Daily BriefsEvent-Driven

Event-Driven: Advantest Corp, Krafton Inc, Iress Ltd, Allcargo Logistics, Soho China Ltd, Myoung Shin Industrial Co.,Ltd, WH Group, Intouch Holdings, Xpo Logistics, Naturgy Energy Group SA and more

In today’s briefing:

  • Breaking Down Advantest’s Big Buyback
  • Krafton IPO: Bookbuilding Results & Index Fast Entry
  • Iress (ASX AU) Bats Away EQT – For Now
  • Allcargo (AGLL IN): Process Reinitiated! 70%+ Up Now. Should You Still Chase?
  • SOHO China (410 HK): In For a Penny …
  • KRX Autos Rebalancing on September 9: Watch Myoungshin Industrial as a New Add
  • WH Group Offer Doc Out – This Little Piggy Went To Market
  • GULF/INTUCH: Nearing The End of the Offer Period; Passive Selling to Come
  • SpinTalk: More Value To Be Had In Now Imminent XPO Logistics Break-Up
  • IFM/Naturgy: New Developments

Breaking Down Advantest’s Big Buyback

By Travis Lundy

On 28 July after the close, semiconductor & components test systems manufacturer Advantest Corp (6857 JP) reported Q1 results (with slides), revised its earnings forecast for the full year (revenues +10% vs end-April forecast for the year to 31 March 2022, OP and NP +17% and change), revised its “forecast” for its dividends, raising the H1 div from ¥38 to ¥50/share. This increase, even if the regular portion of the H2 div is kept flat, would raise the annual dividend to above the level of last year’s (which included a ¥10 commemorative dividend in H2). 

It also announced a plan to buy back shares – with a buyback program of up to 10 million shares (5.1% of shares out ex-treasury stock), spending up to ¥70 billion, with the program scheduled to run from 2 August 2021 through 24 March 2022. 

The reasoning is that in the Second Mid-Term Management Plan announced 24 May 2021, the total shareholder return ratio including treasury stock acquisition was targeted at a base rate of 50% or higher. The revision of the earnings forecast along with expected stronger operating cashflow prods the company to launch a buyback.  

So they have, and the dynamics are interesting because despite MSCI suggesting the company has 100% float, I see a Real World Float far, far below that. 

Krafton IPO: Bookbuilding Results & Index Fast Entry

By Brian Freitas

A short while ago, Krafton Inc (259960 KS) disclosed the results of its institutional book building and confirmed that the offer price has been set at KRW 498,000/share, the high end of the IPO range.

Bids came in for 1.157bn shares resulting in an oversubscription of 243 times the shares offered to institutions with domestics outbidding foreign investors in terms of number of shares. Bids at or above KRW 498,000 came from 95% of the shares that were bid for.

78% of the shares that were bid for came with a no lock-up commitment. Allocations that match the results of the bookbuilding will increase the free float of the stock making it easier for index Fast Entry. At the same time, there could be a lot of selling pressure as retail, institutions and pre-IPO investors all try to exit in the first few trading days.

Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) Fast Entry at the September futures expiry should be easy. At the IPO price, Krafton Inc (259960 KS) should get MSCI Fast Entry if less than 30% of the institutional allocation is locked up, while the stock should get FTSE Fast Entry even with 50% of the institutional allocation locked up. If a higher percentage of shares is locked up, the stock will need to close higher on listing day to get index Fast Entry.

With a large number of shares not subject to lock-ups, there could be selling on listing day. The stock should then stabilize and move higher on expectation of passive buying from FTSE and MSCI trackers. The stock could then drift lower before picking up ahead of the inclusion in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)

Iress (ASX AU) Bats Away EQT – For Now

By David Blennerhassett

The bidding for companies in Australia’s technology sector continues.

Trading and wealth management software provider Iress Ltd (IRE AU) announced this morning it had received a confidential, unsolicited, non-binding, and indicative proposal from Swedish PE outfit EQT Fund Management via a Scheme of Arrangement at a price range of between A$15.30 and A$15.50 cash per share.

EQT had previously fielded an Offer of A$14.80/share on the 18 June.

Iress’ board unanimously concluded that the Proposal was “conditional and did not represent compelling value for Iress shareholders“. But the board was:

prepared to provide it with access to limited non-public information so EQT can develop a proposal that is capable of being recommended to shareholders.

Iress closed up 15% today, but still 7% below the mid-point of the Indicative Offer price range.

As always, more below the fold.

Allcargo (AGLL IN): Process Reinitiated! 70%+ Up Now. Should You Still Chase?

By Janaghan Jeyakumar, CFA

India-based integrated logistics company Allcargo Logistics (AGLL IN) received a “Delisting Proposal” from its Promoter Group (Shashi Kiran Shetty and Talentos Entertainment Private Limited) in August 2020. Since then, the stock has gained more than 70%. 

Source: Smartkarma

I have covered this situation three times since the Deal was announced (as indicated by the “①” markers in the figure above) taking a Bullish stance on all three occasions as I believed the stock was fundamentally undervalued on a growth-adjusted basis. 

Last week, the company announced that the Delisting Process has been “reinitiated” causing the share price to rise sharply.

So what does this mean and how does this affect the timeline and the upside potential of the event?

Read below to find out.  

SOHO China (410 HK): In For a Penny …

By David Blennerhassett

Yesterday, SOHO China Ltd (410 HK)‘s shares were utterly cremated, ostensibly in response to a media report the pre-conditional Offer from the Blackstone Group faces regulatory obstacles.

At one stage, shares were down 31%, or 48% adrift of the $5.00/share offer price, and 13% below the undisturbed price, before recovering to close at $3.02/share.

Yet that media article was vague in context, and ultimately stopped short of saying the deal would be blocked. 

As they say, “In for a penny, in for a pound.”

More thoughts below the fold.

KRX Autos Rebalancing on September 9: Watch Myoungshin Industrial as a New Add

By Sanghyun Park

Myungshin Industries is running again. Myungshin Industrial is considered a Tesla-related stock because Tesla is a major customer. As Tesla recently announced surprise earnings, the stock price of Myungshin Industrial is also moving up.

In the past five trading days alone, the share price has risen more than 8%. Its current market cap has exceeded 1.7 trillion won.

So this stock appears to offer some opportunities from an index rebalancing trading perspective as well.

The first thing to consider is the inclusion of the KOSPI 200. In the rebalancing of last June, the stock price did not meet the market cap threshold due to the share price being drifted sideways for several months. However, in this December’s rebalancing, if the current share price uptrend continues, the possibility of inclusion seems quite high.

However, we can find trading opportunities in the KRX Autos sector index rebalancing, which takes place ahead of the KOSPI 200 rebalancing in December.

As for KRX Autos, KODEX currently manages an ETF that tracks it, and it has recently been showing good returns, resulting in a large inflow of funds. The AUM now amounts to ₩649.0B, which isn’t bad for an index containing only 17 constituents.

This is a float-adjusted market cap-weighted index with a 20% cap. Rebalancing takes place annually in September. The implementation date is the first trading day of the week following the last trading day for KOSPI 200 futures contracts. So, September 10 will be the implementation date for this year, meaning that we will see rebalancing trading at the close on September 9.

Index summary
Index nameKRX Autos
Samsung Kodex Autos ETF
Number of constituents17
Weight type
Float-adjusted market cap
Rebalancing cycleAnnually
Rebalancing monthSeptember
Announcement date
One week ahead of implementation
Implementation date
The first trading day of the week following the last trading day for KOSPI 200 futures contracts
Next implementation date
September 10, 2021
Rebalancing trading
At the close on September 9, 2021
Screening base date
The last trading day of the month preceding the date of regular rebalancing
Screening period
The three months preceding the screening base date

WH Group Offer Doc Out – This Little Piggy Went To Market

By Travis Lundy

On 6 June 2021, WH Group (288 HK) announced a proposal for a Voluntary Buyback Offer. The company decided it had enough cash and excess capital given its investment requirements and decided to return the excess to shareholders by buying up to 13% of shares outstanding. The Controlling Group would not tender, so they would see their stake increase and the minimum pro-ration would reach nearly 20%. 

The shares popped, then fell. Then they kept on falling. Yesterday and today they hit the level which has been a low point in the oscillator cycle for the last few years at HK$6.00/share.

I wrote about the situation that very day in WH Group Buyback Offer Announced – Strong Accretion Creates Accretion Risk. I wrote that based on then-current pricing, expectations, and the trading levels of its peers, it would not be considered expensive at prices higher than the previous close (which had, to be fair, seen a nice pop on news). 

But markets gonna market. 

The peers fell. DRAMATICALLY. The 7 names in a HK- or China-listed basket of peers have fallen 23% as live hog prices have fallen and the hog/feed ratio has also fallen, indicating hog producers are making even less than before (or, according to the NDRC, losing more than before).

The NEW News – The Offer Doc is Out

Last night, late-ish, WH Group (288 HK) released its Offer Document whereby it launches the Conditional Voluntary Cash Offer for 13% of its own shares at HK$7.80/share. 

  • This will need to be approved by Shareholders – both the Offer and the Whitewash Waiver (the Executive has indicated its intention to approve the WW subject to 50+% of Independent Shareholder votes cast supporting the Offer and 75% of Independent Shareholder votes). 
  • The Record Date for the EGM is 19 August 2021, the EGM is 16 August, and if approved, the Offer will become Unconditional on 16 August and will close on 30 August.
  • Cheques will be sent no later than 8 Sep. Shares not bought back will be returned no later than 9 Sep. 
  • Minimum pro-ration is 19.7%. 

There are things to do here for hedge funds and arbitrageurs.

There are things to do here for long-only funds who love the stock. 

This remains an interesting situation. 

Read on below.

GULF/INTUCH: Nearing The End of the Offer Period; Passive Selling to Come

By Brian Freitas

On 19 April, Gulf Energy Development Public Company (GULF TB) made a conditional voluntary tender offer for all shares in Intouch Holdings (INTUCH TB) that it did not hold at THB 65/share. The Offer Period commenced on 29 June and will end on 4 August at 4pm.

Post market close yesterday, Gulf Energy Development Public Company (GULF TB) announced that 318.154m shares (9.92% of the issued shares) of Intouch Holdings (INTUCH TB) have been tendered as of 27 July taking their holding in the company up to 28.85%. This could move higher by the close of trading on 4 August.

We expect FTSE and MSCI to lower Intouch Holdings (INTUCH TB)‘s investability weight/ FIF over the next week due to a drop in the free float and this will necessitate passive selling on the stock. 

SpinTalk: More Value To Be Had In Now Imminent XPO Logistics Break-Up

By Robert Sassoon

Back on January 5, 2021, we published an insight highlighting the proposed break-up of Xpo Logistics (XPO US) SpinTalk: Multiple Envy Propels XPO Logistics’ Break-Up Move To Get Its Mojo Back – via the separation of its logistics operations from its transportation business. This corporate event is now just a few days away and will be executed via  the tax-free spin-off of the logistics business GXO Logistics (GXO US) on August 2, 2021, effected through a 1-for-1 distribution of new GXO shares to XPO shareholders. With the separating companies having begun When-Issued trading as of July 22, 2021,  we believe this to be an opportune to review and update our value assessment of the upcoming  event. 

On a pre-spin basis , our updated assessment values  XPO at $163-$197, not too far from our first stab of $169-$186 made in January. This represents  an increase of 16% to 40% on the prevailing share price of $141.03,  which itself represents an 19% accretion from the $118.92 price printed in our January insight. However, with only one trading left before the separation becomes effective, the focus should be on the post-spin entities when they begin trading regular on Monday. While the XPO share price has reacted well to the break-up strategy, we believe there is still more value to be had in both sides of the spin-off as we lay out our thesis below.

IFM/Naturgy: New Developments

By Jesus Rodriguez Aguilar

Naturgy Energy Group SA (NTGY SM) is awaiting the decision made by the Government on the partial takeover launched by the Australian fund IFM for 22.7% of the capital. Meanwhile, Naturgy has published H1 2021 results and launched a new strategic plan (€14 bn in Capex and a €5.9 bn dividend payout) without awaiting the outcome of IFM’s takeover. According to Francisco Reynés, president of the company, Naturgy is going to focus on “organic” growth.

Naturgy has approved the payment of a first 2021 interim dividend of €0.3/share (payable on August 4), the new offer price will be €22.07/share.

The success of IFM’s partial takeover attempt is becoming increasingly difficult due to:

  • Delay in the approval of the takeover by the Spanish Government.

  • Economic outlook improvement, and sharp rise in commodities since takeover announcement on 26 January.

  • Criteria Caixa’s intentions to strengthen its shareholding in Naturgy.

  • New strategic plan and alliance with Sonatrach.

According to the last communication to the CNMV, CriteriaCaixa already holds a 25.997% stake in Naturgy. Assuming it will still purchase up to 29.9%, that is a 3.903% stake pending, some 37.84 mn shares, i.e. approximately €826 mn (at the closing price of 29 July) almost worth the volume of 50 trading sessions (at the last three months average daily volume). Therefore, the shares should be sustained for a while just on Criteria’s purchases.

At the closing price of 29 July, the gross spread to the new adjusted takeover price is c. 1.1% and to Capital IQ median consensus TP is 2.7%. The shares are highly likely to increase over the adjusted offer price on account of Criteria’s purchases. From an event-driven perspective, I recommend selling into strength.

Before it’s here, it’s on Smartkarma