In today’s briefing:
- TOPIX Big April Basket 23: 100% Hit Rate for High Conviction Basket; Focus on Surprises Next
- MTR (66 Hk): Now if You Missed the First Bounce
- China Comm Const (1800 HK): We See More Stories Coming
- Caverion Switches to Triton’s Offer
TOPIX Big April Basket 23: 100% Hit Rate for High Conviction Basket; Focus on Surprises Next
- The TOPIX liquidity factor removal names (upweights) for April 2023 were announced after the close on Friday 7th April 2023 as expected.
- According to the announcement, 22 names will see their Liquidity Factors removed and experience index inflows later this month.
- Today was the first day of trading post-announcement and the 22 names gained +1.1% (+0.47% vs the TOPIX Index). I feel there could be more upside for some names.
MTR (66 Hk): Now if You Missed the First Bounce
- MTR Corp (66 HK) is the lagging stock in Hong Kong although it is a key beneficiary to more Chinese tourists that will arrive soon.
- HK Government has launched a few initiatives to invite tourists to visit Hong Kong that will boost higher ridership for the company.
- It is now trading at the level prior to COVID with the potential of higher earnings that will come from the ridership increase.
China Comm Const (1800 HK): We See More Stories Coming
- China Communications Construction (1800 HK) is expected to generate higher shareholder return through improvement in profitability/cash flow, spin-off, asset disposal and issuance of REITs.
- Operationally, backlog reached Rmb3.39trn at end-FY22, enough to cover 3.9x FY23F revenue. It expects revenue to grow at least 7% and new contract by no less than 9.8% in FY23.
- Employee incentive scheme has been adopted with targets including FY21-23 earnings CAGR of at least 8% and FY23 return on net assets of 7.7%. This aligns employee interests with shareholders’.
Caverion Switches to Triton’s Offer
- Triton’s consortium reduced the acceptance threshold to 2/3rds of all shares, and, as expected, the board of Caverion changed its recommendation in favour of the Triton consortium’s proposal.
- Nearly a third of the shares supporting the offer are held by each party. Bain’s consortium hasn’t improved Triton’s offer and expects the latter will encounter antitrust hurdles.
- Triton would make a cumulative IRR of about 20% if it sold the business for 7.5x EBITDA by year 7. Long and tender to Triton’s offer (spread is 2.63%/3.75% gross/annualised).
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