Daily BriefsEvent-Driven

Event-Driven: FWD Group Holdings, Ping An Insurance (H), Soulbrain, Ausnutria Dairy Corp, SK Telecom, LG Chem Ltd and more

In today’s briefing:

  • FWD Group: IPO & Index Fast Entry Possibilities
  • Ping An A/​H: Discount Turns to a BIG Premium
  • TIGER WISE Secondary Cell Index: October 14 Rabalancing Trading
  • Ausnutria in Trading Halt – Will Yili Lob an Offer?
  • SKT Demerger Got Shareholder Approval & SK Square NAV Analysis
  • LG-GM Battery Recall: A Lot of Confusion & Clarifications Based on the Latest WSJ Report

FWD Group: IPO & Index Fast Entry Possibilities

By Brian Freitas

FWD Group Holdings (FWD US) filed its draft registration statement with the SEC on 16 June and followed it up with its latest registration statement on 8 October. While no numbers have been officially disclosed, media reports indicate that the IPO will be completed in the current quarter and will raise between US$2-3bn and value the company between US$12-15bn.

FWD Group Holdings (FWD US) will have a dual-class voting structure. The Class A shares will be listed and carry one vote per share while the Class B shares will carry 10 votes per share. All shares currently held by PCGI Holdings Limited will be converted to Class B shares.

Based on the information currently available officially and through media reports, we do not see the stock getting Fast Entry to the MSCI Standard and FTSE All-World indices. The stock will not meet the full and free float market cap required for inclusion in the MSCI Standard index, while the stock will fail the Minimum Voting Rights test for inclusion in the FTSE All-World Index.

The stock will need to double from its current valuation to meet the free float market cap requirement and be included in the MSCI Standard index at a subsequent review, while the stock will need its voting rights to increase substantially to be eligible for inclusion in the FTSE All-World index at a later stage.


Ping An A/​H: Discount Turns to a BIG Premium

By Brian Freitas

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at a 11% premium to the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.

The last time the A-shares traded at a premium this large to the H-shares was in December last year. By mid to late January, the A-shares were trading near parity versus the H-shares.

With Ping An Insurance Group Co Of China (601318 CH) trading at a 11% premium to Ping An Insurance (H) (2318 HK) the risk/reward is favourable to setting up a premium contraction trade. The current premium lies at the 95th percentile over the last 5 years and the premium has widened faster than that of the HSAHP Index.

Northbound and Southbound Stock Connect holdings of Ping An Insurance Group Co Of China (601318 CH) and Ping An Insurance (H) (2318 HK) have dropped sharply over the last couple of months, though there has been an uptick over the last couple of weeks.

In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an contraction of the premium.


TIGER WISE Secondary Cell Index: October 14 Rabalancing Trading

By Sanghyun Park

The quarterly rebalancing of the WISE Secondary Cell Index is this Friday. So, rebalancing trading takes place this Thursday at the close.

  • The TIGER ETF (305540) is the only ETF that tracks this index. However, the recent AUM has risen sharply, and as of yesterday’s closing price, the AUM is approaching KRW 1 trillion.
  • There is no add (or delete) in this rebalancing that will cause a substantial passive impact like SKIET in the previous rebalancing.
  • But the AUM is massive, so the level of stock price fluctuations potentially resulting from index weight changes is expected to be large enough to deserve our attention.
Index summary
Index name
Wise Secondary Cell
ETF
Mirae Asset TIGER Secondary Cell ETF
Ticker305540
AUM₩999.3B
SO44,650,000
Number of constituents26
Weight type
Float-adjusted market cap
Cap10.00%
Rebalancing cycleQuarterly
Rebalancing month
January, April, July, and October
Announcement date
Only ETF operator is notified
Implementation date
The trading day following the option expiration dates
Next implementation date
October 15, 2021
Rebalancing trading
At the close on October 14, 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
Source: KRX & TIGER ETF

Ausnutria in Trading Halt – Will Yili Lob an Offer?

By Arun George

Ausnutria Dairy Corp (1717 HK) is an international high-end dairy and nutrition products company with an entire business chain of raw milk collection, R&D, production, and end-market sales. Ausnutria is the fifth largest infant formula player in China with a 6.3% market share in 2020.   

Ausnutria entered a trading halt today pursuant to the Hong Kong Code on Takeovers and Mergers. On 1 October, Bloomberg reported that Inner Mongolia Yili Industrial Group (A) (600887 CH) is exploring a potential takeover of Ausnutria. Yili was said to be in talks with banks to finance a potential deal. The article also speculated that Ausnutria could attract takeover interest from other industry players. There was no takeover price or valuation mentioned in the article.  

We think that Yili is the likely suitor as there is a strong strategic rationale in acquiring Ausnutria. Yili has a strategy to increase its scale in the milk powder business through mergers and acquisitions. Yili was recently unsuccessful in its bid to acquire Reckitt Benckiser (RB/ LN)’s infant-formula and child nutrition business in China. 

In this note, we look at the strategic rationale for Yili’s potential bid and take a stab at estimating the potential offer price.  


SKT Demerger Got Shareholder Approval & SK Square NAV Analysis

By Sanghyun Park

October 12 EGM results

SK Telecom’s demerger and stock split got shareholder approval yesterday.

Based on the number of attending votes, the approval rate for the demerger reached 99.95%, and the approval rate for the stock split was 99.96%, receiving overwhelming support from individual shareholders as well as institutions, including the National Pension Service.

As a result of this, SK Telecom and SK Square will be officially launched on November 1, the record date of the demerger. The current SK Telecom will be listed and re-listed as SK Telecom and SK Square, respectively, on November 29 after a period of stock trading suspension from October 26 to November 26.

Schedule
Trade suspension begins2021. 10. 26
Record date of demerger2021. 11. 01
Trade suspension ends2021. 11. 26
Re-listing2021. 11. 29
Source: DART

SK Telecom plans to transform itself into a telecom service, artificial intelligence, and digital infrastructure service company and increase its annual sales from ₩15T in 2020 to ₩22T in 2025.

  • As for the Telecom service business, it plans to solidify 5G leadership and continue the growth of media services. In the case of AI-based services, it will evolve the subscription service (T Universe) into an online and offline subscription commerce platform. Lastly, the company plans to fully expand its high-growth data center, cloud, and industrial Internet of Things (IoT) businesses by utilizing 5G MEC (mobile edge computing) for the digital infrastructure service business.
  • SK Square will be launched as a semiconductor/ICT investment company. Based on the successful DNA accumulated through investments in the semiconductor and ICT platform business so far, the company has set a vision to increase its net asset value from the current ₩26T to ₩75T by 2025.
Vision 2025SK TelecomSK Square
Core business areasTelecom service, AI-based service, & digital infrastructure
Semiconductor & ICT investment
Current valueFY2020 annual sales of ₩15TFY2021 net asset value of ₩26T
Target by FY2025Yearly sales of ₩22TNet asset value of ₩75T
Source: SK Telecom

After the demerger, SK Telecom will have SK Broadband, SK Telink, PS&Marketing, F&U Credit Information, Service Top, Service Ace, and SK O&S as subsidiaries. On the other hand, 16 companies will be placed under SK Square: SK Hynix, ADT Caps, 11st Street, T Map Mobility, One Store, Contents Wavve, Dream Us Company, and SK Planet.

SK TelecomSK Square
: 7 in total: 16 in total
SK BroadbandSK Hynix
SK TelinkADT Caps
PS&Marketing11st Street
F&S Credit InfoT Map Mobility
Service TopOne Store
Service AceContents Wavve
SK O&SDream Us Company
SK Planet
FSK L&S
Incross
Nano N Tech
Spark Plus
SK Telecom CST1
SK Telecom TMT Investment
ID Quantique
Techmaker
Source: SK Telecom

In a separate regulatory filing,

SKT said that it would transfer 520,000 treasury shares to its employees. In other words, SKT is giving 100 shares of treasury stock to each employee. Based on the closing price of ₩304,500 on October 8, this is equivalent to ₩158.3B.

It represents 0.72% of the total issued shares and about 60% of its current treasury shares. After this transaction, SKT’s treasury shares will fall to 379,500, 0.53% of the shares outstanding.


LG-GM Battery Recall: A Lot of Confusion & Clarifications Based on the Latest WSJ Report

By Sanghyun Park

There is a lot of confusion about LG and GM’s recall cost-sharing.

First, in a press release on the afternoon today (October 12), LG announced that it had reached an agreement on the recall cost with GM. And as a result of this, it said that it would resume the IPO of LG Energy Solutions.

(Source: Bloter.net)

The details revealed in the press release are just that. It did not disclose the total cost of the recall and how much LG would have to pay.

Immediately after the press release, LG Chem and LG Electronics disclosed the size of the provision to be reflected in the third quarter through regulatory filings.

LG Energy Solutions said it would reflect ₩620B in recall provision in the third quarter, bringing the total to ₩711B. It already reflected ₩91 billion in recall provisions in the second quarter of this year.

Similarly, in a separate regulatory filing, LG Electronics said that it would reflect ₩480B in recall provision in the third quarter. As a result, its total recall provision becomes ₩715B as it already reflected a provision of ₩235B in the second quarter.

So, this afternoon, local media started reporting that the total amount LG has to pay is about ₩1.42T. It is not the total amount confirmed by LG, but an estimate based on the provisioning size disclosed through regulatory filings.

It is 2/3 of the total provisioning set by GM in early August. That implies LG will share the cost with GM roughly at a 7:3 ratio. The overall provisioning level did not deviate from the market expectations. The share ratio was also at a level of 7:3, which was the share ratio for the previous recall case with Hyundai Motor. So it could be seen that ₩1.42T met the market expectations. As a result, LG Chem closed +4.19% today, and LG Electronics also closed +3.33%.

LG & GM recall cost structureTarget vehicleTarget numberRecall cost (USD)Recall cost (KRW) at today’s currency rate
1st recall2017-2019 Chevrolet Bolt68,600$0.8B₩957.3B
2nd recall2019-2022 Chevrolet Bolt73,000$1.0B₩1,196.6B
Total$1.8B₩2,153.9B
: What LG pays₩1,420.0B (about two-thirds of the total provisions set by GM)
Source: LG Chem & DART

By the way, LG also said that the cost payment ratio between LG Energy Solution and LG Electronics will be confirmed again later. Until they prove the exact responsibility ratio between the two, ₩710~715B, the median of the total estimated cost, was set as a provision for each according to the rational estimation principle.


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