Daily Briefs

Yesterday afternoon, Swire Pacific (A) (19 HK) | Swire Pacific (B) (87 HK) announced a new buyback program. The last one was announced August 2022 and ran until the AGM.
That was HK$4bn. In the meantime the company paid an HK$8.12 special div on the Swire As (14%) in September (on top of the HK$1.20 regular div).
Now they have announced a new HK$6bn buyback buying both A Shares and B shares. Details, index impact, historical B/A trading patterns, etc, below.

StubWorld: Swire’s Latest Buyback

By David Blennerhassett

Yesterday afternoon (5th Dec), Swire Pacific (A) (19 HK) (and Swire Pacific (B) (87 HK)) announced a large (HK$6bn) buyback.
The response this morning sees Swire A up 14.4% (as I type), and 11.8% for Swire Bs.
I still like the idea of buying Swire A and Swire B outright here.

Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock

Rakuten Group (4755 JP) is looking to sell 25.5m shares of Rakuten Bank (5838 JP) via a secondary offering at a discount of between 8.7%-12.3%.
The offering will raise a maximum of US$433m and Rakuten Group (4755 JP) will use the funds to reduce its interest-bearing debt by the early repayment of its bonds.
There will be limited passive buying at the time of settlement of the stock but there is an index inclusion coming up that will result in passives buying.

Eoflow Vs Insulet: Round II

By Douglas Kim

This insight provides a detailed analysis of Eoflow’s appellant brief (released on 4 December) on Insulet Corp (PODD US)’s lawsuit.
We provide the following three major reasons why we believe Eoflow will win versus Insulet in this lawsuit.
One of the most important arguments on Eoflow’s appellant brief is the DTSA three years statute of limitations.

CPMC Holdings (906 HK): Pre-Conditional Voluntary Offer at HK$6.87

By Arun George

CPMC Holdings (906 HK) has announced a pre-conditional voluntary offer from Changping Industrial at HK$6.87 per share, a 32.1% premium to the undisturbed price (16 August).
The pre-condition mainly relates to Chinese approvals. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
The 50% minimum acceptance condition should be met due to COFCO’s irrevocable and the second-largest shareholders’ past dealings with COFCO. At the last close, the gross spread was 6.0%.

Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.

Yesterday, Tokyo Rakutenchi (8842 JP)‘s #1 shareholder Toho Co Ltd (9602 JP) agreed to buy out the rest of Tokyo Rakutenchi from its #2 and #3 shareholders and minorities.
The Takeover Price is a 51% premium. Which is nice. But the asset is a real estate portfolio, and it was sold as a company, not a real estate portfolio.
The revaluation surplus to market value for the real estate assets is more than net equity, so Takeover PBR >1.0, but Price/NAV of the takeover is 0.7x, without synergies included.

WHSP’s Non-Binding Indicative Offer for Perpetual Turned Down

On 21 November, Washington H. Soul Pattinson and Co. Ltd (SOL AU) submitted a non-binding, indicative offer to acquire Perpetual Ltd (PPT AU) at ~A$27/share.
A few hours ago, that offer was rejected by Perpetual Ltd (PPT AU)‘s Board citing a material undervaluation, conditional on demerger of the Asset Management business and execution risk.
If the deal goes through, there will be small passive buying in Washington H. Soul Pattinson and Co. Ltd (SOL AU). No major index changes expected.

China: Consolidated Flows at the Close Tomorrow

Local indices in China including the CSI 300 Index, CSI 500 Index, STAR50 Index and SSE50 Index will rebalance at the close tomorrow.
There are many changes for the indices and there are stocks that are adds and/or deletes from multiple indices which results in cumulative or offsetting flows.
We estimate turnover at the close tomorrow in China will be around US$7.5bn with big impact on a lot of stocks.

Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720

By Arun George

Tokyo Rakutenchi (8842 JP) has recommended Toho Co Ltd (9602 JP)’s tender offer of JPY6,720 per share, a 51.5% premium to the undisturbed (6 December).
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 24.29% ownership ratio.
Based on the irrevocables, the minimum acceptance condition requires a 30.2% minority acceptance rate. This acceptance rate is doable as the offer represents a ten-year high.

CPMC (906 HK): SASAC Takeover

By David Blennerhassett

Packaging play CPMC Holdings (906 HK) has announced a pre-conditional Offer from SASAC and the National Council for Social Security Fund of China.
The joint offerors have offered $6.87/share, an okay 32.1% premium to last close. Pre-cons involve the standard PRC regulators. The Offer itself is contingent on a 50% acceptance hurdle.
China Foods (506 HK) has given an irrevocable for its 29.7% stake. This will turn unconditional. The timing of the Offer is interesting as a VP is under graft investigation.

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Dec 07

Daily Brief Industrials: Harmonic Drive Systems, Japan Airlines, Shanghai Jinjiang Shipping Group Co and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering
Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang
Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
Shanghai Port’s Shipping Service Spinoff Surges 58.6% in Strong Debut

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering

Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement.
This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too.

Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang

By Clarence Chu

Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.

Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery

By Mohshin Aziz

Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year
Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield

Shanghai Port’s Shipping Service Spinoff Surges 58.6% in Strong Debut

Shanghai Jinjiang Shipping Group Co. Ltd., the shipping business unit of Shanghai International Port Group, gained 58.6% in its trading debut in Shanghai after a 2.18 billion yuan ($306 million) initial public offering.
The container shipping service provider finished its first day of trading at 17.84 yuan a share, giving it a market cap of 23.1 billion yuan.
Jinjiang Shipping was spun off from the world’s largest container port operator for a separate listing on the mainboard of Shanghai stock exchange.

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Dec 07

Daily Brief Equity Bottom-Up: 2024 High Conviction Idea – High Beta and Low Risk Recommendations and more

By Smartkarma Daily Briefs | Daily Briefs, Equity Bottom-Up

In today’s briefing:

2024 High Conviction Idea – High Beta and Low Risk Recommendations
BYD (1211 HK): Largest Producer in Dramatically Expanding Market
Short-Seller Grizzly Accuses Chinese AI Software Firm SenseTime of Inflating Revenues
TPL: The Land of Speculative Worry
Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
[Miniso Group (MNSO US, BUY, TP US$31) Company Update]: Management Reassured Future Growth Prospects
Shanghai Port’s Shipping Service Spinoff Surges 58.6% in Strong Debut
Torrent Pharmaceuticals (TRP IN): Q2FY24 Result- Domestic Business Continued Solid Growth Path
Empire Energy Group Ltd – A Gas Plant with Intrinsic Growth Opportunity

2024 High Conviction Idea – High Beta and Low Risk Recommendations

By Ying Pan

We prepared high beta and low risk recommendations for 2024:
With 2024 YE as horizon, we recommend JD.com, JD Logistics, JDHealth, Tencent and Luckin.
With 1H24 as horizon, we recommend KE Holdings, NetEase and Kuaishou.

BYD (1211 HK): Largest Producer in Dramatically Expanding Market

By Ming Lu

China NEV market grew by 35% YoY in first ten months and by 39% YoY in October 2023.
BYD’s production is significantly larger than other NEV producers in China.
We believe the stock has an upside of 80% and a price target of HKD387. Buy.

Short-Seller Grizzly Accuses Chinese AI Software Firm SenseTime of Inflating Revenues

SenseTime Group Inc. shares plummeted nearly 5% Tuesday after U.S.-based short-seller Grizzly Research released a report accusing the Chinese AI software developer of inflating its revenues.
Grizzly’s report, citing court documents and social media posts, alleged that SenseTime engaged in what it called round-tripping, where it provided funds to customers who in turn used the money to purchase products from SenseTime that might never have been delivered.
Its Hong Kong-listed stock tumbled as much as 9.7% before closing 4.86% lower to HK$1.37 ($0.18), down 64% from its IPO price of HK$3.85.

TPL: The Land of Speculative Worry

By Hamed Khorsand

TPL has gone through a series of changes within its Board of Directors but that has not been enough to squash investor concerns
The Delaware Court deciding in favor of TPL in a shareholder lawsuit would allow the Board to increase the number of authorized shares of common stock
TPL’s Board now has ten members instead of nine last year. The Board has also seen three members turnover giving the Board a total of four fresh members

Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery

By Mohshin Aziz

Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year
Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield

[Miniso Group (MNSO US, BUY, TP US$31) Company Update]: Management Reassured Future Growth Prospects

By Eric Wen

MNSO management hosted a conference call today which reiterated normal operation of business, guided C4Q23 revenue above consensus, gross margin up QoQ, and non-GAAP net profit margin stable;
MNSO management refuted short seller’s thesis, commented distributor inventory levels at healthy levels and provided backgrounds on disclosed insider share sales;
We welcome MNSO management’s timely communication and believe its business model to be solid. We reiterate BUY and TP.

Shanghai Port’s Shipping Service Spinoff Surges 58.6% in Strong Debut

By Research as a Service (RaaS)

Shanghai Jinjiang Shipping Group Co. Ltd., the shipping business unit of Shanghai International Port Group, gained 58.6% in its trading debut in Shanghai after a 2.18 billion yuan ($306 million) initial public offering.
The container shipping service provider finished its first day of trading at 17.84 yuan a share, giving it a market cap of 23.1 billion yuan.
Jinjiang Shipping was spun off from the world’s largest container port operator for a separate listing on the mainboard of Shanghai stock exchange.

Torrent Pharmaceuticals (TRP IN): Q2FY24 Result- Domestic Business Continued Solid Growth Path

By Tina Banerjee

Torrent Pharmaceuticals (TRP IN) reported 16% YoY revenue growth to INR26.6B in Q2FY24. Strong performance in India, Brazil, and Germany is partially offset by the revenue decline in the U.S.
EBITDA increased 22% YoY to INR8.3, leading to 138bps YoY expansion in margin to 31%, due to cost optimization and discontinuation of the low margin business in the U.S.
Initial bull thesis on the company regarding its domestic market strength is still intact. Further upside will be driven by superior performance in India and Brazil businesses and margin improvements.

Empire Energy Group Ltd – A Gas Plant with Intrinsic Growth Opportunity

Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) and US oil/gas production assets.
EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
The investment case is building further with the acquisition of the Rosalind Park Gas Plant to provide an immediate, low-capital and operating-cost processing option with nameplate capacity above the Carpentaria Stage I development model.

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Dec 07

Daily Brief Energy/Materials: CPMC Holdings, Boss Energy, Texas Pacific Land , Empire Energy and more

By Smartkarma Daily Briefs | Daily Briefs, Energy & Materials Sector

In today’s briefing:

CPMC Holdings (906 HK): Pre-Conditional Voluntary Offer at HK$6.87
Boss Energy Placement – Heavy Dilution and Doesn’t Appear Well Flagged
TPL: The Land of Speculative Worry
CPMC (906 HK): SASAC Takeover
Empire Energy Group Ltd – A Gas Plant with Intrinsic Growth Opportunity

CPMC Holdings (906 HK): Pre-Conditional Voluntary Offer at HK$6.87

By Arun George

CPMC Holdings (906 HK) has announced a pre-conditional voluntary offer from Changping Industrial at HK$6.87 per share, a 32.1% premium to the undisturbed price (16 August).
The pre-condition mainly relates to Chinese approvals. The offer is conditional on the offeror and concert parties representing more than 50% of voting rights.
The 50% minimum acceptance condition should be met due to COFCO’s irrevocable and the second-largest shareholders’ past dealings with COFCO. At the last close, the gross spread was 6.0%.

Boss Energy Placement – Heavy Dilution and Doesn’t Appear Well Flagged

By Ethan Aw

Boss Energy (BOE AU) is looking to raise up to A$205m (US$135m) through its primary placement. The proceeds will be used to fund an acquisition and replenish working capital.
The deal will be a large one to digest, at 19.7 days of three month ADV and 14% dilution.
In this note, we will talk about the placement and run the deal through our ECM framework.

TPL: The Land of Speculative Worry

By Hamed Khorsand

TPL has gone through a series of changes within its Board of Directors but that has not been enough to squash investor concerns
The Delaware Court deciding in favor of TPL in a shareholder lawsuit would allow the Board to increase the number of authorized shares of common stock
TPL’s Board now has ten members instead of nine last year. The Board has also seen three members turnover giving the Board a total of four fresh members

CPMC (906 HK): SASAC Takeover

By David Blennerhassett

Packaging play CPMC Holdings (906 HK) has announced a pre-conditional Offer from SASAC and the National Council for Social Security Fund of China.
The joint offerors have offered $6.87/share, an okay 32.1% premium to last close. Pre-cons involve the standard PRC regulators. The Offer itself is contingent on a 50% acceptance hurdle.
China Foods (506 HK) has given an irrevocable for its 29.7% stake. This will turn unconditional. The timing of the Offer is interesting as a VP is under graft investigation.

Empire Energy Group Ltd – A Gas Plant with Intrinsic Growth Opportunity

By Research as a Service (RaaS)

Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) and US oil/gas production assets.
EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
The investment case is building further with the acquisition of the Rosalind Park Gas Plant to provide an immediate, low-capital and operating-cost processing option with nameplate capacity above the Carpentaria Stage I development model.

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

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

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Dec 07

Daily Brief Macro: The Dollar Smile Theory Explains USD Strength Heading Into Final Central Bank Meetings For 2023 and more

By Smartkarma Daily Briefs | Daily Briefs, Macro

In today’s briefing:

The Dollar Smile Theory Explains USD Strength Heading Into Final Central Bank Meetings For 2023
Taking the Bitcoin Halvings Out of Isolation
5 Things We Watch – Liquidity, Bond positioning, Oil, Consumer spending & Rates
CX Daily: Will Hong Kong’s Tax Tweaks End Its Real Estate Slump?
UK Private Debt Looking Less Burdensome

The Dollar Smile Theory Explains USD Strength Heading Into Final Central Bank Meetings For 2023

By Pranay Yadav

DXY is up 1% in Dec after a 3.7% decline in Nov. USD strengthening indicates portfolio positioning & dollar hedging going into final policy meetings for the year.
The US Fed is expected to hold rates steady. Markets anticipate rate cuts as early as March 2024. USD will remain strong backed by bullish equities & policy divergence.
Fed officials signal peak rates for now but remain hawkish with clear warnings against premature rate cut bets by markets.

Taking the Bitcoin Halvings Out of Isolation

By Jeroen Blokland

Even though the number of observations is limited, we believe looking at the broader picture surrounding previous Bitcoin halvings provides valuable insights.
For example, all previous halvings occurred during equity bull markets, modest GDP growth, mild inflation, and easy or easier Federal Reserve monetary policy. Similar circumstances are on the horizon.
Declining Bitcoin supply, because of the halving and the rise of long-term investors, combined with the approval of US spot Bitcoin ETFs will likely become this halving’s catalyst.

5 Things We Watch – Liquidity, Bond positioning, Oil, Consumer spending & Rates

By Andreas Steno

We’ve spent the past 2 days in London, meeting clients and hedge funds, and there was a lot of support for the idea/notion that SOFR-Fed Funds spreads reveal that USD Liquidity is not ample and that the Fed will have to end QT early.
The spread widening in SOFR – Fed Funds, caught a lot of attention over the past few days and it is interesting how swiftly the market jumps to the conclusion that it will lead to the Fed panic-ending QT already in Dec or January.
Why are SOFR – Fed Funds spreads widening and how do we deal with it?

CX Daily: Will Hong Kong’s Tax Tweaks End Its Real Estate Slump?

Hong Kong / In Depth: Will Hong Kong’s tax tweaks end its real estate slump?
PMI /: China services activity picks up momentum on stronger demand, Caixin PMI shows
Index /: Caixin China New Economy Index falls on lower capital inputs

UK Private Debt Looking Less Burdensome

By Phil Rush

The BoE’s financial stability report updated its projections for how the debt burden will increase with the transmission of past interest rate rises.
Although debt servicing costs will consume more income, the share of households with high cost-of-living adjusted debt servicing ratios no longer rises from current lows.
Corporate earnings growth also reduced the proportion of firms breaching vulnerability thresholds. Monetary tightening is not delivering the brutal shock many feared.

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

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

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✓ Company Data and News
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Dec 07

Daily Brief Industrials: Harmonic Drive Systems, Japan Airlines, Shanghai Jinjiang Shipping Group Co and more

By Smartkarma Daily Briefs | Daily Briefs, Industrials

In today’s briefing:

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering
Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang
Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
Shanghai Port’s Shipping Service Spinoff Surges 58.6% in Strong Debut

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering

Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement.
This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too.

Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang

By Clarence Chu

Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.

Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery

By Mohshin Aziz

Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year
Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield

Shanghai Port’s Shipping Service Spinoff Surges 58.6% in Strong Debut

Shanghai Jinjiang Shipping Group Co. Ltd., the shipping business unit of Shanghai International Port Group, gained 58.6% in its trading debut in Shanghai after a 2.18 billion yuan ($306 million) initial public offering.
The container shipping service provider finished its first day of trading at 17.84 yuan a share, giving it a market cap of 23.1 billion yuan.
Jinjiang Shipping was spun off from the world’s largest container port operator for a separate listing on the mainboard of Shanghai stock exchange.

💡 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 Data and News
✓ Events & Webinars

Dec 07

Daily Brief TMT/Internet: Tencent, Hygon Information Technology C, SenseTime Group , Robosense Technology and more

By Smartkarma Daily Briefs | Daily Briefs, TMT/Internet

In today’s briefing:

2024 High Conviction Idea – High Beta and Low Risk Recommendations
China: Consolidated Flows at the Close Tomorrow
Short-Seller Grizzly Accuses Chinese AI Software Firm SenseTime of Inflating Revenues
Robosense Technology Pre-IPO – PHIP Updates – ADAS Sales Strong but Profitability Remains Distant

2024 High Conviction Idea – High Beta and Low Risk Recommendations

By Ying Pan

We prepared high beta and low risk recommendations for 2024:
With 2024 YE as horizon, we recommend JD.com, JD Logistics, JDHealth, Tencent and Luckin.
With 1H24 as horizon, we recommend KE Holdings, NetEase and Kuaishou.

China: Consolidated Flows at the Close Tomorrow

Local indices in China including the CSI 300 Index, CSI 500 Index, STAR50 Index and SSE50 Index will rebalance at the close tomorrow.
There are many changes for the indices and there are stocks that are adds and/or deletes from multiple indices which results in cumulative or offsetting flows.
We estimate turnover at the close tomorrow in China will be around US$7.5bn with big impact on a lot of stocks.

Short-Seller Grizzly Accuses Chinese AI Software Firm SenseTime of Inflating Revenues