Most Read

In late February, Keisei Electric Railway Co (9009 JP) announced a 5.0mm share (2.96%) ¥33bn buyback, to be executed in the following 3 months. That meant likely ToSTNeT-3.
I thought that mildly bullish. Shares rose 0.05% the next day. Then we got an OLC offering announcement. I thought that bearish. The stock popped early but fell hard.
Today the announcement. It IS a ToSTNeT-3. tomorrow. At ¥6,320/share. But it is an Accelerated Share Repurchase. Which changes things. Or it doesn’t. But it bears watching closely, maybe acting.

Li Ning (2331 HK): Value Trap Play?

As the Hong Kong bourse languishes, recent Hong Kong privatisation include mainland Chinese firms such as Vinda International (3331 HK) and China Traditional Chinese Medicine (570 HK) .
Reportedly (Reuters) Li Ning (2331 HK) is now in the crosshairs. Shares are up 7.8% as I type.
Olympic champion Li Ning holds ~10.5% in his self-named company, which was recently in the news after acquiring a HK$2.2bn commercial building from Henderson Land (12 HK) as its headquarters.

ITC $2bn Placement – Very Well Flagged but Still Won’t Be an Easy One to Digest, Won’t Do an Indigo

In Feb 2024, BAT’s management stated that they were reviewing their stake in ITC Ltd (ITC IN). The news of a possible selldown by BAT was leaked again earlier today.
BAT has owned its stake in ITC for over a century and remains its largest shareholder.
In this note, we talk about the deal dynamics and run the deal through our ECM framework.

CIMC (1839 HK): Firm Offer. With A Bump!

Back on the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a paltry 8.6% premium to last close.
This Scheme-like Offer, with a tendering condition, secured SAFE approval late January. But last month CIMC announced a CBP investigation into the evasion of U.S. anti-dumping and countervailing duties.
Now CIMC has announced a firm Offer at HK$7.50/share. Terms are final. The majority of independent H-shareholders are supportive. This looks done. Possible completion late-May, early-June.

Li Ning (2331 HK): Evaluating a Potential Privatisation

Reuters reported that due to the steep share price declines, Mr Li Ning is considering leading a consortium to privatise Li Ning (2331 HK).
The shares have been weighed down by concerns about channel inventory, steep retail discounts, and unauthorised distributor sales. To counter this, Li Ning aims to achieve RMB50bn sales by 2028.
The probability of an offer is low as funding the scheme consideration could prove challenging. Nevertheless, the downside is low as Li Ning trades at an undemanding valuation.

Li Ning (2331 HK): Update On The Name Given Potential Privatization News

By Steve Zhou, CFA

According to public news today afternoon during trading hours, the founder and biggest shareholder of Li Ning (2331 HK), Mr. Li Ning, is mulling privatizing the public company.
Mr. Li Ning has shown the opposite intention over the last few years, with several major sell-down of stake.
The company is trading at 16x 2024 PE, with visibility being quite low.

Alumina/Alcoa: Binding Agreement On The Same Terms

On the 26 February, via an NBIO, Alcoa (AA US) offered 0.02854 of its own shares for each Alumina Ltd (AWC AU) share, a 13% premium to last close.
Alcoa/Alumina control 60%/40% of the AWAC JV, an owner and operator of global bauxite mines and alumina refineries. Both companies have now entered into a Scheme on the same terms.
Alcoa holds 19.9% in AWC after reaching an agreement with Allan Gray Australia. The key risks to the deal are FIRB approval and how CITIC, holding 18.9%, will respond.

Ola Electric Pre-IPO – Initial Thoughts on Valuation

Ola Electric is looking to raise about US$1bn in its upcoming India IPO.
Ola Electric Mobility is a vertically integrated pure EV player in India with manufacturing capabilities for EVs and EV components, including cells.
In our previous note we looked at the company’s past performance and undertook a peer comparison. In this note, we will talk about valuations.

KCC Corp: Taking a Closer Step to Separating the Ownership Structures of the KCC Group

There is an increasing probability that KCC Corp is closer to separating the ownership structures of the three Chung brothers regarding the various KCC Group related companies.
KCC’s 9.17% stake in Samsung C&T is worth 2.8 trillion won. KCC’s stake in Samsung C&T is worth 117% of KCC’s own market cap.
According to our valuation analysis, it suggests NAV of 355,925 won per share, representing a 30% upside from current levels.

KRX’s Official SSF/SSO Reshuffle Results: Trading Considerations

The reshuffle results align with expectations, but the decision to list 11 KOSDAQ Global stocks in April is surprising. Local authorities seem to prioritize boosting the derivatives market for liquidity.
Ecopro Materials’ SSF listing, earlier than expected, attracts attention, potentially leading to an unusual basis pattern, coinciding with a major lockup release on May 17th.
We should also be wary of a pattern akin to last July’s in KOSDAQ stocks. Spot prices of recent SSFs showed a pronounced short-term uptrend, especially in KOSDAQ, versus KOSPI.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 12

Most Read: Dai Nippon Printing, Tencent, NVIDIA Corp, Emerald Resources Nl, Nippon Express Holdings, IDP Education, CIMC Vehicle Group Co Ltd, Yaizu Suisankagaku Industry, Hanon Systems and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux
WisdomTree Indexes Special Rebalance: ESG Considerations Dropped
MV US Listed Semiconductor 25 Index Rebalance: Over US$1bn to Sell in NVIDIA
MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade
Nippon Express (9147 JP) – Buying the Overhang
MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow
CIMC Vehicles (1839 HK): Min Acceptance Condition a Risk for the Final HK$7.50 Offer
Yaizu Suisankagaku Industry (2812 JP): 3D Succeeds in Securing a Bump to JPY1,438
CIMC (1839 HK): Firm Offer. With A Bump!
On A Charge: Hanon Systems & Renewed Interest In Hahn/Hankook’s Stake

Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux

At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24.

WisdomTree Indexes Special Rebalance: ESG Considerations Dropped

WisdomTree has dropped ESG considerations while selecting stocks for the EMXSOE, CHXSOE and WTEMXC indices.
That results in a lot of inclusions and fewer deletions across indices that will be implemented at the close on 15 March.
The round-trip trade across the indices will exceed US$500m with Tencent (700 HK) as the largest buy.

MV US Listed Semiconductor 25 Index Rebalance: Over US$1bn to Sell in NVIDIA

There are no constituent changes for the VanEck Vectors Semiconductor (SMH US) ETF in March but there are a lot of float and capping changes.
Taiwan Semiconductor (TSMC) – ADR (TSM US) is the largest buy while capping results in NVIDIA Corp (NVDA US) being the largest sell by far.
Estimated one-way turnover is 8.3% resulting in a round-trip trade of nearly US$3bn. There are a few stocks with more than 0.2x ADV to trade.

MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade

Emerald Resources Nl (EMR AU) will be added to the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in March while there are 3 deletions for the index.
The constituent changes along with float and capping changes result in an estimated one-way turnover of 6.4% and a one-way trade of US$263m.
There are 9 stocks with more than US$10m to trade and 9 stocks with over 2x ADV to trade.

Nippon Express (9147 JP) – Buying the Overhang

The Offering priced today at ¥7,338/share vs ¥8,039/share traded at the close on the day of the announcement. That’s an 8.7% discount for no dilution.
Compared to a broad basket of Peer Baskets (yes, a basket of baskets), the stock has underperformed by 4.2%, and the 3% discount today puts it at 7+% move.
Given the relative cheapness, one should be comfortable putting this on if it gets sold off. This is not different to my initial opinion.

MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow

There are no constituent changes for the MVIS Australia Equal Weight Index at the March rebalance.
Float and capping changes will result in a one-way turnover of 4.4% and in a round-trip trade of A$195m.
We had Lendlease Group (LLC AU), IDP Education (IEL AU) and nib holdings (NHF AU) as close deletes and they will now have inflows due to capping.

CIMC Vehicles (1839 HK): Min Acceptance Condition a Risk for the Final HK$7.50 Offer

CIMC Vehicle Group Co Ltd (1839 HK) announced the H Share buyback offer, excluding CIMC’s shares, is at HK$7.50, a 16.5% premium to the undisturbed price. The offer is final.
The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection) along with a 90% minimum acceptance condition.
Excluding the irrevocables, the 90% threshold requires an independent H Shareholder acceptance rate of 77.7%, which could be challenging due to a light offer. Risk/reward unfavourable.

Yaizu Suisankagaku Industry (2812 JP): 3D Succeeds in Securing a Bump to JPY1,438

Inaba has bumped its Yaizu Suisankagaku Industry (2812 JP) offer by 6.5% to JPY1,438 and lowered the minimum number of shares to be purchased from 66.67% to 60.00% ownership ratio.
The bump was forced by 3D Investment Partners increasing its shareholding from 9.78% to 13.81% ownership ratio after the previous JPY1,350 offer was announced on 5 February.
While the offer continues to value YSK below book value, Murakami and 3D’s support paves the way for completion. At the last close, the gross spread was 7.1%.

CIMC (1839 HK): Firm Offer. With A Bump!

Back on the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a paltry 8.6% premium to last close.
This Scheme-like Offer, with a tendering condition, secured SAFE approval late January. But last month CIMC announced a CBP investigation into the evasion of U.S. anti-dumping and countervailing duties.
Now CIMC has announced a firm Offer at HK$7.50/share. Terms are final. The majority of independent H-shareholders are supportive. This looks done. Possible completion late-May, early-June.

On A Charge: Hanon Systems & Renewed Interest In Hahn/Hankook’s Stake

Back in 2004, Hahn & Co and Hankook Tire (161390 KS) acquired a 70% stake in Hanon Systems (018880 KS) from Visteon (VC US), an automotive electronics supplier, for ₩3.8tn.
Three years ago, Hahn/Hankook explored the sale of this 70% stake, which was expected to fetch ~₩8tn (US$7bn). Reportedly, Carlyle, TPG, Bain and auto supplier Mahle submitted preliminary bids.
That 70% stake is now worth ₩2.3tn. And reportedly, Carlyle has returned to the trough.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 11

Most Read: Shenzhen New Industries Biomedical Engineering-A, Dai Nippon Printing, NVIDIA Corp, ZOZO Inc, Tencent, Emerald Resources Nl, IDP Education, Shinko Electric Industries, TSE Tokyo Price Index TOPIX, Softbank Group and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux
MV US Listed Semiconductor 25 Index Rebalance: Over US$1bn to Sell in NVIDIA
Index Rebalance & ETF Flow Recap: NKY, ASX, CSI300, A50, STTF, LowVol30, Value Up
WisdomTree Indexes Special Rebalance: ESG Considerations Dropped
MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade
MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow
Merger Arb Mondays (11 Mar) – Shinko, JSR, Azure, Genex, OreCorp, Hollysys, CPMC, Vinda
EQD | A Systematic Look at the Post Earnings Announcement Drift Across Asia
ECM Weekly (11th Mar 2024) – Oriental Land, ARM, Tuhu, Wiwynn, Macrotech, Zomato, Trial Holding

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows

With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.

Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux

At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24.

MV US Listed Semiconductor 25 Index Rebalance: Over US$1bn to Sell in NVIDIA

There are no constituent changes for the VanEck Vectors Semiconductor (SMH US) ETF in March but there are a lot of float and capping changes.
Taiwan Semiconductor (TSMC) – ADR (TSM US) is the largest buy while capping results in NVIDIA Corp (NVDA US) being the largest sell by far.
Estimated one-way turnover is 8.3% resulting in a round-trip trade of nearly US$3bn. There are a few stocks with more than 0.2x ADV to trade.

Index Rebalance & ETF Flow Recap: NKY, ASX, CSI300, A50, STTF, LowVol30, Value Up

There were a few rebalance announcements in the last week and the SSE STAR50 (STAR50 INDEX) and STAR100 Index rebalances were implemented at the close on Friday.
There are a lot of rebalances that will be implemented at the close on the coming Thursday and Friday.
Another big week of inflows for onshore China ETFs with Central Huijin likely behind the big flows to ETFs tracking the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).

WisdomTree Indexes Special Rebalance: ESG Considerations Dropped

WisdomTree has dropped ESG considerations while selecting stocks for the EMXSOE, CHXSOE and WTEMXC indices.
That results in a lot of inclusions and fewer deletions across indices that will be implemented at the close on 15 March.
The round-trip trade across the indices will exceed US$500m with Tencent (700 HK) as the largest buy.

MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade

Emerald Resources Nl (EMR AU) will be added to the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in March while there are 3 deletions for the index.
The constituent changes along with float and capping changes result in an estimated one-way turnover of 6.4% and a one-way trade of US$263m.
There are 9 stocks with more than US$10m to trade and 9 stocks with over 2x ADV to trade.

MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow

There are no constituent changes for the MVIS Australia Equal Weight Index at the March rebalance.
Float and capping changes will result in a one-way turnover of 4.4% and in a round-trip trade of A$195m.
We had Lendlease Group (LLC AU), IDP Education (IEL AU) and nib holdings (NHF AU) as close deletes and they will now have inflows due to capping.

Merger Arb Mondays (11 Mar) – Shinko, JSR, Azure, Genex, OreCorp, Hollysys, CPMC, Vinda

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: APM Human Services Internation (APM AU), Probiotec Ltd (PBP AU), Genex Power Ltd (GNX AU), China Traditional Chinese Medicine (570 HK), Genetron Holdings Ltd (GTH US).
Lowest spreads: Tietto Minerals Ltd (TIE AU), CIMC Vehicle Group Co Ltd (1839 HK), Pact Group Holdings (PGH AU), CPMC Holdings (906 HK), Payroll (4489 JP), Welbe Inc (6556 JP).

EQD | A Systematic Look at the Post Earnings Announcement Drift Across Asia

By Nicholas Pezolano

A cross-country study on the post earning announcement drift effect.
We explore the use of various options-implied analytics to systematically view returns around earnings announcements.
Options-Implied Analytics can provide empowering information to better inform investment decisions.

ECM Weekly (11th Mar 2024) – Oriental Land, ARM, Tuhu, Wiwynn, Macrotech, Zomato, Trial Holding

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, Trial Holdings (5882 JP) was hoping for better luck with its listing this time around.
For placements, it was a very busy week for a change with most regions, apart from Hong Kong, chipping in.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 10

Most Read: Yankuang Energy Group, Flight Centre Travel, DearU, Shenzhen New Industries Biomedical Engineering-A, Abacus Storage King, IDP Education, Hanon Systems, Nippon Express Holdings, Tencent, Keisei Electric Railway Co and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Index Rebalance & ETF Flow Recap: STAR50/100, FXI, NIFTY/NEXT50, S&P500, KOSPI, Goodman, Ecopro BM
S&P/ASX Index Rebalance (Mar 2024): Changes, Flows, Impact, Shorts & Positioning
KRX BBIG K-New Deal Rebalancing: Official Results & Passive Flow Impacts
CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
MVIS Australia A-REITs Index Rebalance Preview: One Deletion & Capping Changes
MVIS Australia Equal Weight Index Rebalance Preview: Three Close Deletions
Local Observations on Carlyle’s Possible Buyout of Hanon Systems
Nippon Express (9147 JP): The Current Playbook
[Tencent (700 HK, BUY, TP HK$362) TP Change]: Core Business Is Robust While VA Is Expanding Fast
Last Week in Event SPACE: Keisei Electric, New World Development, Alumina Ltd, Azure Minerals, TDCX

Index Rebalance & ETF Flow Recap: STAR50/100, FXI, NIFTY/NEXT50, S&P500, KOSPI, Goodman, Ecopro BM

The last week was a very busy one. The coming week has some announcements and implementations but is a relatively quieter one.
The SSE STAR50 (STAR50 INDEX) and STAR100 Index changes for March will be implemented at the close on Friday, the 8th.
Another week of inflows for the iShares Emerging Markets ex-China (EMXC US) ETF as creations cross US$2bn for 2024. ETF AUM has gone from US$420m in 2021 to US$11bn now!

S&P/ASX Index Rebalance (Mar 2024): Changes, Flows, Impact, Shorts & Positioning

There is 1 change for the S&P/ASX20 Index, 2 changes for the S&P/ASX100 Index, 4 changes for the S&P/ASX200 INDEX and 14 adds/10 deletes for the S&P/ASX300 Index in March.
The largest impact is expected on the changes to the S&P/ASX 200 (AS51 INDEX) while flows are large among changes to the S&P/ASX 20 Index and S&P/ASX 100 Index too.
There has been a steady increase in cumulative excess volume for most stocks but there are a few where there has been a spike recently.

KRX BBIG K-New Deal Rebalancing: Official Results & Passive Flow Impacts

After results were transitioned to non-public information, it has been observed that results are reflected in prices significantly later, with substantial price impact occurring close to the rebalancing trading day.
Even though the AUMs have recently decreased, the passive impact size is quite substantial, considering a recent pattern of price impact concentrating within a maximum of about two trading days.
A heavy Long-Short setup on these pairs, DearU / Douzone Bizon and SK Biopharmaceuticals / SK Bioscience (302440 KS), is something we should very actively consider.

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows

With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.

MVIS Australia A-REITs Index Rebalance Preview: One Deletion & Capping Changes

With the review period for the March rebalance complete, Abacus Storage King (ASK AU) could be deleted from the index and there will be capping changes.
The index changes will lead to a one-way turnover of 3.6% resulting in a one-way trade of A$21m. There are three stocks with over A$4m to trade.
Goodman Group (GMG AU) is an inclusion to a global index in March and that buying will far outweigh the selling from the Vaneck Vectors Australian Property ETF (MVA AU).

MVIS Australia Equal Weight Index Rebalance Preview: Three Close Deletions

With the review period complete, there are 3 stocks that are close to the deletion zone and could be removed from the index at the March rebalance.
Even if there are no constituent changes, capping changes will lead to one-way turnover of 4.4% and a one-way trade of A$97m.
There are 9 stocks with over A$5m to trade from passive trackers but the impact on the stocks is not very high.

Local Observations on Carlyle’s Possible Buyout of Hanon Systems

Carlyle’s renewed interest in acquiring Hanon Systems is evident from recent local market news, indicating outreach to bankers for a potential buyout, as confirmed by a local brokerage.
Carlyle eyes majority control of Hanon Systems, targeting 50.5% from Hahn & Co and 19.5% from Hankook Tire. Carlyle may extend a tender offer for the remaining 30%.
Still early stages; no solid info on deal certainty or specifics. Limited immediate trading opportunities, but worth monitoring as it progresses.

Nippon Express (9147 JP): The Current Playbook

Since the US$260 million secondary placement announcement, Nippon Express Holdings (9147 JP) shares are down 5.3% from the undisturbed price of JPY8,039 per share (1 March).
Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Nippon Express shares have followed the pattern of previous large placements.
The offering will likely be priced on 11 March. Investors who have participated in previous large Japanese placements tend to secure positive returns.

[Tencent (700 HK, BUY, TP HK$362) TP Change]: Core Business Is Robust While VA Is Expanding Fast

By Ying Pan

We expect Tencent to report C4Q23 revenue, IFRS op. profit and IFRS net income in line, (3.3%) and (4.9%) vs. consensus.
The robust topline growth was mainly contributed by fast growing WeChat VA (Video Account) and strong performances of <Dream Star> in December.
We cut our TP to HK$362 to reflect operating margin decline caused by increased sales and marketing.

Last Week in Event SPACE: Keisei Electric, New World Development, Alumina Ltd, Azure Minerals, TDCX

Keisei Electric Railway Co (9009 JP) places out 1% of Oriental Land (4661 JP), but rejects lowering its stake to 15%. That is the end of the near-term catalyst.
New World Development (17 HK) popped after property cooling measures were scrapped. Then gave those gains back. And then some, and is now trading at 0.11x P/B, its lowest-ever level.
The spreads for both Alumina Ltd (AWC AU) and Azure Minerals (AZS AU) are trading wide; both potentially FIRB-related.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 09

Most Read: Keisei Electric Railway Co, Shinko Electric Industries, JSR Corp, Shenzhen New Industries Biomedical Engineering-A, InterGlobe Aviation Ltd, Taiwan Semiconductor (TSMC), Abacus Storage King, Paradise Co Ltd, Hanon Systems, Nippon Express Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door”
Shinko Electric (6967) – Break/Gap Risk Is Considerably Changed Now
JSR (4185) – Reporters Reportedly Report Conditions Such That JIC Deal Could Come Soon
CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
Interglobe Aviation (Indigo) Lockup – Still Has US$3bn+ Stake Left, After Three Prior Selldowns
Emerging Markets Ex-China: Looking Back… And Forward
MVIS Australia A-REITs Index Rebalance Preview: One Deletion & Capping Changes
Paradise Announces A Switch in Listing from KOSDAQ to KOSPI
Local Observations on Carlyle’s Possible Buyout of Hanon Systems
Nippon Express (9147 JP): The Current Playbook

Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door”

Over two decades, Keisei Electric Railway Co (9009 JP) has been the subject of softer and harder activist efforts to have Keisei monetise its stake in affiliate Oriental Land (4661).
The most recent efforts were by Palliser last fall, briefly discussed here two weeks ago when Keisei announced a buyback.
Today, Keisei announced (Japanese only) an Accelerated Block Offering of 1% of Oriental Land shares. The accompanying announcement is worth reading. It’s pretty clear.

Shinko Electric (6967) – Break/Gap Risk Is Considerably Changed Now

Seven weeks ago I wrote about Shinko Electric Industries (6967 JP)‘s changing Break/Gap Risk as comps had gained. Shinko was cheap to its main comp and peers vs Announcement Date.
Since then, Shinko is +4.1% and direct peer Ibiden Co Ltd (4062 JP) is -14.5%. This has erased Shinko’s underperformance since announcement, and shrunk a 9% spread to 3.3% yesterday.
With the spread tighter and tech showing some weakness, I’d be happy unwinding at yesterday’s closing spread (3.3%).

JSR (4185) – Reporters Reportedly Report Conditions Such That JIC Deal Could Come Soon

JSR Corp (4185 JP) saw its stock pop Monday when an article in a Japanese paper said the Tender Offer would start “within the month.”
Investors went from “concerned about delay or worse” to “anticipating resolution.” Then Wednesday just before the close the stock popped as media outlets reportedly reported no SAMR approval was required.
There has been no comment from either JIC or JSR but the discount to terms has gone from 6.9% last Friday to a 1.7% discount now.

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows

With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.

Interglobe Aviation (Indigo) Lockup – Still Has US$3bn+ Stake Left, After Three Prior Selldowns

InterGlobe Aviation Ltd (INDIGO IN)’s co-founder Rakesh Gangwal’s 25%+ stake will be released from lock-up tomorrow.
He had earlier stated his intention to pare down his stake. He has sold shares in Sep 2022, Feb 2023 and Aug 2023.
In this note, we will talk about the lockup dynamics and possible placement.

Emerging Markets Ex-China: Looking Back… And Forward

We first wrote about the iShares Emerging Markets ex-China (EMXC US) ETF 3 years ago when AUM was less than US$500m. AUM now stands at US$11bn.
IShares Emerging Markets ex-China (EMXC US) has outperformed iShares Emerging Markets (EEM US) and iShares Emerging Markets Asia (EEMA US) with lower volatility and a lower drawdown.
With the Chinese economy misfiring and markets under pressure, we could see a further shift in positioning away from China and that means inflows to other Emerging Markets.

MVIS Australia A-REITs Index Rebalance Preview: One Deletion & Capping Changes

With the review period for the March rebalance complete, Abacus Storage King (ASK AU) could be deleted from the index and there will be capping changes.
The index changes will lead to a one-way turnover of 3.6% resulting in a one-way trade of A$21m. There are three stocks with over A$4m to trade.
Goodman Group (GMG AU) is an inclusion to a global index in March and that buying will far outweigh the selling from the Vaneck Vectors Australian Property ETF (MVA AU).

Paradise Announces A Switch in Listing from KOSDAQ to KOSPI

On 7 March, Paradise Co Ltd (034230 KS) announced that it plans to switch its listing from KOSDAQ to KOSPI.
Paradise will be excluded from KOSDAQ150 when it makes the switch to KOSPI. However, it is not certain if and when the company will be included in KOSPI200.
All in all, we would argue that the valuations are not especially appealing for Paradise, despite the sharp pick-up in business in 2023.

Local Observations on Carlyle’s Possible Buyout of Hanon Systems

Carlyle’s renewed interest in acquiring Hanon Systems is evident from recent local market news, indicating outreach to bankers for a potential buyout, as confirmed by a local brokerage.
Carlyle eyes majority control of Hanon Systems, targeting 50.5% from Hahn & Co and 19.5% from Hankook Tire. Carlyle may extend a tender offer for the remaining 30%.
Still early stages; no solid info on deal certainty or specifics. Limited immediate trading opportunities, but worth monitoring as it progresses.

Nippon Express (9147 JP): The Current Playbook

Since the US$260 million secondary placement announcement, Nippon Express Holdings (9147 JP) shares are down 5.3% from the undisturbed price of JPY8,039 per share (1 March).
Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Nippon Express shares have followed the pattern of previous large placements.
The offering will likely be priced on 11 March. Investors who have participated in previous large Japanese placements tend to secure positive returns.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 08

Most Read: Keisei Electric Railway Co, Fast Retailing, Oriental Land, Shenzhen New Industries Biomedical Engineering-A, JSR Corp, Shinko Electric Industries, Taiwan Semiconductor (TSMC), Wiwynn Corp and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door”
Sep24 Nikkei 225 Rebal – 2 ADDs, 2 DELETEs Maybe, but Rebals Tougher, and Fastie+TEL Are the FUN
StubWorld: Keisei Electric Appears Stretched Amid Latest Buyback
Oriental Land Co Placement – Relatively Small One to Digest, Overhang Might Not Be as Large
CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
JSR (4185) – Reporters Reportedly Report Conditions Such That JIC Deal Could Come Soon
Shinko Electric (6967) – Break/Gap Risk Is Considerably Changed Now
Emerging Markets Ex-China: Looking Back… And Forward
JSR Corporation (4185 JP): Response to SUNY RF Lawsuit and Rumours of SAMR Approval
Wiwynn GDRs Early Look – US$1.3bn Taiwan GDR Would Be Easily Digested

Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door”

Over two decades, Keisei Electric Railway Co (9009 JP) has been the subject of softer and harder activist efforts to have Keisei monetise its stake in affiliate Oriental Land (4661).
The most recent efforts were by Palliser last fall, briefly discussed here two weeks ago when Keisei announced a buyback.
Today, Keisei announced (Japanese only) an Accelerated Block Offering of 1% of Oriental Land shares. The accompanying announcement is worth reading. It’s pretty clear.

Sep24 Nikkei 225 Rebal – 2 ADDs, 2 DELETEs Maybe, but Rebals Tougher, and Fastie+TEL Are the FUN

Now that the March 2024 Nikkei 225 Rebalance is decided, we have a model for the Sep 2024 Review. As previously discussed on Smartkarma, actual name changes get tough now.
As of now, there should be two ADDs and two DELETEs. They might not occur. But there are two other situations which create interesting dynamics around big names.
The dynamics of Fast Retailing and Tokyo Electron promise more fun than the actual name changes in September 2024. It impacts how you trade Nikkei vs TOPIX and tech internals.

StubWorld: Keisei Electric Appears Stretched Amid Latest Buyback

Keisei Electric (9009 JP) has been an outperformer since activist fund Palliser Capital called on the company sell some Oriental Land (4661 JP) shares. It has now announced another buyback.
Preceding my comments on Keisei Electric are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Oriental Land Co Placement – Relatively Small One to Digest, Overhang Might Not Be as Large

By Clarence Chu

Keisei Electric Railway Co (9009 JP) is looking to raise up to US$553m from selling a 1% stake in Oriental Land (4661 JP).
Palliser Capital, has been pushing Keisei Electric Railway to reduce its stake in OLC to unlock shareholder value owing to the wide discrepancy between carrying/market value of the former’s investment.
Selling just 1% of shares outstanding, the deal wouldn’t be a very large one to digest, representing 4.7 days of OLC’s three month ADV.

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows

With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.

JSR (4185) – Reporters Reportedly Report Conditions Such That JIC Deal Could Come Soon

JSR Corp (4185 JP) saw its stock pop Monday when an article in a Japanese paper said the Tender Offer would start “within the month.”
Investors went from “concerned about delay or worse” to “anticipating resolution.” Then Wednesday just before the close the stock popped as media outlets reportedly reported no SAMR approval was required.
There has been no comment from either JIC or JSR but the discount to terms has gone from 6.9% last Friday to a 1.7% discount now.

Shinko Electric (6967) – Break/Gap Risk Is Considerably Changed Now

Seven weeks ago I wrote about Shinko Electric Industries (6967 JP)‘s changing Break/Gap Risk as comps had gained. Shinko was cheap to its main comp and peers vs Announcement Date.
Since then, Shinko is +4.1% and direct peer Ibiden Co Ltd (4062 JP) is -14.5%. This has erased Shinko’s underperformance since announcement, and shrunk a 9% spread to 3.3% yesterday.
With the spread tighter and tech showing some weakness, I’d be happy unwinding at yesterday’s closing spread (3.3%).

Emerging Markets Ex-China: Looking Back… And Forward

We first wrote about the iShares Emerging Markets ex-China (EMXC US) ETF 3 years ago when AUM was less than US$500m. AUM now stands at US$11bn.
IShares Emerging Markets ex-China (EMXC US) has outperformed iShares Emerging Markets (EEM US) and iShares Emerging Markets Asia (EEMA US) with lower volatility and a lower drawdown.
With the Chinese economy misfiring and markets under pressure, we could see a further shift in positioning away from China and that means inflows to other Emerging Markets.

JSR Corporation (4185 JP): Response to SUNY RF Lawsuit and Rumours of SAMR Approval

JSR Corp (4185 JP) has filed a solid response to SUNY RF’s lawsuit. SUNY RF will counter with a response by 13 March.
The response suggests that SUNY RF’s lawsuit will not be harmed if JIC proceeds with TOB, which is the strongest indication that JIC is comfortable taking on the litigation risk.
A media article stating that SAMR has allowed JIC to withdraw its merger control filing helps explain the current tight spread. However, the article needs to be treated with caution.

Wiwynn GDRs Early Look – US$1.3bn Taiwan GDR Would Be Easily Digested

By Clarence Chu

Wiwynn Corp (6669 TT) is looking to raise up to US1.3bn in its upcoming global depository receipts (GDRs) offering.
Wiwynn recently reported its board’s resolution to issue up to 17m new shares in the form of GDRs for purchasing overseas raw materials, debt repayment, investing overseas and others.
Similar to previous GDR listings, the deal is a long drawn out process with the firm required to jump through a number of board/shareholder/regulatory approval loops.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 07

Most Read: Woori Financial Group , Alumina Ltd, Titan Co Ltd, Fast Retailing, New World Development, IDP Education, ARM Holdings, Kumho Petro Chemical, Shenzhen New Industries Biomedical Engineering-A, Shinhan Financial and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Investigating Potential Block Deals Involving Korea’s Financial Holding Companies
Alumina (AWC AU): Further Thoughts on Alcoa’s Proposal
NIFTY100 Low Volatility 30 Index Rebalance Preview: Titan Could Replace IOCL
Sep24 Nikkei 225 Rebal – 2 ADDs, 2 DELETEs Maybe, but Rebals Tougher, and Fastie+TEL Are the FUN
StubWorld: Troubling Signs For NWD (17 HK)
MVIS Australia Equal Weight Index Rebalance Preview: Three Close Deletions
ARM Holdings IPO Lock-Up Expiry – A US$127bn Lockup Release Might Be Too Tempting to Pass On
Interpreting Kumho Petro Chemical’s Unexpected Move to Cancel Treasury Shares
CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
Shinhan Financial Group Placement – Recent Selldowns Have Held up Since, Momentum Is Strong as Well

Investigating Potential Block Deals Involving Korea’s Financial Holding Companies

Stake sales by Affinity and Bearing PE are attractive due to the absence of special partnerships with Shinhan Financial Group, indicating favorable exit potential at current stock prices.
KB Financial draws attention due to Carlyle’s ₩240B EB investment in 2020. Carlyle can now convert to shares at ₩48,000/share, yielding 37.08%.
Woori Financial is intriguing. IMM PE and Eugene PE hold stakes, investing ₩450B and ₩386B respectively. Their yields are 32.55% and 10.45% respectively. No constraints on divestment.

Alumina (AWC AU): Further Thoughts on Alcoa’s Proposal

I have received several questions from readers on Alcoa (AA US)’s non-binding proposal for Alumina Ltd (AWC AU) in the context of the current gross spread of 9.2%.
The questions primarily concerned Citic Resources Holdings (1205 HK) voting intentions, the probability of a bump and the likelihood of Aloca shareholders supporting the transaction.
CITIC Resources’ lack of public endorsement of the transaction is due to HKEx listing requirements and not an indication of a NO vote risk.

NIFTY100 Low Volatility 30 Index Rebalance Preview: Titan Could Replace IOCL

With the review period complete, Titan Co Ltd (TTAN IN) should replace Indian Oil Corp (IOCL IN) in the Nifty100 Low Volatility 30 Index at the close on 27 March.
Constituent changes, volatility changes and capping changes will result in one-way turnover of 13.2% resulting in a one-way trade of INR 4.2bn.
The flows on the stocks are not very large but there will be same side and offsetting flows from other index trackers at the same time.

Sep24 Nikkei 225 Rebal – 2 ADDs, 2 DELETEs Maybe, but Rebals Tougher, and Fastie+TEL Are the FUN

Now that the March 2024 Nikkei 225 Rebalance is decided, we have a model for the Sep 2024 Review. As previously discussed on Smartkarma, actual name changes get tough now.
As of now, there should be two ADDs and two DELETEs. They might not occur. But there are two other situations which create interesting dynamics around big names.
The dynamics of Fast Retailing and Tokyo Electron promise more fun than the actual name changes in September 2024. It impacts how you trade Nikkei vs TOPIX and tech internals.

StubWorld: Troubling Signs For NWD (17 HK)

Despite the lifting of the “spicy” property cooling measures last week, New World Development (17 HK) has plumbed fresh P/B lows after a (very) brief respite.
Preceding my comments on NWD are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

MVIS Australia Equal Weight Index Rebalance Preview: Three Close Deletions

With the review period complete, there are 3 stocks that are close to the deletion zone and could be removed from the index at the March rebalance.
Even if there are no constituent changes, capping changes will lead to one-way turnover of 4.4% and a one-way trade of A$97m.
There are 9 stocks with over A$5m to trade from passive trackers but the impact on the stocks is not very high.

ARM Holdings IPO Lock-Up Expiry – A US$127bn Lockup Release Might Be Too Tempting to Pass On

Softbank raised around US$4.9bn via selling some of its stake in ARM Holdings (ARM US)’ US IPO. Its remaining 90% stake will be released from its IPO linked lockup soon.
ARM develops and licenses high-performance, low-cost, and energy-efficient CPU products and related technology, which is used by semiconductor companies and OEMs to develop their own products.
In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

Interpreting Kumho Petro Chemical’s Unexpected Move to Cancel Treasury Shares

Kumho Petro Chemical (011780 KS) intends to retire 50% of its common shares, totaling 2,624,417 shares, starting from the 2024 fiscal year until the 2026 fiscal year.
With the annual general meeting nearing, NPS hasn’t revealed its support, causing unease for Park Chan-gu. Considering NPS’s obligation to the Value-Up policy, cancellation seems inevitable for Park Chan-gu.
Whether the battle persists hinges on NPS’s stance. If NPS backs Park Chan-gu, their stake surpassing 25% could deter the opposition’s financial strength. Conversely, NPS’s neutrality could escalate the battle.

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows

With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.

Shinhan Financial Group Placement – Recent Selldowns Have Held up Since, Momentum Is Strong as Well

By Clarence Chu

EQT (EQT SS) , via Supreme, is looking to raise US$311m from selling its stake in Shinhan Financial (055550 KS).
Momentum on the stock has been strong over the past few months, and the recent selldowns in the stock have held up by the end of the week.
The share sale here will be a cleanup one, and a small one to digest at just 5.3 days of ADV.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 06

Most Read: Socionext, ZOZO Inc, EcoPro Materials, Kakaopay , Titan Co Ltd, Vinda International, CELSYS, Alumina Ltd, Abacus Storage King, Celltrion Inc and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
Nikkei 225 Index Rebalance: DISCO, Socionext, ZOZO In; PacMetals, Sumitomo Osaka, Takara Holding Out
May Lockup Release & April SSF Listing May Lead to Weird Trading Dynamics for Ecopro Materials
Block Deal Sale of 2.2% of Kakao Pay by Alipay
NIFTY100 Low Volatility 30 Index Rebalance Preview: Titan Could Replace IOCL
Vinda (3331 HK): That’s A Wrap As Pre-Cons Done
TOPIX Inclusions: Who Is Ready (Mar 2024)
Alumina (AWC AU): Further Thoughts on Alcoa’s Proposal
MVIS Australia A-REITs Index Rebalance Preview: One Deletion & Capping Changes
Locals Driving Corporate Reforms and 10 Korean Companies Recently Announcing Share Cancellations

Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks

The changes to the Nikkei 225 Average for the March 2024 Review were announced today after the close. A little earlier than I expected.
Socionext, Disco, Zozo IN; Takara Hldgs, Sumi Osaka Cement, Pacific Metals OUT. Nitori PAF increase. US$4bn+ to trade one way on 29Mar close. One interesting surprise.
Overall more impactful than it looks. And it changes the front-end arithmetic on Fast Retailing (9983 JP). There may be fun on the DELETEs.

Nikkei 225 Index Rebalance: DISCO, Socionext, ZOZO In; PacMetals, Sumitomo Osaka, Takara Holding Out

DISCO (6146 JP), Socionext (6526 JP) and ZOZO (3092 JP) will replace Takara Holdings (2531 JP), Sumitomo Osaka Cement (5232 JP) and Pacific Metals (5541 JP) in the Nikkei 225.
Nitori Holdings (9843 JP)‘s PAF will increase from 0.3 to 0.5, and surprisingly there is no PAF adjustment for ZOZO Inc (3092 JP).
Passive trackers need to buy between 1-18 days of ADV on the adds while selling between 2.7-28 days of ADV on the deletes. There is a big funding trade too.

May Lockup Release & April SSF Listing May Lead to Weird Trading Dynamics for Ecopro Materials

May 17th, all eyes on EcoPro Materials for a buzzed-about lockup release. BRV Capital holds 24.5% stake, 17M shares. Lockup ends May 16th; they’re free to sell off without constraints.
Apparently, they’re eager to cash out, with a profit margin around 30 times and 7 years invested. Many at Yeouido bet they’ll sell out once the lockup’s over.
We might start building a shorting position with futures targeting this lockup release from April 22nd. This could stir up some weird backwardation, which could give us another trading opportunity.

Block Deal Sale of 2.2% of Kakao Pay by Alipay

After the market close on 5 March, it was reported that Alipay will sell a 2.2% stake (2.95 million shares) in Kakaopay (377300 KS) in a block deal sale.
A key component of this block deal sale is that there will be a lock up period of 90 days post the sale date.
We would avoid this block deal sale. There is a high probability of Kakao Pay’s share price falling below the block deal price of 38,380 won after 90 days.

NIFTY100 Low Volatility 30 Index Rebalance Preview: Titan Could Replace IOCL

With the review period complete, Titan Co Ltd (TTAN IN) should replace Indian Oil Corp (IOCL IN) in the Nifty100 Low Volatility 30 Index at the close on 27 March.
Constituent changes, volatility changes and capping changes will result in one-way turnover of 13.2% resulting in a one-way trade of INR 4.2bn.
The flows on the stocks are not very large but there will be same side and offsetting flows from other index trackers at the same time.

Vinda (3331 HK): That’s A Wrap As Pre-Cons Done

On the 15 December 2023, the Tanoto family emerged with a HK$23.50 pre-conditional Offer for Vinda (3331 HK). PRC regulatory approval to one side, this Offer was a done deal.
Those regulatory approvals have now been satisfied. The Composite Doc will be dispatched on or before the 11th March, at which time the Offer will be open for acceptances.
With a 50% minimum acceptance condition and irrevocables of 72.624% (plus Tanoto’s 7.69% direct stake), this should turn unconditional on or before the 20th March

TOPIX Inclusions: Who Is Ready (Mar 2024)

By Janaghan Jeyakumar, CFA

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
There were no Section Transfers announced in January or February so currently there are no live TOPIX Inclusion events but there are some pre-event names to be monitored closely.
The upcoming TOPIX flows in end-April 2024 will be more complicated than the other quarterly rebalances as there will be more flows due to the annual liquidity factor review.

Alumina (AWC AU): Further Thoughts on Alcoa’s Proposal

I have received several questions from readers on Alcoa (AA US)’s non-binding proposal for Alumina Ltd (AWC AU) in the context of the current gross spread of 9.2%.
The questions primarily concerned Citic Resources Holdings (1205 HK) voting intentions, the probability of a bump and the likelihood of Aloca shareholders supporting the transaction.
CITIC Resources’ lack of public endorsement of the transaction is due to HKEx listing requirements and not an indication of a NO vote risk.

MVIS Australia A-REITs Index Rebalance Preview: One Deletion & Capping Changes

With the review period for the March rebalance complete, Abacus Storage King (ASK AU) could be deleted from the index and there will be capping changes.
The index changes will lead to a one-way turnover of 3.6% resulting in a one-way trade of A$21m. There are three stocks with over A$4m to trade.
Goodman Group (GMG AU) is an inclusion to a global index in March and that buying will far outweigh the selling from the Vaneck Vectors Australian Property ETF (MVA AU).

Locals Driving Corporate Reforms and 10 Korean Companies Recently Announcing Share Cancellations

In a recent discussion with a client, one of the questions that was raised was regarding the impact the local investors are having on the corporate governance reforms in Korea.
The number of local investors in the Korean stock market has jumped in the past few years from 5.3 million in 2017 to 14.4 million in 2022.
All in all, I think Korea is about 3-5 years behind Japan in various corporate governance reforms. So it has a lot of catching up to do.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 05

Most Read: TSE Tokyo Price Index TOPIX, Air Lease Corp, Korea Stock Exchange Kospi Index, Socionext, Chongqing Taiji Industry (Group) A, ZOZO Inc, JSR Corp, Trial Holdings, SK Hynix and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

JAPAN FLOW: Foreigners Vs Cross-Holding Unwinds Vs Buybacks Vs Pensions
S&P 500/400/600 Index Rebal – It’s Not The Trade You Think
Korea Value-Up Index: Probable Constituents & Impact of NPS’ US$8.2bn Allocation
Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
Will China TCM (570.HK) Be Incorporated into Taiji Group (600129.CH)? –If Yes, Valuation Will Double
Nikkei 225 Index Rebalance: DISCO, Socionext, ZOZO In; PacMetals, Sumitomo Osaka, Takara Holding Out
JSR Corporation (4185 JP): Something Is Brewing, but Nobody Knows Quite What
Trial Holdings IPO: Valuation Thoughts
Why HBM is the Hottest Thing in Memory
Trial Holdings IPO – Not Wholly Convinced but a Strong Market Should Help

JAPAN FLOW: Foreigners Vs Cross-Holding Unwinds Vs Buybacks Vs Pensions

For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to One (relatively) Simple Indicator.
Foreigners have a lot of ammunition left. But cross-holding unwinds are picking up, and buybacks are too, and dividend reinvestments are smaller than public pension selling. Which way next?

S&P 500/400/600 Index Rebal – It’s Not The Trade You Think

On Friday after the close, the S&P DJI Index Committee announced changes to the S&P 100, S&P500, S&P MidCap400, and S&P SmallCap600. Changes happen at the close 15 March 2024.
Super Micro Computer (SMCI US) and Deckers Outdoor (DECK US) replace Zions Bancorporation (ZION US) and Whirlpool Corp (WHR US) in the S&P500. 2 changes to 400, 6 to 600.
The immediate reaction was to send SMCI up 12.5%. That’s shortsighted. It pays to count the pennies involved. There are a LOT of pennies.

Korea Value-Up Index: Probable Constituents & Impact of NPS’ US$8.2bn Allocation

Media reports indicate that the National Pension Service (NPS) could invest up to KRW 11tn (US$8.2bn) in a new index tracking stocks with low Price to Book ratios.
Filtering stocks with market cap higher than US$500m, ADTV of atleast US$1m, div yield of atleast 1.5% and Price to Book less than 1 throws up 94 potential index candidates.
Choosing an index of 50 stocks will require managers to buy between 1.7-3.4% of the float on the stocks. Increasing the number of constituents will reduce the impact.

Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks

The changes to the Nikkei 225 Average for the March 2024 Review were announced today after the close. A little earlier than I expected.
Socionext, Disco, Zozo IN; Takara Hldgs, Sumi Osaka Cement, Pacific Metals OUT. Nitori PAF increase. US$4bn+ to trade one way on 29Mar close. One interesting surprise.
Overall more impactful than it looks. And it changes the front-end arithmetic on Fast Retailing (9983 JP). There may be fun on the DELETEs.

Will China TCM (570.HK) Be Incorporated into Taiji Group (600129.CH)? –If Yes, Valuation Will Double

By Xinyao (Criss) Wang

In the past few years, a big problem of Taiji is weak performance/low valuation. The main purpose of mixed-ownership reform with CNPGC is to improve operational efficiency and enhance profitability.
CNPGC made a clear commitment to solve the horizontal competition issue. So, after the privatization of China TCM is completed, it’s worth noting whether it will be merged into Taiji.
2024 is expected to see Taiji launch new M&A deals, which would bring a qualitative leap for Taiji. Market value of Taiji is expected to at least double.

Nikkei 225 Index Rebalance: DISCO, Socionext, ZOZO In; PacMetals, Sumitomo Osaka, Takara Holding Out

DISCO (6146 JP), Socionext (6526 JP) and ZOZO (3092 JP) will replace Takara Holdings (2531 JP), Sumitomo Osaka Cement (5232 JP) and Pacific Metals (5541 JP) in the Nikkei 225.
Nitori Holdings (9843 JP)‘s PAF will increase from 0.3 to 0.5, and surprisingly there is no PAF adjustment for ZOZO Inc (3092 JP).
Passive trackers need to buy between 1-18 days of ADV on the adds while selling between 2.7-28 days of ADV on the deletes. There is a big funding trade too.

JSR Corporation (4185 JP): Something Is Brewing, but Nobody Knows Quite What

JSR Corp (4185 JP)’s shares rose 4.8% due to a Nikkan Kogyo article that states that JIC will start the tender within the month due to concluding negotiations with SAMR.
Caution is warranted as JSR has not provided a customary timeline update, no confirmatory disclosure from SAMR and JSR’s response to SUNY RF’s claims are yet to be filed.
Based on current information, there are five possible tender scenarios. In the worst case, the downside risk on a deal break should be muted due to the market re-rating.

Trial Holdings IPO: Valuation Thoughts

Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$236 million at the IPO reference price of JPY1,550 per share.
We previously discussed the IPO in Trial Holdings IPO: The Investment Case.
In this note, we discuss valuation. Our analysis suggests that Trial is attractively valued at the IPO reference price of JPY1,550. We would participate in the IPO.

Why HBM is the Hottest Thing in Memory

By Douglas O’Laughlin

Investing in semiconductors can be pretty simple if you let it be.
At a high level, I believe you want to invest in the secular at a decent price or invest in places where there are unwarranted dislocations.
Sometimes the entire ecosystem says one thing and the stocks say another. Usually, the ecosystem is right.

Trial Holdings IPO – Not Wholly Convinced but a Strong Market Should Help

Trial Holdings (5882 JP) (TH) is now looking to raise up to US$259m in its Japan IPO, after having canceled its prior listing attempt last year.
TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
We have looked at the company’s past performance in our previous notes. In this note, we talk about implied valuations in the IPO range.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Analytics and News
✓ Events & Webinars

Mar 04

Most Read: Nippon Express Holdings, TSE Tokyo Price Index TOPIX, Korea Stock Exchange Kospi Index, Yankuang Energy Group, Air Lease Corp, Flight Centre Travel, China Telecom (H), Great Wall Motor, Bizlink Holding and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Nippon Express (9147) Secondary Offering – Banks, Sompo, Others Sell – “2024 Problem” Looms
JAPAN FLOW: Foreigners Vs Cross-Holding Unwinds Vs Buybacks Vs Pensions
Korea Value-Up Index: Probable Constituents & Impact of NPS’ US$8.2bn Allocation
Index Rebalance & ETF Flow Recap: STAR50/100, FXI, NIFTY/NEXT50, S&P500, KOSPI, Goodman, Ecopro BM
S&P 500/400/600 Index Rebal – It’s Not The Trade You Think
S&P/ASX Index Rebalance (Mar 2024): Changes, Flows, Impact, Shorts & Positioning
HK Connect SOUTHBOUND Flows (To 1 Mar 2024); Continued Big Buys of SOEs (Getting Boring to Say This)
Nippon Express (9147 JP): A US$260 Million Secondary Offering
A/H Premium Tracker (To 1 Mar 2024): Liquid AH Premia Still Wide
Quiddity TDIV/50/100 Mar 24 Rebal: Disappointing Result but Trade Successful So Far; Bail Out Now!

Nippon Express (9147) Secondary Offering – Banks, Sompo, Others Sell – “2024 Problem” Looms

Today post-close, Nippon Express Holdings (9147 JP) announced a secondary offering. Total size is ~¥30bn before considering where it will price; 11-12 days of ADV, 4.6% of shares out.
Various banks, Toyota-related auto cos, and Sompo Japan will sell. This is a start to the unwind, but it is a very small portion of the total cross-holding position.
NX also announced an on-market buyback of up to ¥10bn to run from 11April -31July 2024. This, and index demand, mitigate some heaviness. But The 2024 Problem looms large.

JAPAN FLOW: Foreigners Vs Cross-Holding Unwinds Vs Buybacks Vs Pensions

For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to One (relatively) Simple Indicator.
Foreigners have a lot of ammunition left. But cross-holding unwinds are picking up, and buybacks are too, and dividend reinvestments are smaller than public pension selling. Which way next?

Korea Value-Up Index: Probable Constituents & Impact of NPS’ US$8.2bn Allocation

Media reports indicate that the National Pension Service (NPS) could invest up to KRW 11tn (US$8.2bn) in a new index tracking stocks with low Price to Book ratios.
Filtering stocks with market cap higher than US$500m, ADTV of atleast US$1m, div yield of atleast 1.5% and Price to Book less than 1 throws up 94 potential index candidates.
Choosing an index of 50 stocks will require managers to buy between 1.7-3.4% of the float on the stocks. Increasing the number of constituents will reduce the impact.

Index Rebalance & ETF Flow Recap: STAR50/100, FXI, NIFTY/NEXT50, S&P500, KOSPI, Goodman, Ecopro BM

The last week was a very busy one. The coming week has some announcements and implementations but is a relatively quieter one.
The SSE STAR50 (STAR50 INDEX) and STAR100 Index changes for March will be implemented at the close on Friday, the 8th.
Another week of inflows for the iShares Emerging Markets ex-China (EMXC US) ETF as creations cross US$2bn for 2024. ETF AUM has gone from US$420m in 2021 to US$11bn now!

S&P 500/400/600 Index Rebal – It’s Not The Trade You Think

On Friday after the close, the S&P DJI Index Committee announced changes to the S&P 100, S&P500, S&P MidCap400, and S&P SmallCap600. Changes happen at the close 15 March 2024.
Super Micro Computer (SMCI US) and Deckers Outdoor (DECK US) replace Zions Bancorporation (ZION US) and Whirlpool Corp (WHR US) in the S&P500. 2 changes to 400, 6 to 600.
The immediate reaction was to send SMCI up 12.5%. That’s shortsighted. It pays to count the pennies involved. There are a LOT of pennies.

S&P/ASX Index Rebalance (Mar 2024): Changes, Flows, Impact, Shorts & Positioning

There is 1 change for the S&P/ASX20 Index, 2 changes for the S&P/ASX100 Index, 4 changes for the S&P/ASX200 INDEX and 14 adds/10 deletes for the S&P/ASX300 Index in March.
The largest impact is expected on the changes to the S&P/ASX 200 (AS51 INDEX) while flows are large among changes to the S&P/ASX 20 Index and S&P/ASX 100 Index too.
There has been a steady increase in cumulative excess volume for most stocks but there are a few where there has been a spike recently.

HK Connect SOUTHBOUND Flows (To 1 Mar 2024); Continued Big Buys of SOEs (Getting Boring to Say This)

A share indices were up on the week. HK stock indices were down except for HS Tech. H-shares with A-share pairs were up.
Net SOUTHBOUND buying was HK$9.1bn in the second post-holiday week after being +HK$20bn in the first week. LOTS of SOEs on the net buying side. Still.
SOUTHBOUND continues to buy high-div SOEs. ex-div is still three months away, and given the new KPIs discussed late January by SASAC official, these still seem to be appropriate targets.

Nippon Express (9147 JP): A US$260 Million Secondary Offering

Nippon Express Holdings (9147 JP) has announced a secondary offering of up to 4.8 million shares (including overallotment). There are seven selling shareholders.
The secondary offering comes ahead of the implementation of regulatory restrictions on truck drivers’ overtime in April 2024, which is widely known as the ‘2024 Problem’.
Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will likely fall between 11 and 13 March (likely 11 March).

A/H Premium Tracker (To 1 Mar 2024): Liquid AH Premia Still Wide