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Most Read: Beijing Huafeng Test & Control Technology-A, KakaoBank, Krafton Inc, Iress Ltd, Myoung Shin Industrial Co.,Ltd and more

In today’s briefing:

  • STAR50 Index Rebalance Preview: Big Turnover in a Volatile Market
  • Kakao Bank – Gray Market Price Declines Sharply By 35% in One Month
  • Krafton IPO: Bookbuilding Results & Index Fast Entry
  • Iress (ASX AU) Bats Away EQT – For Now
  • KRX Autos Rebalancing on September 9: Watch Myoungshin Industrial as a New Add

STAR50 Index Rebalance Preview: Big Turnover in a Volatile Market

By Brian Freitas

The SSE STAR 50 (STAR50 INDEX) is a free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market.

The review period for the September rebalance ends on 31 July, the results of the rebalance will be announced towards the end of August and the changes will be implemented at the close of trading on 10 September.

With only 2 trading days left in the review period, we see Shanghai Shen Lian Biomedical (688098 CH)Piesat Information Technology (688066 CH)Guangzhou Fang Bang Electr-A (688020 CH)Shenzhen Lifotronic Techno-A (688389 CH) and Appotronics Corp Ltd (688007 CH) as high probability deletions from the index.

Coming up with a definitive list of inclusions is tougher given the subjectivity of the index rules for this review. The subjectivity comes from the whether the index committee uses a minimum listing history period of 12 months or 6 months.

Higher probability inclusions (if a 12 month minimum listing history is used) are Eyebright Medical Technology Beijing (688050 CH), Sinocelltech Group (688520 CH), Beijing Huafeng Test & Control Technology-A (688200 CH), Zhejiang Orient Gene Biotech-A (688298 CH) and Tinavi Medical Technologies (688277 CH).

Lower probability inclusions (if a 6 month minimum listing history is used) are Zhejiang Supcon Technology (688777 CH), Tianneng Battery Group (688819 CH), Bestechnic Shanghai (688608 CH), 3peak (688536 CH) and Pylon Technologies Co Ltd (688063 CH).

The inclusions, exclusions and capping changes will result in a one-way turnover of 8.45% and result in a one-way trade of CNY3.3bn.


Kakao Bank – Gray Market Price Declines Sharply By 35% in One Month

By Douglas Kim

The gray market price of Kakao Bank has declined sharply by nearly 35% in the past month. As of 28 July 2021, Kakao Bank’s gray market price is 55,000 won, down from 85,000 won about a month ago. Typically, gray market prices of major Korean IPOs (those that have market caps of more than 1 trillion won) do not change this much within a short period of time. Kakao Bank IPO is scheduled to start trading on August 6th. 

Our base case valuation of Kakao Bank remains market cap of 26.8 trillion won or implied price of 56,144 won per share. This represents 44% higher than the high end of the IPO price range of 39,000 won. We continue to maintain a POSITIVE view of Kakao Bank, given the solid upside relative to the IPO price.

Nonetheless, given the sharp decline in the recent gray market price of Kakao Bank, there is now a reduced likelihood of Kakao Bank’s share price rising significantly to the 75,000 won to 85,000 won level in the first few hours of trading on August 6th. 


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.


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
ETF
Samsung Kodex Autos ETF
Ticker091180
AUM₩649.0B
Price₩23,305
SO27,850,000
Number of constituents17
Weight type
Float-adjusted market cap
Cap20.00%
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
Source: KRX & KODEX ETF

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