Daily BriefsEvent-Driven

Event-Driven: Hitachi Metals, Sea Ltd, Fuji Kosan Company, Nanos Co Ltd, AC Energy Corp, Eos Energy Enterprises Inc, Bankinter SA, Samsung Electronics Pref Shares, Tattooed Chef Inc and more

In today’s briefing:

  • Bain Bids Up BIG For Hitachi Metals (5486) – Now We Wait
  • MSCI Singapore Index – Upcoming Changes
  • Aslead Capital Hostile Offer for Fuji Kosan (5009)
  • KOSDAQ 150 Preview: 16 Additions & 17 Deletions – Passive Inflow/ADTV & Loan Balance/Float
  • PSEi Index Rebalance Preview: Follow-On Offering Could See ACEN Added, DMC Deleted
  • Voodoo SPAConomics: Finding Longs & Shorts Amidst the Deluge of Offerings
  • Bankinter: Linea Directa Spin-Off
  • Samsung 1P Discount Should Go South, Probably as Far South as Historic Low
  • Tattooed Chef (TTCF) – Is This Food Burning Up or About to Rise?

Bain Bids Up BIG For Hitachi Metals (5486) – Now We Wait

By Travis Lundy

Hitachi Ltd (6501 JP) has, for over a decade, been restructuring itself by selling subsidiaries here and buying them in there. There are two remaining after the somewhat recent sale of Hitachi Chemical (4217 JP), de-consolidation of Hitachi Capital (8586 JP), and buy-in of Hitachi High-Tech (8036 JP) (after a flurry of other deals to sell out stakes in Hitachi Kokusai Electric (6756 JP), Hitachi Koki (6581 JP), Hitachi Maxell and Clarion in the previous few years).

In October last year, I addressed the issue of the selldown of the last two Hitachi Metals (5486 JP) and Hitachi Construction Machinery (6305 JP) in The Right Trade May Be Hitachi, which argued that Hitachi itself was probably the better deal than the subs. Since then, Hitachi is up 39.3%, Hitachi Construction Machinery (6305 JP) is up 3.6%, and Hitachi Metals (5486 JP) is up 23%. 

Mio Kato has written a few times about Hitachi Metals and about how one might not be able to expect a very high takeout price through the sale process that Hitachi was running. I wholly agreed with Mio, because I think it is not an easy asset to sell later, but I couldn’t come up with a reason to sell the stock because I expect funding is available, costs can be cut, Hitachi might keep 20% and sell a call option to help with funding, and if a company needs a lot of work to restructure, I am sure that Bain Consulting could be prevailed upon to provide their consulting services for a price (one of the dirty little secrets of private equity is that GPs get management and incentive fees on assets and sales, but profits in the interim come with costs, and some of those costs can be allocated to the GP as well).

Hitachi took in bids earlier this spring after running an auction process and three weeks ago an article in the FT hit the tape saying “Bain nears $8bn deal to buy Hitachi Metals.” That was around current market price give or take net debt so people were thinking there might not be a premium.

Today, we got a deal announcement. Indeed, Bain is paying near US$8bn, but it is structured in such a way that Bain pays ¥1675/share to Hitachi and ¥2181/share to minorities, which produces a combined price just over ¥1900/share.

This approximates a decent result for everyone involved.  

More below the fold. 

MSCI Singapore Index – Upcoming Changes

By Brian Freitas

MSCI is scheduled to announce the results of the May 2021 Semi Annual Index Review (SAIR) on 11 May with the changes implemented after the close of trading on 28 May.

For Singapore, we see a high probability of Sea Ltd (SE US) being included in the index and Suntec REIT (SUN SP) being excluded. This will keep the number of index constituents at 19.

Since the inclusion of Sea Ltd (SE US) at its full index weight would result in large turnover, MSCI has announced a tranched inclusion starting with an Index Inclusion Factor (IIF) of 0.05 at the May 2021 SAIR and concluding at the February 2022 Quarterly Index Review (QIR) with an IIF of 1.

We expect liquidity on the MSCI Singapore Free Index (SIMSCI INDEX) futures to drop in the short term as traders look for appropriate hedges for the unhedged Sea Ltd (SE US) position due to their trading activity on the index futures.

There could also be a migration from passive products on the MSCI Singapore Free Index (SIMSCI INDEX) to the FTSE Straits Times Index (STI) (STI INDEX) due to a drop in the dividend yield on the SIMSCI from 3.02% to 2.15%. The drop in dividend yield will take place as the IIF on Sea Ltd (SE US) increases.

Grab (0967655D SP) is expected to list in the US in July and the stock could be included in the MSCI Singapore Free Index (SIMSCI INDEX) later in the year. There have also been media reports that Grab could secondary list in Singapore. MSCI is likely to include Grab (0967655D SP) in the index in a tranched manner as well to reduce index turnover at a single review. Inclusion of Grab (0967655D SP) will reduce the dividend yield on the index even further.

Aslead Capital Hostile Offer for Fuji Kosan (5009)

By Travis Lundy

Last night, Singapore-based fund Aslead Capital Pte announced that it would launch a Tender Offer on Fuji Kosan Company (5009 JP) to take at least a 40% stake and possibly full control after ownership and approaches did not lead to “satisfactory” measures to improve corporate value. 

The shareholder had been acquiring shares since last year. It first went above 5% in August 2020 and until yesterday had most recently reported a 14.83% stake on 4 February. 

The stock has an interesting set of investors, and was for many years in the early to mid-2010s a poster child for tiny cap deep value investment targets. 

As of the announcement, Aslead states that it owns 16.8% which means to get to 40.0%, it needs only 23.2% of shares out – of the 83.2% it does not own. 

The company has been building an ‘interesting’ set of shareholders and relationships. One activist sold last year to be replaced by another. There is someone infamous from the tabloids. This could be fun to watch. It will certainly trade through terms early. The question then is what next?

There is a behind-the-scenes link to the family office responsible for the single most fun family office website ever made (after you press enter, check on the left side to see the sound is on and if you need to read the text more smoothly switch from angled to vertical just above the sound on/off section). 

KOSDAQ 150 Preview: 16 Additions & 17 Deletions – Passive Inflow/ADTV & Loan Balance/Float

By Sanghyun Park

This time, KOSDAQ 150 rebalancing is expected to have a big change.

Additions: 16 candidates

As of yesterday, we have 16 strong candidates to join KOSDAQ 150 newly. Vaxcell Bio and Nanos are the biggest ones, market cap-wise. Icure Pharm and Sungwoo Hitech will be the smallest-cap new members.

Vaxcell Bio and Binex are expected to enjoy the largest passive inflow at an estimated ₩45.5B and an estimated ₩38.1B, respectively.

But Gemvax and Fine Semitech should deserve special attention as they will likely see the highest inflow to average daily trading value at 3.47x and 3.06x, respectively.

Deletions: 17 candidates

A total of 17 names are expected to leave KOSDAQ 150 this June. The biggest ones are KH Vatec and eBEST Investment. The smallest ones are HL Science and Easy Holdings.

Again, KH Vatec will suffer the largest passive outflow at an estimated ₩16.9B, closely followed by Advanced Process (₩14.9B) and Daea TI (₩14.6B).

However, Ubiquoss Holdings and Korea Ratings will likely suffer the harshest impact as their estimated passive outflow to ADTV stands at the highest, 10.44x and 9.07x, respectively.

PSEi Index Rebalance Preview: Follow-On Offering Could See ACEN Added, DMC Deleted

By Brian Freitas

The Philippines Stock Exchange PSEi Index (PCOMP INDEX) is the main index of the Philippines Stock Exchange (PSE). The index is free float market cap weighted and is made up of the 30 largest and most active common stocks listed at the PSE.

Even though the passive assets tracking the index are very small, the strategy of buying the inclusions and selling the exclusions has performed very well at every rebalance over the last 5 years.

For the August rebalance, we see a possibility of AC Energy Corp (ACEN PM) being included in the index, which would see DMCI Holdings (DMC PM) being excluded.

The SEC has approved AC Energy Corp (ACEN PM)‘s follow on offering for the sale of 2.01bn shares at a price range of PHP 6-8.2/share, of which 1.58bn shares will be a primary offering and 330.248m shares will be a secondary offering by AC Energy & Infrastructure Corp (ACEIC). The public offering will run from 3-7 May and the shares will be listed on 14 May.

Voodoo SPAConomics: Finding Longs & Shorts Amidst the Deluge of Offerings

By Robert C Prather Jr

SPACs provide a unique opportunity for investors in the initial offering or shortly thereafter to purchase instruments often with ZERO downside and meaningful upside optionality. However, as the deal progresses, a target is found, and the deSPAC occurs, a number of factors (including dilution, redemptions, lockups, safe harbor projections, etc) contribute to a growing number of short opportunities.

Contact me to gain access to the proprietary database, baskets of SPAC investments and lists of upcoming lockup expirations, etc

Contact – Vision Research (visionro.com)

Bankinter: Linea Directa Spin-Off

By Jesus Rodriguez Aguilar

On 28 April, at market close, Bankinter SA (BKT SM) distributed in kind to its shareholders the issue premium of €1,184 mn euros (82.6% of the total value) of Línea Directa Aseguradora (LDA). Bankinter shareholders registered as such at the close of 28 April, received one LDA share for each Bankinter share held, so there will be no IPO. 

LDA will thus debut on the Madrid Stock Exchange on 29 April.

The return on equity (ROE) offered by LDA is one of the highest in the sector, exceeding 35%. LDA has agreed to pay out over 70% of its profits, which should translate in a dividend yield between 6% and 7%, for a stock with income certainty and good growth prospects.

There is the possibility that, in the medium term, LDA reduces somewhat (to 40-60%) the payout to invest in market and product expansion (house and medical insurance). By gaining size, it could become an appetizing prey for a larger group.

The company will debut with a P/E between 12x and 13x. At that level, it seems an attractive price, in my view. Other European general insurers are trading at 17x, thus there should be some upside. LDA has no debt and a healthy balance sheet.

There should be demand for the shares on its debut. Recommendation is long LDA, TP €1.71 (Fwd P/E comparables based).

Samsung 1P Discount Should Go South, Probably as Far South as Historic Low

By Sanghyun Park

Samsung unveiled the Lee family’s inheritance tax payment plan. But key details were missing. We do not still know which family member gets which company stake.

Unless specified in the will, the inheritance will go at a 1/3 (spouse) to 2/3/N (each child) ratio. But the consensus now is there is a will, and this 1/3 (spouse) to 2/3/N (each child) ratio won’t happen.

The deadline to report the tax payment is April 30. But the family doesn’t need to report who gets what information. The Korean inheritance tax law allows a family to make a collective payment for the entire family. Inheritance sharing can be discussed later, and there is no deadline for this.

Nonetheless, several Samsung insiders familiar with this matter have reportedly said that the who gets what information will be made public as early as next week. All shareholding changes by a major shareholder must be filed and made public at DART within 5 days after changes are made. So, we will know once a decision is reached.

Tattooed Chef (TTCF) – Is This Food Burning Up or About to Rise?

By Robert C Prather Jr

A SPAC made Tattooed Chef Inc (TTCF US) , a more than 10 year old private company, wealthy overnight.  The bull case would highlight massive SKU and distribution growth.   However, the company gets close to 90% of its revenue from 3 customers and a handful of SKUs, has multiple internal control weakness, lockup expirations recently occurred, and the CFO resigned abruptly.  All of this, along with lofty multi-year guidance and big fwd valuation, create a meaningful downside opportunity over the next 12 months.

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