In today’s briefing:
- PA Gooddoctor (1833 HK)’s Unconditional MGO
- GAPack (468 HK): Additional Thoughts On Mengniu Selling
- EQD | Tencent (700 HK) Option Strategy for Navigating a Volatile Market
- The Unexpected Passive Trade from the LG CNS IPO: Short LG Corp
- TOPIX Inclusions: Who Is Ready (Jan 2025)
- Southeast Asia: The Passive Axe Hangs as Positioning Increases
- Smart Share Global (EM US): Trustar Capital-Sponsored MBO’s US$1.25 Per ADS Non-Binding Offer
- Hang Seng Internet & IT Index (HSIII) Rebalance Preview: Up to 5 Changes in March
- Rio Tinto/Arcadium: Home Straight After CFIUS Nod
- Nippon Steel/US Steel: Deal Blocked but Offering Robust Standalone Value
PA Gooddoctor (1833 HK)’s Unconditional MGO
- Back on the 14th November, Ping An Healthcare and Technology (1833 HK) (PA Gooddoctor announced a change in use of proceeds, including the payment of a punchy HK$9.70/share special dividend.
- A scrip option was concurrently afforded. The results of that scrip election have now been announced, the completion of which, triggers an unconditional MGO from Ping An Insurance (601318 CH).
- The MGO price is HK$6.12/share, a price made public last month. For those investors trading the event and who bought PA Gooddoctor cum dividend, it has worked out well.
GAPack (468 HK): Additional Thoughts On Mengniu Selling
- Following on from the surprise development that China Mengniu Dairy (2319 HK) had reduced its stake below 5%, I’ve had a few readers asking about hypothetical situations regarding its stake.
- IF Mengniu is a seller, can’t Mengniu simply sell its entire stake to Shandong Xinjufeng Technology Packaging (301296 CH) (XJF)? Can Mengniu sell to XJF above the Offer Price?
- Both questions are addressed in the Takeovers Code. But only one is permitted.
EQD | Tencent (700 HK) Option Strategy for Navigating a Volatile Market
- Tencent (700 HK) shares fell 7.3% on 7 January, after being designated a Chinese Military Company by the U.S. Department of Defense, prompting volatility to spike.
- Given the potential for further downside, or a relief rally, significant price movements and high volatility are to be expected.
- A long straddle is detailed to capitalize on the anticipated volatility in Tencent (700 HK) .
The Unexpected Passive Trade from the LG CNS IPO: Short LG Corp
- I’m focusing on the price action of LG Corp when LG CNS enters the KOSPI 200 IT sector, causing LG Corp to be removed from the index.
- With LG Corp’s 6% weight, its removal could trigger ETF rebalancing (TIGER), leading to an outflow exceeding twice the usual daily trading volume.
- If LG CNS misses Fast Entry, it’ll enter in December, not June. We’ll time our short position on LG Corp to align with passive outflows during that window.
TOPIX Inclusions: Who Is Ready (Jan 2025)
- 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.
- Japan Eyewear Holdings (5889 JP) continues to be our top pre-event pick for TOPIX Inclusion.
- Core Concept Technologies Inc (4371 JP) is another potential TOPIX Inclusion candidate but it is quite far away from being satisfy the main Section Transfer requirements.
Southeast Asia: The Passive Axe Hangs as Positioning Increases
- There are 8 stocks listed in Indonesia, Malaysia, Thailand and Philippines that could be deleted from passive portfolios in February.
- There is a fair bit to sell in the stocks with over US$50m flow and between 3.5-64x ADV. Positioning is not very high in a lot of the stocks.
- Stocks could avoid deletion if they move higher in the next week or two. But increased positioning could keep a lid on that.
Smart Share Global (EM US): Trustar Capital-Sponsored MBO’s US$1.25 Per ADS Non-Binding Offer
- On 6 January, Smart Share Global (EM US) disclosed a non-binding proposal from a Trustar Capital-sponsored MBO at US$1.25 per ADS, a 74.8% premium to the undisturbed price of US$0.72.
- The offer is unattractive to the IPO price (US$8.50), average sell-side price targets (US$1.87) and historical trading ranges.
- Despite the light offer, the shareholder vote is done (two-thirds voting threshold) as the buyer consortium represents 64.0% of the voting power. A binding proposal will be forthcoming.
Hang Seng Internet & IT Index (HSIII) Rebalance Preview: Up to 5 Changes in March
- The review cutoff date for the March rebalance of the HSIII was 31 December. The changes will be announced on 21 February and become effective after the close 7 March.
- There could be 5 changes to the index with some inclusions driven by potential addition to the Hang Seng Composite Index. That could lead to buying via Southbound Stock Connect.
- Horizon Robotics (9660 HK) is a potential inclusion to the HSCI and the Hang Seng TECH Index (HSTECH INDEX) in March.
Rio Tinto/Arcadium: Home Straight After CFIUS Nod
- Arcadium Lithium (LTM AU)‘s spread to Rio Tinto Ltd (RIO AU)‘s terms steadily increased subsequent to the US elections, ostensibly over Trump (Musk?) bluster, blowing out to 21% before Xmas.
- Overnight, the transaction received the go ahead from CFIUS. Shares popped ~8.2% on the news. The transaction remains subject to investment screening approvals in Australia, Canada and Italy.
- Unlike Greenland and the Panama Canal, the takeover of Arcadium should complete “before mid-2025”; possibly this quarter.
Nippon Steel/US Steel: Deal Blocked but Offering Robust Standalone Value
- Nippon Steel’s $14.9 billion acquisition bid for U.S. Steel, announced in December 2023, faced regulatory resistance and was blocked by the Biden administration over national security concerns.
- U.S. Steel’s Big River Steel 2 expansion will double capacity to 6.3 million tons by 2026, contributing over 50% of EBITDA and supporting enhanced free cash flow generation.
- Despite the failed merger, U.S. Steel’s intrinsic value, supported by a $39.75 fair value estimate, easing capex, and reshoring tailwinds, offers a ~19% upside from the $33.30 closing price.
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