI Korea November SAIR Additions: L&F, F&F, Krafton, & Kakao Games

By Sanghyun Park

The review period for MSCI November SAIR (semi-annual index review) is the last ten business days of October. The announcement date is November 11, and December 1 is the effective date.

(Source: MSCI)

Below are the inclusion requirements to be applied in this SAIR.

Requirements (× Interim cutoff)Semi-annualNote
Interim cutoff (estimate)₩3.00T
Full market cap requirementInterim cutoff x 1.50
For both outside IMI & Small-Cap→Std
Full market cap hurdle₩4.50T
Float market cap requirementInterim cutoff x 0.50 x 1.50
For outside IMI
Float-adjusted market cap hurdle₩2.25T
Float market cap requirementInterim cutoff x 0.50
For Small-Cap→Std
Float-adjusted market cap hurdle₩1.50T
Source: MSCI & Clepsydra Capital

The following five stocks are highly likely to be included in the Standard Index in this IR. They are currently above the full market cap threshold, which is estimated at ₩4.50T.

NameFull market capNote
Krafton Inc (259960 KS)₩24.13T Recent IPO (outside IMI)
SD Biosensor (137310 KS) ₩5.10T Recent IPO (outside IMI)
L&F Co Ltd (066970 KS) ₩6.58T Small-Cap→Std
F&F (383220 KS) ₩5.60T Small-Cap→Std
Kakao Games Corp (293490 KS) ₩5.10T
Source: KRX

Below are the recent major Korean IPOs. SD Biosensor, Krafton, and Hyundai Heavy Industries exceed the full market cap threshold for this IR. But Hyundai Heavy Industries fails to meet the minimum trading period of 3 months based on the effective date (December 1).

Recent major IPOsTickerListingMarket cap
SD Biosensor Inc13731007. 16₩5.10T
HK Inno.N Corp19594008. 09₩1.64T
Krafton Inc25996008. 10₩24.13T
Lotte Rental Co Ltd08986008. 19₩1.57T
Ajusteel Co Ltd13999008. 20₩0.55T
Iljin HySolus Co Ltd27194009. 01₩2.71T
Hyundai Heavy Industries Co Ltd32918009. 17₩8.81T
Source: KRX & DART

Among the top-cap stocks in the Korea Small Cap Index, only L&F and F&F meet the full market cap threshold based on the current share prices.

(Source: MSCI)

Then, we have Kakao Games, which was again dropped in the final step in the previous IR. This is because MSCI kept lowering the float rate of Kakao Games to an illogical level in the last IR. Currently, Kakao Games’ full market cap meets the requirement. So, again, the key is whether MSCI raises the float rate to 45%, the actual level.


Sandfire Resources (SFR AU): Acquisition, ANREO and ASX200 Inclusion

By Brian Freitas

On 23 September pre-market open, Sandfire Resources Limited (SFR AU) requested for a trading halt. A short time later, the company announced the acquisition of the MATSA mining complex from Mubadala and Trafigura for US$1.865bn (A$2.572bn).

The acquisition is expected to be completed in the March 2022 quarter and is subject to Spanish Foreign Direct Investment Approval and anti-trust merger control approval.

The acquisition will be funded by an A$120m strategic placement to AustralianSuper, a A$165m institutional placement, a A$963m fully underwritten 1 for 1 accelerated non-renounceable entitlement offer (ANREO), debt and cash on hand.

Just over 231m shares will be issued at A$5.40/share, a 13.2% discount to the last close of A$6.22/share, and a 6.2% discount to TERP.

The increase in market cap as a result of the placement and entitlement offer will result in Sandfire Resources Limited (SFR AU) becoming a high probability inclusion to the S&P/ASX 200 (AS51 INDEX) at the December rebalance.

With a number of M&A deals targeting S&P/ASX 200 (AS51 INDEX) constituents, there will be more changes to the index over the next couple of regular rebalances (and in the interim as well).


Before it’s here, it’s on Smartkarma

Most Read: Mitsui O.S.K. Lines, Sembcorp Marine, Evergrande Real Estate Group, Sohu.com Inc, Celltrion Inc and more

By | Daily Briefs, Most Read

In today’s briefing:

  • MSCI Japan Nov SAIR Preview: Pre-Positioning Begins as Potential Adds Rally & Deletes Drop
  • Sembcorp Marine MGO – The Implied Option Tells You About the Market, And It’s The Wrong Price.
  • Evergrande (3333 HK) – Understanding Its Off-Balance Sheet Financing
  • Sohu.com (SOHU US): Cashed Up As Tencent/Sogou Merger Completes
  • Celltrion 3-Way Merger Timing & Trading Approach Aiming for Immediate Short Covering

MSCI Japan Nov SAIR Preview: Pre-Positioning Begins as Potential Adds Rally & Deletes Drop

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October.

Based on the closing prices from 22 September, we see 6 potential inclusions and 8 exclusions for the MSCI Japan Index. Potential inclusions are Mitsui Osk Lines (9104 JP), Taiyo Yuden (6976 JP), Baycurrent Consulting (6532 JP), Benefit One Inc (2412 JP), Rakus Co Ltd (3923 JP) and Open House (3288 JP), while the potential deletions are Yamada Denki (9831 JP), Thk Co Ltd (6481 JP), Hisamitsu Pharmaceutical Co (4530 JP), Pigeon Corp (7956 JP), Tohoku Electric Power Co (9506 JP), NSK Ltd (6471 JP), Nh Foods Ltd (2282 JP) and Acom Co Ltd (8572 JP).

The largest impact of the MSCI buying will be on Taiyo Yuden (6976 JP) with passive funds needing to buy over 9% of the real float of the stock.

Among the potential inclusions, only Taiyo Yuden (6976 JP) has more than 4 days of ADV to cover, while Pigeon Corp (7956 JP) and Yamada Denki (9831 JP) have over 6 days of shorts to cover among the potential deletions.

The short interest data also shows a large fund putting on shorts on the potential deletions over the last couple of weeks of trading.


Sembcorp Marine MGO – The Implied Option Tells You About the Market, And It’s The Wrong Price.

By Travis Lundy

As expected, on 22 September 2021, Temasek announced its Mandatory General Offer for shares of Sembcorp Marine (SMM SP)

As suggested in Sembcorp Marine Rights Done – The MGO Option It Is, Temasek ended up at 46.6% which triggers an offer to remain in compliance with Rule 14.1 of the Takeover Code.  

For each Offer Share: S$0.08 in cash (the “Offer Price”).  The Offer Price is final and the Offeror will not revise the Offer Price or any other terms of the MGO.

There are conditions of which one must take note.

Pursuant to Rule 14.2 of the Code, if the Offeror Concert Party Group does not hold more than 50% of the issued Shares when the MGO is made, the MGO is required to be made conditional upon the Offeror Concert Party Group receiving such number of acceptances which would result in the Offeror Concert Party Group holding more than 50% of the voting rights attributable to the share capital of the Company.

IF the Offer garners shares which would take it above 50%, then it would become Unconditional. Until then, the offer is not unconditional, or complete, if it does not get to 50%. 

Importantly, the Offer will last 28 days and “if the MGO becomes unconditional as to acceptances before the Closing Date or even if the MGO becomes unconditional as to acceptances on the Closing Date itself, there will not be any extension of the Closing Date and Shareholders who do not accept the MGO by the Closing Date will not be able to do so after the Closing Date.

No extension. At all. 

The proposal I made on the 19th when the shares were S$0.084 the previous close was that the stock would probably fall once shares were delivered, but that once fallen, the shares would have much better upside vs downside skew if they reached S$0.079-0.081. The shares actually popped on delivery, but a day later we still closed S$0.081. 

This situation leaves us with an interesting profile. 

More details below. 


Evergrande (3333 HK) – Understanding Its Off-Balance Sheet Financing

By Jason Yap, CFA

As at H1 2021, Evergrande Real Estate Group (3333 HK) had total assets of RMB2.37 trillion and total liabilities of nearly RMB2 trillion. Current liabilities (i.e. due and payable within the next 12 months) sum up to RMB1.57 billion (approximately 78% of total liabilities). 

For context, China’s real estate industry contributes approximately 29% of total GDP, which is in turn a shade under RMB100 trillion. As China’s 2nd largest property developer, Evergrande’s liabilities account for 7% and 2% of the real estate sector and GDP output respectively. 

Yet, the above reported financial figures still do not represent the economic reality and true financial obligations of the company. It is widely reported that real estate companies companies such as Evergrande usually have large off-balance sheet liabilities.

In this article, we delve into the following topics:

  • Overview of Off Balance Sheet (“OBS”) Financing and Why do Companies do it?
  • How did Evergrande debts grow so fast and so large?  What are its OBS liabilities?

We will conclude with a brief commentary on what investors can expect as the Evergrande situation continues to unfold. 


Sohu.com (SOHU US): Cashed Up As Tencent/Sogou Merger Completes

By David Blennerhassett

Around 9.5 months after Tencent (700 HK) and Chinese search-engine Sogou Inc (SOGO US) entered into a definitive agreement for a Going-Private Transaction, the Offer was granted unconditional approval by the State Administration for Market Regulation (SAMR) on the 12 July. 

Apparently, that wasn’t the final approval as the regulators continued to overhaul and tweak China’s tech sector. In its 2Q21 results (announced on the 9 August) Sogou said it expected the merger with Tencent to complete in the 2H21.

Yesterday, Sogou announced the completion of the merger and shares have been suspended. Payment will be made “as soon as practical”. 

Hong Kong’s Standard reported yesterday that Tencent’s news and content unit Tencent Kandian will absorb most of Sogou’s business and employees.  After merging with Sogou, the search engine segment will be the core business of Tencent Kandian. Tencent was permitted to take up the 60.9% in Sogou it did not already own provided it established a “special mechanism” to ensure data security.

So that’s done. This is a short-form merger – there was no vote. Dissension rights are now afforded for short-form mergers and I would expect some investors to take up those rights.  

Separately, Sohu.com Inc (SOHU US) pockets ~US$1.2bn from the merger via its 33.8% equity stake in Sogou, versus its current market cap of US$857mn. 

More below the fold.


Celltrion 3-Way Merger Timing & Trading Approach Aiming for Immediate Short Covering

By Sanghyun Park

The 3-way merger between Celltrion Holdings has been completed. Now, the market’s attention is shifting to the merger of Celltrion, Celltrion Healthcare, and Celltrion Pharm.

Perhaps the most crucial investment point in this second 3-way merger is short covering.

What short covering?

The prominent institutional investors that lend stocks for short selling in Korea are local ETF/index fund operators and pension funds. And among them, pension funds often recall shares to exercise shareholder rights in the event of a merger.

It then leads to an increase in demand for short coverings. We have often witnessed stock price overshooting immediately after the merger announcement. The most salient example was the Samsung Engineering & Samsung Heavy Industries merger back in 2016. Samsung Engineering soared 12% right after the merger announcement, presumably due to the recall of pension funds.

However, it is essential to note that the recall is not compulsory even for stocks of an extinct entity in a merger between listed companies. Stocks borrowed for short-selling are automatically transferred to newly issued stocks with only the title of an underlying share changed.

  • Nevertheless, the possibility of a short-term stock overshooting due to a recall cannot be ruled out in the event of a merger between companies with high stakes held by pension funds and high short interest.
  • Although the short interest of the three Celltrion companies has decreased a lot compared to the past, they are still maintaining a considerable level. In the case of Celltrion, short interest is 2.89% of the SO, nearly 4M shares which are 6~7x days to cover.
  • In addition, the proportion of investment in Celltrion and Celltrion Healthcare by local pension funds is relatively large.

Of course, we also have to note that the National Pension Service, the largest pension fund, has not yet resumed lending of domestic stocks, so the short-covering impact of the recall is bound to be less than in the past.


Before it’s here, it’s on Smartkarma

Most Read: MMC Corp Bhd, Bukalapak, Mitsui Osk Lines, HMM Co., Ltd., Centuria Industrial REIT and more

By | Daily Briefs, Most Read

In today’s briefing:

  • MMC Corp (MMC MK): This Is A Buy
  • Bukalapak (BUKA IJ): Fast Entry to IDX30, LQ45, IDX80; MSCI on Track for November
  • MSCI Japan Nov SAIR Preview: Pre-Positioning Begins as Potential Adds Rally & Deletes Drop
  • HMM, Another Massive CB Conversion (Share Dilution) Risk & Short Trading Opportunity
  • Centuria Industrial REIT – Past Deals Have Done Well, but This Deal Is Much Bigger

MMC Corp (MMC MK): This Is A Buy

By David Blennerhassett

On the 3 June, Seaport Terminal (Johore) Sdn Bhd, a wholly-owned entity of Tan Sri Syed Mokhtar Albukhary, announced an Offer for port operator and utility play MMC Corp Bhd (MMC MK) at RM2.00/share, a 70.94% premium to last close. Seaport Terminal owns 51.76% of MMC.  The Offer is being done via a selective capital reduction and repayment (SCR) exercise. 

On the 4 August RHB announced, on behalf MMC’s board, the SCR will be tabled to shareholders at a forthcoming EGM.

The circular was dispatched on the 8 September with the EGM scheduled for the 30 September. Payment under the offer is expected towards the end of December.

The independent adviser, Alliance Investment Bank, deemed the Offer not fair, but reasonable.

This still looks done. But this is trading wide, with a largish downward move on decent volume earlier this week. The key risk is how PNB will vote.

More below the fold.


Bukalapak (BUKA IJ): Fast Entry to IDX30, LQ45, IDX80; MSCI on Track for November

By Brian Freitas

Post market close on 22 September, the IDX announced that Bukalapak (BUKA IJ) would get Fast Entry to the IDX30, LQ45, IDX80, JII and JII70 Indexes. This follows a recently proposed change to the indices to allow for Fast Entry inclusions.

Pabrik Kertas Tjiwi Kimia (TKIM IJ) will be deleted from the IDX30, Summarecon Agung (SMRA IJ) will be deleted from the LQ45, Link Net (LINK IJ) will be deleted from the IDX80, AKR Corporindo (AKRA IJ) will be deleted from the JII and Ultrajaya Milk Industry & Trading (ULTJ IJ) will be deleted from the JII70 Index.

The changes will be effective from the open on 29 September.

We estimate that passive LQ45 trackers will need to buy 400.93m shares of Bukalapak (BUKA IJ) and sell 76m shares of Summarecon Agung (SMRA IJ). We estimate Bukalapak (BUKA IJ) will have a weight of 2.5% in the index and active funds will be buying the stock too so as not to stray too far from their benchmark.

The impact from the changes to the other indices should be much smaller since the assets tracking those indices are not material.

Bukalapak (BUKA IJ) is also a high probability inclusion to the MSCI Indonesia Index at the November SAIR and passive trackers are estimated to buy 1.93bn shares at the close on 30 November.


MSCI Japan Nov SAIR Preview: Pre-Positioning Begins as Potential Adds Rally & Deletes Drop

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October.

Based on the closing prices from 22 September, we see 6 potential inclusions and 8 exclusions for the MSCI Japan Index. Potential inclusions are Mitsui Osk Lines (9104 JP), Taiyo Yuden (6976 JP), Baycurrent Consulting (6532 JP), Benefit One Inc (2412 JP), Rakus Co Ltd (3923 JP) and Open House (3288 JP), while the potential deletions are Yamada Denki (9831 JP), Thk Co Ltd (6481 JP), Hisamitsu Pharmaceutical Co (4530 JP), Pigeon Corp (7956 JP), Tohoku Electric Power Co (9506 JP), NSK Ltd (6471 JP), Nh Foods Ltd (2282 JP) and Acom Co Ltd (8572 JP).

The largest impact of the MSCI buying will be on Taiyo Yuden (6976 JP) with passive funds needing to buy over 9% of the real float of the stock.

Among the potential inclusions, only Taiyo Yuden (6976 JP) has more than 4 days of ADV to cover, while Pigeon Corp (7956 JP) and Yamada Denki (9831 JP) have over 6 days of shorts to cover among the potential deletions.

The short interest data also shows a large fund putting on shorts on the potential deletions over the last couple of weeks of trading.


HMM, Another Massive CB Conversion (Share Dilution) Risk & Short Trading Opportunity

By Sanghyun Park

Currently, the largest shareholder of HMM is Korea Development Bank (KDB). And KDB and KOBC (Korea Ocean Business Corporation) jointly exercise the management rights of HMM.

ShareholdersShareholdingLast filedShares
Korea Development Bank (KDB)24.96%2021-07-16101,199,297
Korea Ocean Business Corporation (KOBC)3.44%2018-07-0513,943,850
Bae Jae-hoon & 21 others0.04%2021-07-30155,469
ESOP0.26%2018-06-291,038,396
Korea Credit Guarantee Fund (KoDIT)6.05%2019-07-2424,527,807
NPS5.25%2021-06-2221,299,846
Source: DART

However, KDB Chairman (Lee Dong-geul) recently said at a press conference on the 4th anniversary of his inauguration that KOBC alone will run HMM from next year. Chairman Lee declined to comment on the specific method of realizing this, but did say that it would be desirable for KDB to sell the remaining stake in HMM in stages.

In fact, KDB’s complete exit is not surprising. This is because the role of the KDB itself is a state-run creditor bank, and it cannot be in charge of the management of private companies forever. On the other hand, KOBC’s primary purpose is to manage a nationalized company rather than a creditor. Therefore, it is inevitable for KOBC to become the largest shareholder of HMM in the near future.

But the question is how.

In this connection, the KDB chairman had a nuance that KOBC would become the largest shareholder first and KDB would then sell the remaining stake.


Centuria Industrial REIT – Past Deals Have Done Well, but This Deal Is Much Bigger

By Zhen Zhou, Toh

Centuria Industrial REIT (CIP AU) is looking to raise AUD300m to partially fund its acquisition of industrial assets.

In this note, we will take a brief look at the assets to be acquired, the impact of it, and share our thoughts on deal dynamics.

We have previously covered its December 2019 placement in:


Before it’s here, it’s on Smartkarma

Most Read: Shinsei Bank, Hyundai Heavy Industries, Centuria Office REIT, Bank Negara Indonesia Persero and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Shinsei Looks To A Poison Pill, But Probably Not Really
  • Hyundai Heavy Industries: In the Zone for KOSPI200 Fast Entry
  • FTSE EPRA Nareit Rebalance Done: Trades From Here
  • Hong Kong Buybacks: Xiaomi and Tencent Led Weekly Buybacks
  • BBNI – DuPont Suggests ~60% Higher Profit

Shinsei Looks To A Poison Pill, But Probably Not Really

By Travis Lundy

On Thursday 9 September, SBI Holdings (8473 JP) announced a Tender Offer aimed at lifting its stake in Shinsei Bank (8303 JP) to 48% at a sharp premium (up 46%). It hadn’t warned Shinsei Bank of its intention to do so.

Kana Inagaki and Leo Lewis at the FT had a story early Thursday evening describing the situation – the most concise and accurate take I have seen. I followed up hours later with something wordier in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! On Thursday night the ADRs rose to ¥1930/share equivalent. 

On Friday, the stock went limit up, Smartkarma held a Flash Webinar, and Mio Kato added Shinsei Bank – Valuations to the anthology. 

Over the weekend, articles were everywhere in the media, but they didn’t say much. Shinsei hadn’t told them what to say and SBI had already done the talking for its part. 

Trading resumed on Monday and the stock opened above the Tender Offer Price ¥2000/share before closing a bit lower. 

Yesterday saw articles suggesting Shinsei Bank would send SBI a list of questions to answer, would look at what they got back, and then would decide their opinion. 

But TODAY we see the real start of the game. 

The Nikkei reported in a short article a few hours ago that Shinsei’s board would meet this week to approve an “emergency” poison pill defence. 

How that would work might matter, but it might not. 

More below the fold.


Hyundai Heavy Industries: In the Zone for KOSPI200 Fast Entry

By Brian Freitas

Hyundai Heavy Industries (1748326D KS) raised KRW 1.08 trillion (US$920m) in its IPO by selling 18m shares at KRW 60,000/share. The issue was heavily oversubscribed and some of that enthusiasm has spilled into trading on day 1.

The stock is currently trading at KRW 118,500/share, up 97% from the IPO price.

The stock is now in range for inclusion in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) via Fast Entry at the December rebalance. The announcement of the Fast Entry will come a lot earlier, likely in mid to late October.

With a very small free float, the stock will not make it into the FTSE All-World and MSCI Standard Index via Fast Entry. Inclusion in those indices will take place in the first half of 2022 at the earliest.


FTSE EPRA Nareit Rebalance Done: Trades From Here

By Travis Lundy

The FTSE EPRA Nareit Rebalance was completed on 17 September 2021.

The trade from late June or early July worked quite well up to the announcement on 1 September, and only worked mildly well from there. 

In FTSE EPRA Nareit Rebalance Decided; Sub-Baskets Worth Trading Still after the announcement, I split the universe into three groups – “Still Add”, “Middle”, and “Maybe Done” and recommended the following:

  • Long/short basket of STILL TO BUY vs ALREADY DONE
  • Long STILL TO BUY vs FTSE EPRA Nareit Asia Pacific
  • One could add an “In The Middle” basket on the long side [vs FTSE EPRA Nareit Asia Pac]

The original trade was to be long the dotted light blue line (add basket vs Asia Pacific Index). Then in the trading day before the red dot I recommended being long the yellow line and the purple polka-dotted line.

So…. now what?

Read on.


Hong Kong Buybacks: Xiaomi and Tencent Led Weekly Buybacks

By Ke Yan, CFA, FRM

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Sep 17.

In the past 7 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corporation (1810 HK) (HKD 741.4 million worth of buybacks), Tencent Holdings Limited (700 HK) (HKD 520.1 million worth of buybacks), Xinyi Glass Holdings Limited (868 HK) (HKD 140.6 million worth of buybacks).


BBNI – DuPont Suggests ~60% Higher Profit

By Daniel Tabbush

As we prepare for our SK webinar with BBNI on 21 September a simple DuPont analysis shows clearly how returns can swell. As margins rise alongside falling credit costs, ROA can move substantially higher. 


Before it’s here, it’s on Smartkarma

Most Read: Shinsei Bank, Orient Overseas International, Washington H. Soul Pattinson and Co. Ltd, Hong Kong Hang Seng Index, Busan City Gas and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Shinsei Looks To A Poison Pill, But Probably Not Really
  • HSCI Index Rebalance and Stock Connect: Potential Changes in December and March
  • Marvelous Milton and WHSP (SOL AU) Index Event Prepositioning Analysis
  • HK Washout Low Targets
  • Busan City Gas Tender Offer at a Whopping 40% Premium by SK E&S:

Shinsei Looks To A Poison Pill, But Probably Not Really

By Travis Lundy

On Thursday 9 September, SBI Holdings (8473 JP) announced a Tender Offer aimed at lifting its stake in Shinsei Bank (8303 JP) to 48% at a sharp premium (up 46%). It hadn’t warned Shinsei Bank of its intention to do so.

Kana Inagaki and Leo Lewis at the FT had a story early Thursday evening describing the situation – the most concise and accurate take I have seen. I followed up hours later with something wordier in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! On Thursday night the ADRs rose to ¥1930/share equivalent. 

On Friday, the stock went limit up, Smartkarma held a Flash Webinar, and Mio Kato added Shinsei Bank – Valuations to the anthology. 

Over the weekend, articles were everywhere in the media, but they didn’t say much. Shinsei hadn’t told them what to say and SBI had already done the talking for its part. 

Trading resumed on Monday and the stock opened above the Tender Offer Price ¥2000/share before closing a bit lower. 

Yesterday saw articles suggesting Shinsei Bank would send SBI a list of questions to answer, would look at what they got back, and then would decide their opinion. 

But TODAY we see the real start of the game. 

The Nikkei reported in a short article a few hours ago that Shinsei’s board would meet this week to approve an “emergency” poison pill defence. 

How that would work might matter, but it might not. 

More below the fold.


HSCI Index Rebalance and Stock Connect: Potential Changes in December and March

By Brian Freitas

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June.

The December review will see the inclusion of stocks that were newly listed from 1 July to 30 September and meet the criteria for joining the index.

We expect Brii Biosciences (2137 HK), Helen’s International Holdings (9869 HK), Medlive Technology (2192 HK), Keymed Biosciences Inc (2162 HK) and SCE Intelligent Commercial Management (606 HK) to be included in the index at the close of trading on 3 December.

For the regular rebalance in March 2022, we see 17 potential inclusions to the index and 4 potential deletions. There are 4 stocks that are close adds and 5 that are close deletes.

Although there are no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors. There is pre-positioning in the stocks in the lead up to the announcement and prior to the stocks being open for purchase by mainland investors.


Marvelous Milton and WHSP (SOL AU) Index Event Prepositioning Analysis

By Travis Lundy

The morning of the 16th of September 2021, Milton Corp Ltd (MLT AU) announced an expected A$0.37/share fully-franked special dividend (which should produce A$0.15857/share of franking credits) to go ex- on 21 September, which coincidentally should be the last day of trading for the stock.

Washington H. Soul Pattinson and Co. Ltd (SOL AU) shares fell more than 5% on the day, heading lower early, and staying low throughout the day.

It is not clear why, but one can make some guesses.

More below the fold.

And for the history on this…


HK Washout Low Targets

By Thomas Schroeder

Hong Kong has been top short and currently pressing on the key lows at HSI 24,600 with a target of 24,000 and risk of an undershoot. H share decline in line toward the 8,300-500 target.

Our primary downside target is at 24,000 and will then measure downside momentum for a low. Risk comes in near 23,200 after a bounce attempt from 24k. The recent bounce marks a corrective flat range with wave 5 downside risk on the back of policy pressure.


Busan City Gas Tender Offer at a Whopping 40% Premium by SK E&S:

By Sanghyun Park

This morning, SK E&S, the major shareholder of Busan City Gas, announced that it would conduct a tender offer to all remaining outstanding shares of Busan City Gas (2,595,597 shares, 23.60%). The tender offer price is 85,000 won per share, and the purchase period is from today to the 15th of the next month. SK E&S plans to apply for delisting of Busan City Gas.

The total number of issued shares of Busan City Gas is 11,000,000. SK E&S, the largest shareholder, owns 67.23%. And the number of treasury shares is 999,000 (9.08%). Therefore, the total remaining shares are 2,595,597 (23.60%), and SK E&S plans to purchase all of these shares through a tender offer.

ShareholdingShares%
Total shares11,000,000100.00%
SK E&S7,405,40367.32%
Treasury shares999,0009.08%
ESOP1,0750.01%
KISWIRE1,266,27911.51%
Other minority shareholders1,328,24312.07%
Source: FnGuide & KRX FIND

From today to the 15th of next month is the tendering period, and SK E&S pays cash. The cash payment date is October 20th. The tendering price is 85,000 won, a whopping 37.54% premium from yesterday’s closing price. This is a premium of over 40% compared to the average price for the past 1 month and 3 months.

Pricing
Offering price₩85,000
Last close₩61,800
– Premium37.54%
1W average₩61,300
– Premium38.66%
1M average₩59,659
– Premium42.48%
3M average₩60,069
– Premium41.50%
Source: DART & KRX

SK E&S plans to pursue delisting after acquiring shares through a tender offer. According to the stock market listing regulations, if the largest shareholder owns more than 95% of the total issued stock of a target company, they can apply for voluntary delisting.


Before it’s here, it’s on Smartkarma

Most Read: Shinsei Bank, BYD, Evergrande Real Estate Group, Melco International Development, SK Bioscience and more

By | Daily Briefs, Most Read

In today’s briefing:

  • Shinsei Looks To A Poison Pill, But Probably Not Really
  • Hang Seng TECH Index Rebalance Preview: Autonomous Driving Change
  • Evergrande (3333 HK): Now Homebuyers And Employees Are Revolting
  • StubWorld: Consultation Batters Macau Gaming Counters
  • Shorting Entry Timing on SK Bioscience for Sep 23 Lockup Release, Considering Chuseok Holiday

Shinsei Looks To A Poison Pill, But Probably Not Really

By Travis Lundy

On Thursday 9 September, SBI Holdings (8473 JP) announced a Tender Offer aimed at lifting its stake in Shinsei Bank (8303 JP) to 48% at a sharp premium (up 46%). It hadn’t warned Shinsei Bank of its intention to do so.

Kana Inagaki and Leo Lewis at the FT had a story early Thursday evening describing the situation – the most concise and accurate take I have seen. I followed up hours later with something wordier in SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)! On Thursday night the ADRs rose to ¥1930/share equivalent. 

On Friday, the stock went limit up, Smartkarma held a Flash Webinar, and Mio Kato added Shinsei Bank – Valuations to the anthology. 

Over the weekend, articles were everywhere in the media, but they didn’t say much. Shinsei hadn’t told them what to say and SBI had already done the talking for its part. 

Trading resumed on Monday and the stock opened above the Tender Offer Price ¥2000/share before closing a bit lower. 

Yesterday saw articles suggesting Shinsei Bank would send SBI a list of questions to answer, would look at what they got back, and then would decide their opinion. 

But TODAY we see the real start of the game. 

The Nikkei reported in a short article a few hours ago that Shinsei’s board would meet this week to approve an “emergency” poison pill defence. 

How that would work might matter, but it might not. 

More below the fold.


Hang Seng TECH Index Rebalance Preview: Autonomous Driving Change

By Brian Freitas

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the December 2021 review of the Hang Seng Family of Indexes on 12 November. The constituent changes will be effective after the close of trading on 3 December.

The review period for the December rebalance ends on 30 September and stocks that are listed by the review cut-off date are eligible for inclusion in the Hang Seng Tech Index (HSTECH INDEX).

Along with the announcement of the changes at the September rebalance, the index universe was expanded to cover a new theme – ‘Autonomous’ and examples include self-driving, autonomous robots, internet of things, smart lifestyle etc.

The expansion to the universe could see BYD (1211 HK) added to the index while Weimob Inc. (2013 HK) could be deleted from the index.

XPeng (9868 HK) and Li Auto (2015 HK) fail the velocity test for tradable indices and should not be included in the index.

Estimated one-way turnover is 9.23% and will result in a one-way turnover of HK$3.65bn. There will be a lot of selling on the smaller index constituents due to the funding trade.


Evergrande (3333 HK): Now Homebuyers And Employees Are Revolting

By David Blennerhassett

I estimate China Evergrande Group (3333 HK) (CEG) is trading at an extraordinary discount to NAV of 93% against a one-year average of 77%. 

Source: CapIQ, my estimates. According to Shengjing Bank Co Ltd H (2066 HK)‘s 2020 annual report (page 63), CEG holds 3.201bn domestic shares. For simplistic sake, I’ve pegged those shares at the price of Shengjing’s H shares. According to HengTen Ltd (136 HK)‘s 2020 annual report (page 13), CEG held 55.64% of shares out. But Evergrande has been selling, and now holds 26.55%.  For the stub ops, these are simply priced at book. A basket of peers is trading at ~0.6x, so probably a tad generous.

The problem with the calculation is that it marks the “stub ops” – the consolidated but unlisted portions of the business, predominantly Hengda Real Estate – at 1.0x book. Its competitors trade at 0.6x book on average so if one were to remove 40% of the value of the stub ops, that would eliminate roughly three quarters of the “NAV.” That sounds huge but if you eliminate three quarters of the NAV, it means the 93% discount drops to 70% (the magic of compounding, in reverse), which still might be attractive. 

The problem above and beyond that is that when a company is in “unprecedented difficulties” as the company said yesterday, the value of the assets themselves may be in question.

Evergrande’s liquidity crunch has been discussed at length here at Smartkarma, most recently by me in StubWorld: What To Do With Evergrande?; and in greater depth by Travis Lundy, in which he said in his latest insight Evergrande as a Study of Quantum Mechanics Theory

Outside observers are looking at the situation and wondering whether Schrödinger’s Cat is dead or alive.

Any process which requires a time-constrained liquidation of assets usually ends up with the asset owner suffering from “fire sale prices.” Given the leverage inherent in Evergrande, this should not come out well for shareholders. 

  • It need not be said, the general consensus is bearish.

The New News

  • Early yesterday morning, Evergrande announced it expects significant declines in contract sales in September.
  • Contract sales in June, July, and August 2021 were to RMB71.63bn, RMB43.78bn, and RMB38.08bn.
  • Often the month of September is when real estate companies in China record higher contract sales of properties. Evergrande said: “ongoing negative media reports concerning the Group have dampened the confidence of potential property purchasers in the Group.”
  • Evergrande added it is actively exploring with potential investors the sales of part of its interests in Evergrande Auto (708 HK) and Evergrande Property Services (6666 HK) – though no material progress has been made –  plus bringing in new investors to the company and its other subsidiaries.

In view of the difficulties, challenges and uncertainties in improving its liquidity …. there is no guarantee that the Group will be able to meet its financial obligations under the relevant financing documents and other contracts.

  • Evergrande has now engaged Houlihan Lokey (China) Limited and Admiralty Harbour Capital Limited to assess the company’s capital structure.

Separately …

  • Chinese media has lit up recently as property buyers raise concerns their apartments may not ever be completed; and concerns have also been voiced from (mainly ) retail investors (many of whom are Evergrande employees) who invested in wealth management products in which the proceeds were used to fund Evergande’s property projects. 
  • This culminated in scores of people protesting outside Evergrande’s headquarters in Shenzhen earlier this week according to news reports from Reuters, The Standard, and others. 

Not the ideal welcoming party when you arrive at work in the morning  – police outside one of Evergrande’s offices. (photo source: Mingtiandi)

  • Reportedly Evergrande is offering three repayment options for wealth management buyers:  via cash installments, starting with 10% of their principal and interest of their matured products, with the remainder through 10% installments per annum; repayment via property assets; or investors can apply the outstanding product value to offset the balance of any Evergrande residential unit purchased. The fine print has yet to be ironed out. 
  • Media sources are reporting what has been speculated upon for days… that Evergrande will not pay its loan interest payments due on 20th September. Apparently the Ministry of Housing and Urban-Rural Development notified banks today (Bloomberg). 

The fact Evergrande’s liquidity issue has now gone fully public makes one question how it can reverse this negative trend. 


StubWorld: Consultation Batters Macau Gaming Counters

By David Blennerhassett

This week in StubWorld …

Melco Resorts & Entertainment (MLCO US) and other Macau gaming plays roll over after a 45-day public gaming consultation kicks off today.

Preceding my comments on Melco are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


Shorting Entry Timing on SK Bioscience for Sep 23 Lockup Release, Considering Chuseok Holiday

By Sanghyun Park

September 18th is the major lockup release date for SK Bioscience. Not only will all 68.43% of the shares owned by SK Chemicals, the major shareholder, be released, but also the largest amount (5.16% of the SO) among the lockup shares held by the IPO institutional shareholders will be released.

SK Chemicals recently received a shareholder letter from Metrica. In other words, the possibility of selling some of the shares held by the largest shareholder cannot be completely ruled out. But again, all attention is on the 4 million shares held by the IPO institutional investors. These are presumed to be mostly local publicly-raised funds and pension funds. Based on the current share price, their return is 330%. So, at this point, we should conclude that the probability that they will realize profits rather than holding for a longer period of time is quite high.

In both the 1-month lockup release on April 19 and the 3-month on June 18, the trading volume surged more than 3 times compared to the daily average. On the other hand, the stock price rose 6.44% on April 19th but fell 4.69% on June 18th. The reason that the stock price rose on April 19 was that it had fallen more than 20% since listing, so we may say that this 1-month lock-up release actually led to attracting bargain hunters.

But the important thing that we must note here is that both of the previous major lockup releases had led to a huge surge in the trade volume, suggesting that a significant number of the IPO institutional shareholders must have opted to dispose of their holdings.

And this time, there is no reason to believe things would be different, especially considering that even the return is incomparably higher than the previous two lockup releases.


Before it’s here, it’s on Smartkarma