Daily BriefsEvent-Driven

Event-Driven: MatsukiyoCocokara, Ausnutria Dairy Corp, Asian Sea, Darktrace, HMM Co., Ltd., Entra ASA, Iljin Materials and more

In today’s briefing:

  • MatsuKiyoCocokara Merged – Interesting Implications Indeed
  • Will Yili Gulp Down Ausnutria (1717 HK)?
  • Asian Sea Corp (ASIAN TB): Spin-Off Listing of Pet Food Likely Intended to Unlock Value.
  • STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance
  • HMM CEO Letter to Shareholders Concerning Share Price Decline
  • Balder/Entra ASA: Game of Thrones in Scandinavian Real Estate
  • MSCI Korea Standard SAIR: Drastic Changes to Likely Adds/Deletes in Recent Weeks

MatsuKiyoCocokara Merged – Interesting Implications Indeed

By Travis Lundy

Nearly 21 months after starting talks to merge when a rival had made a bid for Cocokara Fine (3098 JP), Cocokara and Matsumoto Kiyoshi Holdings (3088 JP) announced a merger in February 2021 which undervalued Cocokara, to the chagrin of my earlier ratio guesstimates and activist investors disappointed with how cheaply Matsumoto Kiyoshi acquired control. 

I discussed the merger in MatsukiyoCocokara & Co – The Merger and then MatsuKiyoCocokara Merger and Implied Forward Forecasts then the activist noise in Matsukiyo-Cocokara Situation Gets Its Activist Noise Started. The activist noise – as expected in this case – came to nothing, but the shares gained, lost ground, and have since regained some ground as the merger date came closer. The two companies merged and became Matsumotokiyoshi Holdings Co., Ltd. (3088 JP).

I was, at the time, quite bullish on the prospects for the combined entity. And there were interesting events to come, associated with the deal. The stock has done well-ish.

I think that is not the end of the story. There is more to come.

More below the fold. 

Will Yili Gulp Down Ausnutria (1717 HK)?

By David Blennerhassett

A little over a week ago, Bloomberg reported Inner Mongolia Yili Industrial Group (A) (600887 CH), China’s biggest dairy producer, had been running a ruler over infant-formula firm Ausnutria Dairy Corp (1717 HK).

Before the commencement of trading yesterday, Ausnutria was suspended pursuant to the Hong Kong Code on Takeovers and Mergers. Shares had gained 7.8% on Monday (the 11th) on the largest volume since November of last year. 

SOE CITIC Group is the largest shareholder with 22.05%, having being introduced as a strategic investor back in October 2018.

This insight provides some brief background on Ausnutria, plus speculates on a fair price should a firm Offer unfold. 

Asian Sea Corp (ASIAN TB): Spin-Off Listing of Pet Food Likely Intended to Unlock Value.

By Devi Subhakesan

Asian Sea (ASIAN TB) announced its plans to list the pet food business currently held in the 100% subsidiary Asian Alliance International (AAI), subject to regulatory approvals.  Asian Sea will hold a majority stake (not less than 70%) in the spun-off subsidiary post listing. This could potentially help unlock value for Asian Sea assuming the high growth pet food subsidiary could attract greater investor interest and superior valuation, post listing. Currently Asian Sea (ASIAN TB)  trades at low double digit P/E in line with other Thailand based sea food processing companies.

In this insight, we discuss likely value upside to Asian Sea (ASIAN TB)  based on Asian Alliance’s possible valuations upon listing (based on its reported financials).

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

By Janaghan Jeyakumar, CFA

The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021 for the STOXX Europe 600 Index and the EURO STOXX Index. 

The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region. The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for one of the most widely tracked blue-chip indices in the Eurozone (“EURO STOXX 50”), which is rebalanced once a year in September. 

More below the fold.

HMM CEO Letter to Shareholders Concerning Share Price Decline

By Sanghyun Park

Today (October 13), HMM posted a “CEO Letter to Shareholders” on its website.

As shareholders’ dissatisfaction grew over HMM Co., Ltd. (011200 KS) ‘s recent sharp decline in share price, the company’s CEO Bae Jae-hoon took out a shareholder-friendly policy card including dividends to appease shareholders.

The first sentence of this letter is straightforward and clear: “We are reviewing shareholder-friendly policies due to shareholders’ concerns about the share price decline.” In fact, HMM shares have been corrected more than 40% since peaking at the end of May.

So let’s take a look at what this CEO letter contains. There are some pretty significant parts.

1. Dividend

The first is a dividend. HMM has explicitly stated that it is considering a dividend payment.

However, the company said that at this time, there is no available profit that can pay dividends under the local commercial law. It is because HMM still has a massive accumulated deficit, which stood at ₩4.44T as of the end of 2020. According to local commercial law, dividends are not allowed when there is a deficit. But the company said that the deficit situation is getting better, so it will actively consider paying dividends when dividend-payable profits are generated. FYI, it will only know the status of this year’s deficit size at the end of this year.

2. Massive CB Conversion (Share Dilution) Risk

The second is the massive CB conversion risk. That is, this letter tried to address the concern about the possible conversion of the ₩600B perpetual convertible bonds held by KOBC into stocks: the ‘#191 CB’ issued in March 2017. The conversion price is ₩7,173, and if KOBC converts all of them, it will obtain 83,647,009 ordinary shares, causing a share dilution of 16.4%.

Now, HMM stressed in this letter that it might opt for early full repayment of these CBs as the company is in good cash condition due to the recent brisk business. But there is a catch here. It also clarified that even if it wanted early full repayment, it wouldn’t be able to refuse CB conversion into stocks if the bondholder (KOBC: Korea Ocean Business Corporation) made a request.

3. Illegal shorting activities

This part is also fun. First, HMM said that it had not found any illegal short-selling activities so far.

However, local retail investors are arguing that KDB (Korea Development Bank) and KOBC are artificially lowering the stock price to facilitate the sale of their controlling stake. In response, HMM adamantly denied the allegation. HMM also revealed that KDB and KOBC are not lending their HMM shares to short-sellers.

Balder/Entra ASA: Game of Thrones in Scandinavian Real Estate

By Jesus Rodriguez Aguilar

Fastighets Ab Balder (BALDB SS) intends to make an offer to acquire the remaining 66.33% stake in Entra ASA (ENTRA NO) for NOK 24.5 bn after it crossed the 33.3% mandatory offer threshold on 12 October. Under the Offer, Balder intends to acquire the remaining 120,811,936 shares of Entra at NOK 202.5/share. Balder prefer Entra to continue to be listed on the Oslo Stock Exchange. The consideration represents 29x EV/EBITDA, 27.0x deal value/est. FFO, deal value/consensus NAV of 119.4% and c. 2.3% premium to EPRA NRV.

Swedish real estate firms Samhällsbyggnadsbolaget I Norden AB (SBBB SS) and Castellum AB (CAST SS) had previously tried to acquire Entra, but both withdrew their bids last February after their offers failed to win enough backing (see Entra ASA: Competing Offers and Entra – SBB – Castellum: Bidding War Heats Up).

Castellum acquired a 11.8% stake in Entra from the Norwegian government pension fund in August. The acquisition price was NOK 210/share and Castellum now holds a 30.6% stake. At that time, Balder still held a 30% stake.

The contest for Entra seems far from over. On 13 October, the shares closed at NOK 214.8, 6% above the intended mandatory offer price, and 2.3% above the price paid by Castellum when it acquired a 11.8% stake in August. Castellum may keep on acquiring shares before triggering the mandatory offer threshold.

An improved bid could come from Castellum, up to a level of NOK 228/share, 15% premium to Entra’s Q2 2021 EPRA NRV, but would surely involve cash and shares.

Regarding takeover offers in Norway, the mandatory offer obligation is again triggered by acquisitions of shares representing more than 40% and 50% of the voting rights (repeat offer obligation).

MSCI Korea Standard SAIR: Drastic Changes to Likely Adds/Deletes in Recent Weeks

By Sanghyun Park

There are many stocks whose stock prices have changed substantially over the past two weeks, so we will likely see radical changes to the candidates for the upcoming MSCI Korea SAIR addition/deletion.

As a reminder, below are the Korea Standard screening thresholds for this November SAIR.

SAIR requirements (× Cutoff)MultipleValue
Full market cap (Outside IMI)1.00x₩3.40T
Full market cap (Small → Standard)1.50x₩5.10T
Float-adjusted market cap (Outside IMI)0.50x₩1.70T
Float-adjusted market cap (Small → Standard)0.50x₩1.70T
Full market cap (Existing Standard)0.67x₩2.27T
Float-adjusted market cap (Existing Standard)0.50x₩1.70T
Source: MSCI

Adds: Iljin Materials is rapidly emerging as a strong candidate.

Among the candidates moving up from the Korea Small Cap to the Standard, Iljin Materials, in addition to L&F and F&F, is highly likely to exceed the full market threshold (₩5.10T) as its share price recently surged.

Top 10 constituentsTickerCurrent market capIndex Wt.
L&F Co066970₩7.34T1.63%
Hansol Chemical Co014680₩4.01T1.35%
OCI Company010060₩3.57T1.32%
BNK Financial Group138930₩2.82T1.06%
Iljin Materials020150₩5.14T1.03%
Doosan Fuel Cell336260₩3.29T0.95%
DL E&C Co375500₩2.59T0.89%
DB Hitek Co000990₩2.23T0.89%
Hyosung Advanced Materials298050₩3.46T0.85%
Source: MSCI

So, based on the current share price, the following five stocks, including Iljin Materials, exceed the full market cap and float-adjusted market cap hurdles. Of course, Kakao Games’ inclusion assumes that MSCI has accepted the 45% float in this SAIR. For SD Biosensors, it is still slightly below the float-adjusted market cap hurdle.

AddsKrafton IncIljin Materials Co LtdL&F Co., Ltd.F&F Co LtdKakao Games CorpSD Biosensor Inc
TypeNew Investable Companies (outside IMI)Small-Cap→Standard migrationSmall-Cap→Standard migrationSmall-Cap→Standard migrationCompanies assigned to the Standard Index during the last IR that failed the final screeningNew Investable Companies (outside IMI)
Float rate14.00%50.00%60.00%45.00%45.00%35.00%
Interim Cutoff₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T
Full market cap hurdle₩3.40T₩5.10T₩5.10T₩5.10T₩3.40T₩3.40T
Float-adjusted market cap hurdle₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T
Full market cap₩23.79T₩5.14T₩7.34T₩6.57T₩4.95T₩4.61T
Float-adjusted market cap₩3.33T₩2.57T₩4.40T₩2.96T₩2.23T₩1.61T
Beat the threshold by % – full market cap599.72%0.81%43.87%28.89%45.64%35.47%
Beat the threshold by % – float-adjusted market cap95.92%51.22%158.97%74.00%31.08%-5.17%
Source: KRX & MSCI

Deletes: Huge changes have been made recently.

Deletion candidates have seen more changes over the recent weeks. The following are stocks with a current market cap of ₩3.40T or less among the MSCI Korea Standard constituents.

MSCI Korea Standard constituents > a full market cap of ₩3.4TTicker
Current market cap
CJ Logistics Corp000120₩3.39T
Korea Aerospace Industries Ltd047810₩3.25T
S1 Corp012750₩3.22T
Shinpoong Pharmaceutical Co Ltd019170₩3.22T
Green Cross Corp006280₩3.19T
Alteogen Inc196170₩3.11T
BGF Retail Co Ltd282330₩3.05T
LG Chem Ltd Preference Shares051915₩3.03T
Lotte Shopping Co Ltd023530₩2.93T
CJ Corp001040₩2.88T
Seegene Inc096530₩2.66T
Cheil Worldwide Inc030000₩2.62T
Shinsegae Inc004170₩2.55T
Daewoo Shipbuilding & Marine Engineering042660₩2.52T
Fila Holdings Corp081660₩2.43T
Hyundai Motor S1 Pref Shs005385₩2.41T
LG Household & Healthcare Ltd Preference Shares051905₩1.41T
Source: KRX & MSCI

Among them, the seven stocks do not meet the float-adjusted market cap hurdle.

DeletesCheil Worldwide IncLG Household & Healthcare Ltd Preference SharesDaewoo Shipbuilding & Marine EngineeringLotte Shopping Co LtdCJ Logistics CorpBGF Retail Co LtdCJ Corp
TypeExisting constituentExisting constituentExisting constituentExisting constituentExisting constituentExisting constituentExisting constituent
– Rounding up60.00%95.00%35.00%40.00%50.00%45.00%50.00%
Interim Cutoff₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T
Full market cap hurdle₩2.27T₩2.27T₩2.27T₩2.27T₩2.27T₩2.27T₩2.27T
Float-adjusted market cap hurdle₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T
Full market cap₩2.63T₩1.40T₩2.52T₩2.93T₩3.38T₩3.05T₩2.87T
Float-adjusted market cap₩1.58T₩1.33T₩0.88T₩1.17T₩1.69T₩1.37T₩1.44T
Beat the threshold by % – full market cap15.97%-38.12%11.00%29.17%48.95%34.59%26.79%
Beat the threshold by % – float-adjusted market cap-7.22%-21.62%-48.20%-31.11%-0.70%-19.25%-15.47%
Source: KRX & MSCI

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