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INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

Boustead Plantations (BPLANT MK): LTAT Emerges as a White Knight

Boustead Plantations (BPLANT MK) shares have been on a rollercoaster ride. As Kuala Lumpur Kepong (KLK MK) pulls its offer, LTAT has emerged as an unlikely white knight.
LTAT aims to launch a general offer at RM1.55 per share, in line with KLK’s aborted MGO price. The government will backstop LTAT’s funding for the offer.
LTAT is vague on approvals and timing. Regulatory approvals should be a formality as LTAT is the Armed Forces pension fund. At the last close, the gross spread was 10.7%.

Zeekr IPO Early Look – Possibly US$0 to US$7bn Revenue in Under Three Years

By Sumeet Singh

Zeekr, a premium EV brand by Geely, aims to raise around US$1bn (estimated) in its US listing in 1H2023. GS, BofA and MS are said to be running the deal.
Zeekr was formed in Mar 2021 as a JV between Geely and its founder. Its first model was launched in Apr 21 with deliveries starting in Oct 21.
In this note, we take an early look at the IPO based on publicly avaiable information.

Hollysys: Court Injunction Hearing Is Key

Talk about your never-ending story. I count at least seven non-binding Offers for Hollysys Automation Technologies (HOLI US) since December 2020, three of which are still on the table.
The latest, at US$26/share, was pitched earlier this week from Ascendent Capital Partners; who along with Changli Wang, Hollysys’ founder, previously made an US$23/share Offer in August 2021.
However, all these Offers are largely moot until we get closure at the court injunction hearing. If that occurs. Separately, I had a solid discussion with Hollysys’ IR.

ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround

With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.

P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer

Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.

Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again

INCJ made a lot of money on Renesas Electronics (6723 JP) over the years and arguably did a great job helping the firm change direction. Now they are out.
Last night they launched a block sale through JPM and Bof A for 130.2317mm shares. They priced the heavily-oversubscribed deal at a discount of 8% or ¥2143/share.
That’s a big discount (so bad broking) for such oversubscription on a clearly-flagged deal but now they are out.

Allkem/Livent Merger: 19th December Shareholder Vote

On the 10th May, Aussie lithium miner Allkem Ltd (AKE AU) inked a $US10bn+ “merger of equals” with Livent (LTHM US), ostensibly forming the world’s fifth largest lithium producer.
Allkem’s Scheme Meeting is the 19 December, with implementation expected on the 4 January. The IE is supportive and Allkem’s board unanimously recommends the transaction.
This looks done. Buy Livent. And get borrow on Livent to be able to short it into the inclusion or in the days following.

Shidax (4837) – Nikkei Scoops MBO (Anncmt Post-Close), Family Wants to Buy at ¥800 Which Is Too Low

13mos ago I wrote about Shidax Corp (4837 JP) which an interesting restructuring past and a refreshing governance outlook going forward in Shidax Outlook May Change – Better Governance Matters.
The stock was up 25% in that period to yesterday. Today, a Nikkei article mid-day suggests the Shida family will launch an MBO. Stock popped. Earnings out after the close.
The article suggests a take-private MBO with Oisix ra daichi (3182 JP) again supporting the deal. 30 minutes ago Shidax responded saying an offer was put forth at ¥800/share.

Olympus (7733) – OP Hit but Additional Buyback; Positive Dynamics but Flow Risks Persist

Yesterday, Olympus Corp (7733 JP) announced Q2 earnings which were trifle light, and announced a sharp downward revision to full-year OP despite higher revs on weaker yen.
OP takes a hit because of expenses related to the shutdown of Veran Medical device sales (announced 6 Sep, “causing” a 2.4% share price fall the next day).
They also announced an ¥80bn buyback. That should be worth 3.0-3.5% of shares out, but overhang exists. The label is the label. The details are inside. They matter.

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Nov 10

Most Read: KOSDAQ 150 Index, Renesas Electronics, Trend Micro Inc, Eoptolink Technology , Ps Mitsubishi Construction, iShares MSCI South Korea ETF, Cybernet Systems Co, WuXi XDC Cayman , Li Auto and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help
Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip
ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround
P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
Spotlight on Trading Prospects Arising from ETFs as Short Selling Workarounds in Korea
Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095
Wuxi XDC IPO: Forecasts and Valuation
[Li Auto Inc. (LI US, BUY, TP US$47) Target Price Change]: Li’s MEGA Can Change the MPV Landscape

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.

Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help

By Ethan Aw

INCJ aims to raise around US$1.8bn via a secondary sell-down in Renesas Electronics (6723 JP). This will be a clean-up trade as INCJ has been paring down its stake.
The deal is a slightly large one to digest at 12 days of three month ADV and around 6% of current mcap.
In this note, we will talk about the placement and run the deal through our ECM framework.

Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected

INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip

Trend Micro Inc (4704 JP) has been under pressure to improve capital allocation after Value Act bought in 2022. In February 2023, Trend announced a weak sauce capital return policy.
They promised a 100% payout ratio with 70% div payout ratio. But with huge piles of cash and securities, it wasn’t going to be enough, and shareholder structure ALWAYS matters.
Here it meant Trend Micro was vulnerable to further attack. Today, Trend announced a HUGE capital return with buyback, and a special div and this will excite Nikkei 225 arbs.

ChiNext/ChiNext50 Index Rebalance Preview: Time for a Turnaround

With the review period complete, we forecast 9 changes for the ChiNext Index (SZ399006 INDEX EQUITY) and 5 changes for the ChiNext 50 Index in December.
Some of the potential adds will also have passive flows from the CSI Smallcap 500 Index trackers at the same time as the ChiNext Index rebalance.
The potential adds have slipped a lot versus the potential deletes over the last few months as the National Team has tried to stabilise the market via ETF creations.

P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer

Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.

Spotlight on Trading Prospects Arising from ETFs as Short Selling Workarounds in Korea

During the previous period of short-selling restrictions, a pattern was observed in which ETFs were utilized as a workaround for short-selling.
We should anticipate more substantial price impacts this time. Of particular significance is the possibility of utilizing not only the MSCI Korea ETF but also sector ETFs for similar purposes.
This calls for our attention to the possibility that this short-selling workaround could generate a significantly wider range of trading opportunities in the spot market compared to three years ago.

Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095

By Shifara Samsudeen, ACMA, CGMA

Cybernet Systems Co (4312 JP) has recommended Fuji Soft Inc (9749 JP)’s tender offer of JPY1,095 per share, a 31.8% premium to the undisturbed price (8 November).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 12.28% ownership ratio.
The offer price is attractive and marginally below the ten-year share price high. The minimum acceptance condition (lower limit) requires a 26.9% minority acceptance rate, which is doable.

Wuxi XDC IPO: Forecasts and Valuation

Wuxi plans to issue 178.4m shares at an indicative IPO price range of HK$19.9-20.6 per share and will raise net proceeds of US$479m at the midpoint of the IPO price.
The company’s revenues have seen robust growth during the last 3-years driven by growth in ADC outsourcing market while margins have continued to decline.
We have valued WuXi XDC Cayman (1877628D HK) using a DCF valuation which offers price per share of HK$23.44, 15.7% higher than the midpoint of the IPO price of HK$20.25.

[Li Auto Inc. (LI US, BUY, TP US$47) Target Price Change]: Li’s MEGA Can Change the MPV Landscape

By Eric Wen

Two days before Huawei and Chery releasing their Luxeed S7 sedan to rival Model 3, LI unveiled the technical details of its MPV entry MEGA;
We see MEGA taking a meaningful market share from BYD’s Denza D9, GM’s GL8, GAC’s Trumpchi M8, all selling ~10K a month. We raise MEGA’s 2024 shipment to 57K;
We raise LI’s TP from US$40 to US$47 and maintain BUY.

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Nov 09

Most Read: Samsonite, KOSDAQ 150 Index, Hygon Information Technology C, Hollysys Automation Technologies, Alchip Technologies, WuXi XDC Cayman , CMIC Holdings, Melco International Development, Recruit Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Hang Seng Index Rebalance Preview: Foreign Companies Eligible from December
Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?
SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out
Hollysys: Court Injunction Hearing Is Key
Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline
WuXi XDC IPO: Valuation Insights
CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…
StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results
Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging
5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company

Hang Seng Index Rebalance Preview: Foreign Companies Eligible from December

The move from 80 index constituents to 100 could take most of next year (and possibly even the year after that) to manage turnover and add profitable companies.
Foreign companies will be eligible for inclusion in the index from the December rebalance. That makes Samsonite (1910 HK) a high probability inclusion candidate.
We highlight 8 potential inclusions to the index with passive trading impact varying from 1.6-4.3 days of ADV. There are large shorts on some of the stocks.

Korea Short Sell Ban: Not a Lot Covered on Monday; Shorts Holding On?

Following the short sell ban announced on the weekend, the KOSPI 200 and KOSDAQ 150 opened higher on Monday and rallied through the day.
A lot of the intraday gains on Monday have been given up over the next two trading days. Surprisingly, KRX data indicates that not a lot of shorts have covered.
Foreigners have been net cash buyers since Monday (could indicate covering of offshore borrow) while retail were big sellers on Monday.

SSE50 Index Rebalance Preview: Five Potential Changes; Hygon Stands Out

With the review period complete, we see 9 stocks in inclusion zone and 10 in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 4.7% at the December rebalance leading to a one-way trade of CNY 3.86bn. Index arb balances could increase the impact on the stocks.
Apart from being added to the SSE50 Index, Hygon Information Technology (688041 CH) could also be added to other local/global indices over the next few weeks and months.

Hollysys: Court Injunction Hearing Is Key

Talk about your never-ending story. I count at least seven non-binding Offers for Hollysys Automation Technologies (HOLI US) since December 2020, three of which are still on the table.
The latest, at US$26/share, was pitched earlier this week from Ascendent Capital Partners; who along with Changli Wang, Hollysys’ founder, previously made an US$23/share Offer in August 2021.
However, all these Offers are largely moot until we get closure at the court injunction hearing. If that occurs. Separately, I had a solid discussion with Hollysys’ IR.

Alchip Technologies GDRs Early Look – Another Well Flagged GDR Issuance in the Pipeline

Alchip Technologies (3661 TT) is looking to raise around US$375m in its upcoming global deposit receipts (GDRs) offering.
Similar to previous GDR listings, the deal is a very well flagged one, with a drawn out process of regulatory/approval loops the firm has to jump through up till issuance.
Based on its board’s approval to issue up to 4m new shares in its GDR offering, the deal is a relatively small one at just 5.4% of Alchip’s current mcap.

WuXi XDC IPO: Valuation Insights

WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), has launched an HKEx IPO to raise up to US$470 million.
We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
Blue-Chip cornerstones will purchase US$300 million of the offer. Our base-case DCF valuation is HK$22.84 per share, 12.8% above the midpoint of the IPO price range.

CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…

CMIC Holdings (2309 JP) decided to “change its business model” this past spring, transferring control of a consolidated JV and other subs to DNP.
The result changed the accounting, and the business model, capitalising future cashflow and net income in a “hidden” asset which may or may not be in the Financial Advisor’s valuation.
My read is this is being done too cheaply, and the price should be 30-60% higher. But, it would be tough to block this.

StubWorld: Digital Garage Looking “Cheap”. Melco’s Consensus-Missing Results

By Shifara Samsudeen, ACMA, CGMA

Digital Garage (4819 JP) is coming up “cheap” versus Kakaku.com Inc (2371 JP); and Melco International Development (200 HK) is trading “rich” to Melco Resorts & Entertainment (MLCO US).
Preceding my comments on DG and Melco 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%.

Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging

Recruit Holdings (6098 JP) reported 2QFY03/2024 results today. Revenues decreased YoY due to decline in HR Tech revenues, while operating profit for the quarter increased YoY. OP missed consensus marginally.
As we expected, the new pricing model has negatively impacted HR Tech revenues, and the segment’s earnings are forecast to decline further going into the second half.
There is further downside to earnings and the company’s share price has moved up during the last few days, and we are set to nicely gain on the Short side.

5 Important Factors Impacting Shorting Korean Stocks Rules + Shorting the Dutch East India Company

In this insight, we discuss the five important factors impacting potential regulations changes of shorting stocks in Korea.
The Korean regulators are actively considering a plan to limit the short selling repayment period for foreign and institutional investors to 90 days (same as the individual retail investors).
More than 400 years ago in 1609, a Dutch businessman called Issac Le Maire started to short shares in the Dutch East India Company.

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Nov 08

Most Read: Tencent, Descente Ltd, Posco ADR, Will Semiconductor Shan, China Vanke (H), WuXi XDC Cayman , Kokusai Electric , Sankyo Co Ltd, Suruga Bank Ltd, Hollysys Automation Technologies and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates
Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints
Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban
Will Semiconductor GDR Listing – Well Flagged and Short Interest Has Been on the Rise
China Vanke (2202 HK): Short Term Trading Opportunity Post Conference Call
WuXi XDC Cayman IPO – Decent Upside from IPO Range, Bulk of the Deal Taken up by Marquee Investors
TOPIX Inclusions: Who Is Ready (Nov 2023)
Sankyo (6417) – Second Go-Round for a BIG Buyback
Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
Hollysys (HOLI US): Ascendent Capital Joins the Fray

Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates

Tencent (700 HK) announced in-specie dividends of JD.com (9618 HK) (US$15bn+) in 2021 and Meituan (3690 HK) (US$20bn) in 2022.
With the Tencent (700 HK) Board meeting on 15 November to approve Q3 results and considering the payment of a dividend, the pattern could repeat this year.
Tencent (700 HK) owns stakes of US$1bn+ in 10 listed companies. We take a look at the stocks that could be next in line to be paid as in-specie dividends.

Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints

Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.

Trading Opportunities Targeting Potential ADR Discount Increases from Korea’s Short-Selling Ban

Given Korea’s blanket ban on short-selling, we should concentrate on the likelihood of these ADRs being significantly discounted compared to their underlying shares.
It should persist for an extended period, highlighting the importance of continuously monitoring ADR spreads over the next 2-3 months to seize the opportune entry timing.
Since all these carry single-stock futures, a flexible setup targeting this spread can be designed, ideally incorporating currency hedges.

Will Semiconductor GDR Listing – Well Flagged and Short Interest Has Been on the Rise

Will Semiconductor Shan (603501 CH) is looking to raise US$450m in its Switzerland GDR listing. The bookrunners on the deal are UBS and JP Morgan.
In its base deal, the firm is offering 31m GDRs (1 GDR to 1 ordinary A-share) for sale, at a 5.4-17.2% discount to last close on its A-share leg.
The base deal would be a relatively small one for the firm to digest, representing just 3.8 days of three month ADV on its A-share leg.

China Vanke (2202 HK): Short Term Trading Opportunity Post Conference Call

By Steve Zhou, CFA

China Vanke (H) (2202 HK) saw a major drop in bond and stock prices recently, due to fear of default.
Yesterday, the company held a conference call, with representatives from Shenzhen SASAC and Shenzhen Metro (major shareholder of Vanke and owned by Shenzhen SASAC) participating in the call.
The strong support shown by Shenzhen SASAC/Shenzhen Metro represents a good short-term buying opportunity, for both Vanke stock and bonds.

WuXi XDC Cayman IPO – Decent Upside from IPO Range, Bulk of the Deal Taken up by Marquee Investors

WuXi XDC Cayman (1877628D HK) is looking to raise US$470m in its Hong Kong IPO.
WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
In this note, we will look at the deal dynamics and share our final thoughts on valuation.

TOPIX Inclusions: Who Is Ready (Nov 2023)

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.
Our main pre-event candidate CELSYS (3663 JP) has outperformed TOPIX by ~12.6% since 1 Sep (when it was highlighted) and 6 Nov 2023.
There are three TOPIX Inclusion events confirmed for the end of November and two other interesting pre-event names we are closely monitoring.

Sankyo (6417) – Second Go-Round for a BIG Buyback

Back in late September, Sankyo Co Ltd (6417 JP) announced a 10mm share buyback along with a new dividend policy. Only 4.22mm shares showed up to sell.
The largest holder – Exec Chair Busujima-san – sold 2.22mm shares under his own name and his company’s name. Hikari Tsushin, which had been selling in the market, didn’t participate.
Now Sankyo has launched another 10mm share ToSTNeT-3 buyback tomorrow (8 Nov) AM at ¥6,099/share. They may not complete. But they may continue buying later. They have oodles of cash.

Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%.
Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.

Hollysys (HOLI US): Ascendent Capital Joins the Fray

Ascendent Capital has made a non-binding proposal for Hollysys Automation Technologies (HOLI US) at US$26.00 per share, a 4.0% premium to the MBO and Recco proposal of US$25.00 per share.
Ascendent has also become the largest shareholder by securing 13.69% of outstanding shares at an average price of A$20.84 per share. Ascendant is supportive of the special meeting request.
The Board has tried several delaying tactics, but the emergence of Ascendant ramps up the pressure on the Board to conduct a transparent sale process and address shareholder concerns.

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Nov 07

Most Read: Korea Stock Exchange KOSPI 200, Korea Stock Exchange Kospi Index, Samsung Electronics, Descente Ltd, Samsung Sds, Amman Mineral Internasional, Tencent, HYBE , WuXi XDC Cayman , Will Semiconductor Shan and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications
Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights
Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes
Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints
Samsung Founder Family’s Pre-Announced Block Deals: Contract Terms & Fresh Contextual Conditions
Amman Mineral (AMMN IJ): Potential Passive Inflows Coming Up Soon
Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates
Block Deal Sale of HYBE by Netmarble
WuXi XDC IPO: Valuation First-Look
Will Semiconductor GDR Listing – Well Flagged and Short Interest Has Been on the Rise

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications

Korea banned all short selling in March 2020 and resumed short selling only on KOSPI 200 and KOSDAQ 150 index constituents in May 2021.
News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.
There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.

Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights

There seems to be no immediate requirement to close existing contracts. However, even the chairman of the Financial Services Commission was unable to offer a definitive answer.
The comprehensive investigation and prohibition of the customary naked short selling could lead to a rapid decline in overall market liquidity.
The first is the short-term view, focusing on futures backwardation, and the second is the medium to long-term perspective, examining how the overall market liquidity decline will affect market flows.

Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes

Lee family plans to sell additional 2.6 trillion won worth of Samsung Group companies as part of their fourth installment of inheritance taxes.
This inheritance tax share sale is likely to have a negative impact on Samsung Electronics, Samsung C&T, Samsung SDS, and Samsung Life Insurance.
This may be just a coincidence but the regulators announced today a temporary ban on stock short selling which should help the Lee family to unload their shares.

Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints

Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.

Samsung Founder Family’s Pre-Announced Block Deals: Contract Terms & Fresh Contextual Conditions

Considering year-end dividends, it appears likely that the trading timing might extend beyond this year. In the previous case, the trade execution timing was one month before the contract expired.
Short selling is prohibited. However, all four companies offer single-stock futures, which provide instruments for proactive positioning. Nevertheless, aspects to consider are likely to increase regarding trading convenience and liquidity.
The potential for inadequate liquidity might increase the discounts for these deals, potentially offering us fresh trading opportunities. We should proactively prepare trading setups that consider these contextual conditions.

Amman Mineral (AMMN IJ): Potential Passive Inflows Coming Up Soon

Amman Mineral Internasional (AMMN IJ) listed on the Main Board of the IDX in July by raising US$715m in the largest Indonesia IPO for the year.
The stock did not get Fast Entry to any of the local or global indices given the low float, but there could be multiple index inclusions in the near future.
The stock is up 3x from its IPO price and there could be supply from some of the investors that got in at the offering price.

Tencent (700 HK): Board Meets Next Week; In-Specie Dividend Candidates

Tencent (700 HK) announced in-specie dividends of JD.com (9618 HK) (US$15bn+) in 2021 and Meituan (3690 HK) (US$20bn) in 2022.
With the Tencent (700 HK) Board meeting on 15 November to approve Q3 results and considering the payment of a dividend, the pattern could repeat this year.
Tencent (700 HK) owns stakes of US$1bn+ in 10 listed companies. We take a look at the stocks that could be next in line to be paid as in-specie dividends.

Block Deal Sale of HYBE by Netmarble

After the market close on 6 November, Netmarble announced that it will sell 2.5 million shares of HYBE which represents 569 billion won in amount at current price.
The actual block deal amount is likely to be less than 569 billion won as there will likely be a block deal discount rate.
We would avoid this deal, mainly because we think HYBE is overvalued relative to its peers.

WuXi XDC IPO: Valuation First-Look

WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.
We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
In this note, we present our forecasts and take the first look at WuXi XDC’s potential valuation range.

Will Semiconductor GDR Listing – Well Flagged and Short Interest Has Been on the Rise

Will Semiconductor Shan (603501 CH) is looking to raise US$450m in its Switzerland GDR listing. The bookrunners on the deal are UBS and JP Morgan.
In its base deal, the firm is offering 31m GDRs (1 GDR to 1 ordinary A-share) for sale, at a 5.4-17.2% discount to last close on its A-share leg.
The base deal would be a relatively small one for the firm to digest, representing just 3.8 days of three month ADV on its A-share leg.

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Nov 06

Most Read: Korea Stock Exchange KOSPI 200, Korea Stock Exchange Kospi Index, Samsung Electronics, Chindata Group, Descente Ltd, Samsung Sds, Guangzhou Automobile Group, Haitong International Securities Group and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications
Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation
Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights
Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes
Chindata (CD US): Maximum Dissent Condition in Focus as Oasis Builds a Stake
EQD | KOSPI 200 SHORT-SELLING BAN: Upward Push and Pullbacks
Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints
Samsung Founder Family’s Pre-Announced Block Deals: Contract Terms & Fresh Contextual Conditions
A/H Premium Tracker (To 3 Nov): Volatility Off, Spreads Jumpy, Short Sellers a NatSec Concern?
Merger Arb Mondays (06 Nov) – Haitong Intl, NWS, Poly Culture, Eoflow, Origin, Azure, Tietto

Korea Short Sell Ban: Background, Manipulation, Holdings, Flows, Short Interest, Implications

Korea banned all short selling in March 2020 and resumed short selling only on KOSPI 200 and KOSDAQ 150 index constituents in May 2021.
News reports indicate that there could be another short sell ban as soon as the coming week. Indications are that the ban could last 6 months.
There are many implications of a total short sell ban including futures backwardation, market manipulation, and no emerging to developed market promotion.

Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation

We should consider the complete prohibition of short selling for the next six months as practically finalized.
Following the individual stock short selling ban, both position hedging and short demand will inevitably shift to the futures market, consequently inducing unavoidable immediate backwardation.
We should design a setup that not only actively seizes sell arbitrage opportunities but also effectively capitalizes on the downward price pressure stemming from spot selling.

Full Transcript of Korea FSC Briefing on Sudden Short-Selling Ban, Including Key Trading Insights

There seems to be no immediate requirement to close existing contracts. However, even the chairman of the Financial Services Commission was unable to offer a definitive answer.
The comprehensive investigation and prohibition of the customary naked short selling could lead to a rapid decline in overall market liquidity.
The first is the short-term view, focusing on futures backwardation, and the second is the medium to long-term perspective, examining how the overall market liquidity decline will affect market flows.

Lee Family to Sell 2.6 Trillion Won in Samsung Companies to Pay for Inheritance Taxes

Lee family plans to sell additional 2.6 trillion won worth of Samsung Group companies as part of their fourth installment of inheritance taxes.
This inheritance tax share sale is likely to have a negative impact on Samsung Electronics, Samsung C&T, Samsung SDS, and Samsung Life Insurance.
This may be just a coincidence but the regulators announced today a temporary ban on stock short selling which should help the Lee family to unload their shares.

Chindata (CD US): Maximum Dissent Condition in Focus as Oasis Builds a Stake

Chindata Group (CD US)’s US$8.60 per ADS offer from Bain Capital is conditional on dissenting shareholders representing less than 12% of outstanding shares.
Oasis Management, an activist fund, recently disclosed a shareholding representing 65.9 million ordinary shares, 8.99% of outstanding shares and 1.24% of voting interest.
Precedent transactions where the dissent condition was exceeded suggest two possibilities – the offeror waives the condition or persuades sufficient shareholders to withdraw as dissenters.

EQD | KOSPI 200 SHORT-SELLING BAN: Upward Push and Pullbacks

By Nico Rosti

Banning short-selling for stocks will provide some propulsion to the KOSPI 200 INDEX but inevitably there will be pullbacks when strong resistance areas are reached.
The index is joining a wide global equities bounce, it is not recommended to go SHORT soon. There is a chance it may pullback briefly this week (buy the dip?)
Our models say the index can rise from 2 to 4 weeks, before reversing: resistance will be met at 320, 328 and (hard to reach) 349.

Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints

Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.

Samsung Founder Family’s Pre-Announced Block Deals: Contract Terms & Fresh Contextual Conditions

Considering year-end dividends, it appears likely that the trading timing might extend beyond this year. In the previous case, the trade execution timing was one month before the contract expired.
Short selling is prohibited. However, all four companies offer single-stock futures, which provide instruments for proactive positioning. Nevertheless, aspects to consider are likely to increase regarding trading convenience and liquidity.
The potential for inadequate liquidity might increase the discounts for these deals, potentially offering us fresh trading opportunities. We should proactively prepare trading setups that consider these contextual conditions.

A/H Premium Tracker (To 3 Nov): Volatility Off, Spreads Jumpy, Short Sellers a NatSec Concern?

The New and Better (10 weeks old) A-H Monitor has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
Absolutely STONKING performance this past week – +1.62% Friday to Friday across 42 trades. Positive performance in every sector. Portfolio at new high. Southbound inflows. BigCapHighDiv SOE outflows.
Short sales this week now need 100% in the account for hedge funds. And the MSS claims some are short-selling or talking bearishly on stocks for political reasons.

Merger Arb Mondays (06 Nov) – Haitong Intl, NWS, Poly Culture, Eoflow, Origin, Azure, Tietto

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 – 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU), JSR Corp (4185 JP), Orecorp Ltd (ORR AU), Lithium Power.
Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Chindata Group (CD US), Tietto Minerals Ltd (TIE AU), T&K Toka Co Ltd (4636 JP), Allkem.

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Nov 05

Most Read: Gs Yuasa Corp, Youngone Holdings, GMO Payment Gateway, Tuhu Car , Kyocera Corp, KCE Electronics PCL, Korea Stock Exchange KOSPI 200, SK Square , Softbank Group and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Solactive Global Lithium Index Rebalance: 45% Turnover & US$980m Trade
KOSPI200 Index Rebalance Preview: The Tail End
Index Rebalance & ETF Flow Recap: KS200, KQ150, Yuanta Div+, LIT, HSCI, IDX, Japan Positioning
HSCI Index Rebalance Preview: Tuhu Car in the Driver’s Seat; Keep Inc in the Running
Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?
SET50 Index Rebalance Preview: One High Probability Change; Another One Is Close
Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation
Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT
SoftBank Group (9984 JP): Results Preview, Key Topics
Korean Government Ready to Temporarily Suspend Short-Selling: A Move to Gain More Votes?

Solactive Global Lithium Index Rebalance: 45% Turnover & US$980m Trade

Solactive has announced the constituent changes for the Global Lithium Index. There are 8 adds and 9 deletes with implementation at the close on 31 October.
Estimated one-way turnover is in excess of 22% and will result in a one-way trade of US$490m. There are 11 stocks with estimated passive flows greater than 1x ADV.
The index is not very widely tracked and there could be big moves in stocks today and over the next few days – especially where there is multiple days ADV.

KOSPI200 Index Rebalance Preview: The Tail End

With the review period nearly complete, we expect 7 changes to the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) in December. Couple of changes are low probability though.
The Materials sector could be the biggest gainer at the rebalance while nearly all deletions could come from the Consumer Discretionary sector.
The impact on the potential inclusion ranges from 0.15-15 days of ADV while the impact on the potential deletions varies from 1.7-8.1 days of ADV.

Index Rebalance & ETF Flow Recap: KS200, KQ150, Yuanta Div+, LIT, HSCI, IDX, Japan Positioning

The coming week has a lot of review periods ending – KOSPI 200, KOSDAQ 150, CSI 300, CSI 500, SSE50, STAR50, ChiNext and SENSEX, among others.
The TOPIX rebalance will be implemented on Monday while the Global X Lithium & Battery Tech ETF (LIT US) and IDX indices will rebalance at the close on Tuesday.
There were outflows from Emerging Market ETFs including iShares Emerging Markets (EEM), iShares Core Emerging Mar (IEMG), Schwab Emerging Markets Equi (SCHE) and IShares Edge Min Vol Emerging Markets ETF (EEMV).

HSCI Index Rebalance Preview: Tuhu Car in the Driver’s Seat; Keep Inc in the Running

There were only 14 new listing on the Main Board of the HKEX (388 HK) in the third quarter. Half of the listings were in the last week of September.
Of those stocks, only Tuhu Car (9690 HK) and Keep (3650 HK) have a chance of being added to the HSCI in December and then into Southbound Stock Connect.
Keep Inc (3650 HK) could be added to Stock Connect in early December while Tuhu Car (9690 HK) will have to wait till April for inclusion to the link.

Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?

Yesterday, Kyocera Corp (6971 JP) announced Q2 results and lowered its full-year forecast. Then the CEO said it was “reconsidering” what to do with KDDI shares (after an AGM disaster).
The company had already planned to borrow ¥500bn against the KDDI stake to return capital to shareholders. That was in the price 5+ months ago.
The new hope is that Kyocera just got Corporate Governance Religion. I have my doubts, and even if it did, you have to look carefully at their ambitious plans.

SET50 Index Rebalance Preview: One High Probability Change; Another One Is Close

Two thirds of the way through the review period, we see one change for the SET 50 Index in December with KCE Electronics (KCE TB) replacing Ngern Tid Lor (TIDLOR TB).
There is one close change where I-TAIL (ITC TB) could replace Srisawad Power 1979 (SAWAD TB) in the index.
Delta Electronics Thailand (DELTA TB) is unlikely to be deleted while Berli Jucker (BJC TB) fails liquidity and is unlikely to be added.

Trading Opportunities from Korea’s Sudden Short Selling Ban & Resulting Futures Backwardation

We should consider the complete prohibition of short selling for the next six months as practically finalized.
Following the individual stock short selling ban, both position hedging and short demand will inevitably shift to the futures market, consequently inducing unavoidable immediate backwardation.
We should design a setup that not only actively seizes sell arbitrage opportunities but also effectively capitalizes on the downward price pressure stemming from spot selling.

Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT

KRX did not acknowledge any business relevance between SK Square and the Semicon industry, leading to its exclusion from the KRX Semicon after the GICS change.
We should consider the strong possibility that this same approach will be applied in the upcoming December KOSPI 200 IT rebalancing.
If we observe a somewhat unusual downward trend in SK Square’s price from the 15th, this could be seen as a hint foretelling the announcement of SK Square’s exclusion.

SoftBank Group (9984 JP): Results Preview, Key Topics

By Victor Galliano

WeWork appears to be approaching bankruptcy; we expect SoftBank’s exposure to be at least USD1.4bn including credit lines
Arm Holdings post-IPO performance has been lacklustre, but we continue to believe that it remains dangerously over-valued against peers – and Arm provides 30% of the group’s equity value
We believe that JPY depreciation has supported SoftBank Group’s share price (given the high share of USD-denominated portfolio assets); in addition, we still see risks to current private company valuations

Korean Government Ready to Temporarily Suspend Short-Selling: A Move to Gain More Votes?

On 3 November, numerous local media outlets reported that the Korean government is likely to temporarily suspend short selling in the Korean stock market.
According to a high level ruling party official, the Korean government plans to announce temporary ban on short selling stocks no later than on 15 November for about six months.
There is a major legislative election in Korea in April 2024. If there is a temporary ban on short selling stocks, this could be viewed negatively by many foreign investors.

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Nov 04

Most Read: GMO Payment Gateway, Origin Energy, Kyocera Corp, Celltrion Healthcare , Polycab India , Tongcheng Travel Holdings , Midea Group Co Ltd A, SK Square , Olink Holding and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Index Rebalance & ETF Flow Recap: KS200, KQ150, Yuanta Div+, LIT, HSCI, IDX, Japan Positioning
NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover
Origin Energy (ORG AU): AusSuper Wreaks Havoc on Brookfield/EIG’s Final Offer
Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?
Celltrion Merger Update: Limits Lifted
AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet
Quiddity HSTECH Dec 23 Flow Expectations: US$512mn One-Way Flows if the Expected Change Takes Place
Midea Group H Share Listing: The Investment Case
Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT
Start of Tender Offer

Index Rebalance & ETF Flow Recap: KS200, KQ150, Yuanta Div+, LIT, HSCI, IDX, Japan Positioning

The coming week has a lot of review periods ending – KOSPI 200, KOSDAQ 150, CSI 300, CSI 500, SSE50, STAR50, ChiNext and SENSEX, among others.
The TOPIX rebalance will be implemented on Monday while the Global X Lithium & Battery Tech ETF (LIT US) and IDX indices will rebalance at the close on Tuesday.
There were outflows from Emerging Market ETFs including iShares Emerging Markets (EEM), iShares Core Emerging Mar (IEMG), Schwab Emerging Markets Equi (SCHE) and IShares Edge Min Vol Emerging Markets ETF (EEMV).

NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover

Halfway through the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
Estimated one-way turnover is 15.26% and that will result in a one-way trade of INR 24bn. There will be more than 2x ADV to sell on nearly all deletes.
There is a possibility of an index methodology change, but no news for the last 4 months could indicate pushback from users or more stocks added to the F&O market.

Origin Energy (ORG AU): AusSuper Wreaks Havoc on Brookfield/EIG’s Final Offer

Origin Energy (ORG AU) has disclosed a best and final offer from Brookfield/EIG at A$6.59 and US$1.86 per share, which implies A$9.53 per share, 8.1% higher than the previous offer.
AusSuper will vote against the final offer. Taking advantage of the share price dip, AusSuper is said to have further increased its shareholding to 14.98% of outstanding shares.
The scheme will likely fail as a minority YES vote turnout of 88% is required to pass. Brookfield/EIG could return with an off-market takeover offer, but it also faces issues.

Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?

Yesterday, Kyocera Corp (6971 JP) announced Q2 results and lowered its full-year forecast. Then the CEO said it was “reconsidering” what to do with KDDI shares (after an AGM disaster).
The company had already planned to borrow ¥500bn against the KDDI stake to return capital to shareholders. That was in the price 5+ months ago.
The new hope is that Kyocera just got Corporate Governance Religion. I have my doubts, and even if it did, you have to look carefully at their ambitious plans.

Celltrion Merger Update: Limits Lifted

Back on the 17 August, biopharmaceuticals developer and producer Celltrion Inc (068270 KS) announced a merger with Celltrion Healthcare (091990 KS).
On October 23rd, shareholders approved the merger. The appraisal rights exercise period commenced on the 23 October and ends on November 13. 28th December is the merger’s effective date.
Initially, the stock purchase rights limit was set at 1₩tn; however Celltrion Group’s founder/Chairman Seo Jung-jin has removed this limit. That takes care of NPS, which opposes the merger.

AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet

We see 8 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 13 stocks from SmallCap to MidCap, and 14 stocks from MidCap to SmallCap.
Some stocks are expected to be inclusions to global indices later this month while others are potential NIFTY Index and/or Nifty Next 50 Index changes in March.
On average, the upward migrating stocks have outperformed the downward migrating stocks by close to 100% over the last 8 months. The passive flow can be used as an exit.

Quiddity HSTECH Dec 23 Flow Expectations: US$512mn One-Way Flows if the Expected Change Takes Place

The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
The index changes and the indicative component weights for the December 2023 index review will be published in a couple of weeks.
In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in December 2023.

Midea Group H Share Listing: The Investment Case

Midea Group Co Ltd A (000333 CH), the world’s biggest home appliances maker, has filed for a H Share listing to raise US$1 billion, according to press reports.
Midea is the world’s largest home appliance company in sales volume and revenue in 2022. Its subsidiary, KUKA Group, is one of the world’s “big four” industrial robotics companies.
The investment case rests on return to growth, margin on an upward trajectory, cash generation, strong balance sheet and undemanding valuation.

Exploring Fresh Flow Trading Prospects for SK Square: Targeting Exclusion from KOSPI 200 IT

KRX did not acknowledge any business relevance between SK Square and the Semicon industry, leading to its exclusion from the KRX Semicon after the GICS change.
We should consider the strong possibility that this same approach will be applied in the upcoming December KOSPI 200 IT rebalancing.
If we observe a somewhat unusual downward trend in SK Square’s price from the 15th, this could be seen as a hint foretelling the announcement of SK Square’s exclusion.

Start of Tender Offer

By Jesus Rodriguez Aguilar

The $26.00/share cash offer of Thermo Fisher Scientific (TMO UN) for Swedish Olink Holding (OLK US) started on 31 October. The 74% premium reflects that high-growth, positive adjusted EBITDA targets are rare.
The offer values Olink at ~12.2x EV/NTM Fwd revenue vs. 6.4x median of peers. Irrevocables total 66%, but the minimum acceptance condition requires acceptances from a high 70.6% of float.
Barring any unforeseen circumstances, such as regulatory action, I anticipate the deal closing and set my TP at $26/share. Gross spread is 4.81%.

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Nov 03

Most Read: Origin Energy, EcoPro Materials, Celltrion Inc, Celltrion Healthcare , Kyocera Corp, Tongcheng Travel Holdings , Midea Group Co Ltd A, Zhongsheng Group and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

Origin: Brookfield Bumps. AustralianSuper Say Meh.
Ecopro Materials: Reduces IPO Price Range
Celltrion Merger: Appraisal Rights & Passive Flows
Celltrion Merger Update: Limits Lifted
Origin Energy (ORG AU): AusSuper Wreaks Havoc on Brookfield/EIG’s Final Offer
Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?
Quiddity HSTECH Dec 23 Flow Expectations: US$512mn One-Way Flows if the Expected Change Takes Place
Midea Group H Share Listing: The Investment Case
Past A/H Listings Performance – Have Been a Mixed Bag
Quiddity HSCEI Dec 23 Rebalance: Zhongsheng Vs China Grand Pair Interesting if Deletion Is Confirmed

Origin: Brookfield Bumps. AustralianSuper Say Meh.

On the 31st October, AustralianSuper (with 13.67% of shares out and Origin Energy (ORG AU)‘s largest shareholder) argued the Brookfield/EIG-backed Consortium Offer remained substantially below its estimate of fair value.
Brookfield/EIG have now increased their Offer by 8% to $9.53/share from $8.81/share, which now comprises cash components of A$6.59/share and US$1.86/share. A consideration-reducing fully-franked dividend of A$0.39/share is expected.
The Offer is declared “best and final.” It is above the top-end of the IE’s valuation range. AustralianSuper should accept the revised terms. But they say no.

Ecopro Materials: Reduces IPO Price Range

Ecopro Materials reduced the upper end of the IPO price range from 46,000 won to 44,000 won.
The bankers reduced the IPO discount, EV/EBITDA valuation multiple, and outstanding shares.
We maintain our Bearish view of the Ecopro Materials IPO. Our base case valuation of 37,436 won per share is towards to lower end of the IPO price range.

Celltrion Merger: Appraisal Rights & Passive Flows

The Appraisal rights exercise period ends on 13 November. If the NPS and other large shareholders exercise their rights in Celltrion Inc (068270 KS), the merger could be in trouble.
Both stocks are trading close to their exercise price and could be supported due to the companies buying back their shares.
There will be passive flows from local and global trackers and there does not appear to be pre-positioning. That is likely due to the risk of potential merger cancellation.

Celltrion Merger Update: Limits Lifted

Back on the 17 August, biopharmaceuticals developer and producer Celltrion Inc (068270 KS) announced a merger with Celltrion Healthcare (091990 KS).
On October 23rd, shareholders approved the merger. The appraisal rights exercise period commenced on the 23 October and ends on November 13. 28th December is the merger’s effective date.
Initially, the stock purchase rights limit was set at 1₩tn; however Celltrion Group’s founder/Chairman Seo Jung-jin has removed this limit. That takes care of NPS, which opposes the merger.

Origin Energy (ORG AU): AusSuper Wreaks Havoc on Brookfield/EIG’s Final Offer

Origin Energy (ORG AU) has disclosed a best and final offer from Brookfield/EIG at A$6.59 and US$1.86 per share, which implies A$9.53 per share, 8.1% higher than the previous offer.
AusSuper will vote against the final offer. Taking advantage of the share price dip, AusSuper is said to have further increased its shareholding to 14.98% of outstanding shares.
The scheme will likely fail as a minority YES vote turnout of 88% is required to pass. Brookfield/EIG could return with an off-market takeover offer, but it also faces issues.

Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?

Yesterday, Kyocera Corp (6971 JP) announced Q2 results and lowered its full-year forecast. Then the CEO said it was “reconsidering” what to do with KDDI shares (after an AGM disaster).
The company had already planned to borrow ¥500bn against the KDDI stake to return capital to shareholders. That was in the price 5+ months ago.
The new hope is that Kyocera just got Corporate Governance Religion. I have my doubts, and even if it did, you have to look carefully at their ambitious plans.

Quiddity HSTECH Dec 23 Flow Expectations: US$512mn One-Way Flows if the Expected Change Takes Place

The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
The index changes and the indicative component weights for the December 2023 index review will be published in a couple of weeks.
In this insight, we take a look at the potential index changes and the resultant capping flows for the HSTECH Index in December 2023.

Midea Group H Share Listing: The Investment Case

Midea Group Co Ltd A (000333 CH), the world’s biggest home appliances maker, has filed for a H Share listing to raise US$1 billion, according to press reports.
Midea is the world’s largest home appliance company in sales volume and revenue in 2022. Its subsidiary, KUKA Group, is one of the world’s “big four” industrial robotics companies.
The investment case rests on return to growth, margin on an upward trajectory, cash generation, strong balance sheet and undemanding valuation.

Past A/H Listings Performance – Have Been a Mixed Bag

By Sumeet Singh

Two of the biggest deals in the Hong Kong pipeline are A/H listings for S.F. Holding (002352 CH) and Midea Group (000333 CH), both looking to raise around US$3bn.
Prior to the deals going live, we had a quick look at the A/H premium, subscription and past performance of some of the earlier A/H listings.
Overall, most of the recent A/H listings haven’t done much in the near term.

Quiddity HSCEI Dec 23 Rebalance: Zhongsheng Vs China Grand Pair Interesting if Deletion Is Confirmed

The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” Securities listed in Hong Kong.
In a couple of weeks, the official index changes and the indicative weights for the final index members for the December 2023 rebalance will be announced.
In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI in December 2023.

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Nov 02

Most Read: Socionext, Kakao Corp, TOPIX-Banks Index, Polycab India , Celltrion Inc, Hokuhoku Financial Group, WuXi XDC Cayman Inc, Symbio Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, Most Read

In today’s briefing:

March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD
Concerns About A Major Accounting Fraud at Kakao Mobility
Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”
NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover
Celltrion Merger: Appraisal Rights & Passive Flows
Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
Pre-IPO WuXi XDC (PHIP Updates) – Some Points Worth the Attention
Symbio Backs ABB’s Reduced Terms
AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet
WuXi XDC IPO: The Bear Case

March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD

In March 2024 Nikkei 225 Rebal – Look for Zozo, Ryohin Keikaku, and Maybe a Socionext Split I suggested Socionext (6526 JP) needed a stock split to get in.
Today after the close, Socionext reported H1, guided up full-year earnings (still too conservative), raised its div, and announced a 5:1 stock split for Jan1 2024.
DISCO Corp (6146 JP) is now likely to be a top 75, which leaves the question of which Consumer Goods stock would likely be added.

Concerns About A Major Accounting Fraud at Kakao Mobility

It was reported in numerous local media in Korea that FSS is investigating Kakao Mobility for a potential accounting fraud.
There are suspicions that Kakao Mobility may have artificially inflated its sales from 2020 to 2023 to enhance the value of the company prior to its IPO listing.
Given that the regulators are unlikely to make a final decision on this matter until next year, this is likely to be negative on both Kakao Mobility and Kakao Corp.

Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”

In July the BOJ lifted the YCC range to allow flexibility at 0.5% and a red line at 1.0%. Today it moved the “reference” to 1.0% with no red line.
This allows 10yr yields to move higher, but the Board’s insistence on negative rates and YCC staying in place tells you steeper for longer makes shorting long JGBs tough.
The move today helps encourage the market mechanism to take control of dampening volatility, the same way it did when the BOJ stepped away from ETF buying in 2021.

NIFTY NEXT50 Index Rebalance Preview: 6 Changes & Big Turnover

Halfway through the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
Estimated one-way turnover is 15.26% and that will result in a one-way trade of INR 24bn. There will be more than 2x ADV to sell on nearly all deletes.
There is a possibility of an index methodology change, but no news for the last 4 months could indicate pushback from users or more stocks added to the F&O market.

Celltrion Merger: Appraisal Rights & Passive Flows

The Appraisal rights exercise period ends on 13 November. If the NPS and other large shareholders exercise their rights in Celltrion Inc (068270 KS), the merger could be in trouble.
Both stocks are trading close to their exercise price and could be supported due to the companies buying back their shares.
There will be passive flows from local and global trackers and there does not appear to be pre-positioning. That is likely due to the risk of potential merger cancellation.

Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still

40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.
92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.
Big tables with data, reasons for guidance changes, and buyback history of each presented below.

Pre-IPO WuXi XDC (PHIP Updates) – Some Points Worth the Attention

By Xinyao (Criss) Wang

We’ve seen increasing global cooperation for ADC pipelines. However, licensing deals alone cannot be used as the only basis for judgment. We still need to wait for solid clinical evidence.
ADCs are far less “general and popularized” than PD-1. If compare ADC with GLP-1s, the difference is more obvious.How big the real market is for ADC is a question mark.
WuXi XDC’s share price could perform well after IPO due to positive sentiments towards ADC, but whether its long-term valuation would be higher than peers remains to be seen.

Symbio Backs ABB’s Reduced Terms

Back on the 22 September, Superloop Ltd (SLC AU) lobbed a best and final cash/scrip NBIO for Symbio Holdings (SYM AU) with an implied price of A$2.85/share.
Aussie Broadband Pty Ltd (ABB AU) then tabled a cash/scrip Offer, with an implied price of A$3.151/share. Symbio was supportive, if terms were firmed. Superloop’s Offer subsequently lapsed.
ABB returned with a reduced cash/scrip Offer of A$2.99-$3.04/share. Symbio has unanimously recommended the Offer (at A$3.011/share) and they entered into a Scheme agreement. A partially/fully franked dividend is permitted.

AMFI Stock Reclassification Preview (Dec 2023): HUGE Outperformance as Active and Passive Meet

We see 8 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 13 stocks from SmallCap to MidCap, and 14 stocks from MidCap to SmallCap.
Some stocks are expected to be inclusions to global indices later this month while others are potential NIFTY Index and/or Nifty Next 50 Index changes in March.
On average, the upward migrating stocks have outperformed the downward migrating stocks by close to 100% over the last 8 months. The passive flow can be used as an exit.

WuXi XDC IPO: The Bear Case