Daily Brief Financials: Highwealth Construction, Meritz Financial Group, Japan Post Bank, Uniswap, Taiwan Stock Exchange Weighted Index, Alam Sutera Realty, DeXe and more

• Today is the review cutoff for dividend data and stock prices that will be used to select the inclusions and exclusions as well as for capping of index weights.
• We see 26 adds and 5 deletes for the index at the December rebalance resulting in one-way turnover of 46% and a one-way trade of TWD 78.1bn (US$2.51bn). 
• Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 19 stocks and this will present trading opportunities.

• The last trading day to secure appraisal rights is today (the 22nd). You must buy stocks by today to make arb trade possible using appraisal rights.
• We should consider LONG FINANCIAL SHORT FIRE/SECURITIES. KSD allows us to maintain borrowed stocks of the target company without redemption procedures if new stocks are listed after the merger.
• K200 trackers will have to buy in for FIRE at the close on January 27, whereas SECURITIES will be on March 31. We should design a setup targeting this preemptively.

• After the market close today, Meritz Financial Group (MFG) made one of the biggest announcements in the history of the group.
• It announced that Meritz Fire & Marine Insurance and Meritz Securities will become fully owned subsidiaries of Meritz Financial Group. Meritz F&M Insurance and Meritz Securities will also be delisted.
• MFG is making a real positive change through the share swaps among the three companies. This will likely have the biggest positive impact will be on MFG. 

• Japan Post Bank continues to see cratering net interest income
• The company’s significant US CLO exposure is not supporting profit
• Total unrealized gains on securities are down 95% in the past six months

• Despite Centralized exchanges (CEX) being unregulated and opaque in operation, over 90% of crypto transactions happened on CEXs.
• DeFi exchanges are transparent and impossible for appropriation, but gain market share very slowly due technically difficult of building on blockchain.
• Uniswap is the largest spot decentralized exchange that stands to benefit from capital relocation from CEX to DEX, Uniswap token is a pure governance token without value capture.

• NKY, ASX and H shares have been our top long bets with rotation now favoring Korea and Taiwan (China as well) at the expense of Japan.
• USD weakness call from DXY 113 and 109 makes Asian equities more attractive into early December and an integral part of our rotation theme.
• Korea and Taiwan are favored bets on dips. China will run out of steam near A50 12,900 and act as the lead energy driver for Asia.

We view Alam Sutera (ASRI) as “High Risk” on the LARA scale, given the company’s refinancing risk amid the challenging financing environment. ASRI’s pre-sales have been soft, which is a concern for rating agencies. We also note the group’s asset concentration and cash-flow volatility. The company was highly reliant on land sales to key partner CFLD until 2021, when CFLD defaulted on debt. Execution risks are increasing due to ASRI’s shift away from developing townships to high-rise buildings.

The company has very low recurring income compared to peers. That said, it has a large and low-cost land bank that is bigger than most peers’. The land bank has high potential value, and could be a source of liquidity, supporting high margins for the business. Positively, ASRI’s successful cash tender offer in October 2022 has alleviated refinancing risk. It now has no significant maturities until 2025.

We maintain our “Stable” Credit Bias, as we expect the company’s operations to remain satisfactory, with some positive FCF, and no significant maturities until 2025.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”.

• Price Movements: DEX tokens have been least impacted by the market collapse while L1 tokens have been the worst performers, led by SOL.
• Market Liquidity: Uniswap v3 recorded one of its highest volume days ever, although both CEX and DEX volumes have since tumbled.
• Derivatives: Binance and Bybit captured FTX’s market share of perpetual futures since the exchange collapsed.