In today’s briefing:
- GMO Internet (4784) – Squeeze-Able So Squeezing, Offering Likely Gets Pulled – AVOID LIKE THE PLAGUE
- CATL (3750 HK): The Tail Wags the Dog
- Soundwill Holdings (878 HK): 23rd May Vote On Founder’s Offer
- [Japan Activism/M&A] – Thinking About Positioning Around the Tsuruha/Welcia Vote
- Soundwill Holdings (878 HK): An Opportunity or Another HK Arbageddon?
- PCOMP Index Rebalance Preview: One Set of Changes as PLUS Runs Away
- HD Hyundai Marine Solution Block Deal Sale of 8.5% of Outstanding Shares
- SENSEX Index Rebalance: Trent, Bharat Electronics to Replace Nestle, IndusInd Bank
- Dowoo Insys IPO Preview
- Xanadu (XAM AU): A Mongolian Face To A Mongolian Project
GMO Internet (4784) – Squeeze-Able So Squeezing, Offering Likely Gets Pulled – AVOID LIKE THE PLAGUE
- GMO Internet (4784 JP) was created by the reverse takeover of a listed cad/media company by its parent company’s “internet infrastructure” business. GMO Internet Group ended up with ~98%.
- In the process, the stock rose 500%. Now, as part of its promise to the TSE allowing TSE Prime membership for the extraordinarily low-float target, the parent is offering shares.
- The squeeze has it at 180x Dec25e EPS, 111x EBIT, 70x book. The offering likely gets pulled and the stock isn’t shortable… so what next? Pain, and an ECLWO.
CATL (3750 HK): The Tail Wags the Dog
- The buying in Contemporary Amperex Technology (3750 HK) over the last couple of days has dragged Contemporary Amperex Technology (CATL) (300750 CH) higher as the arbs trade the AH spread.
- The Fast Entry into a global index could keep CATL (3750 HK) supported over the next few trading days, but reality will take hold pretty soon.
- Short CATL (3750 HK) / long CATL (300750 CH) offers great risk/reward, while an outright CATL (3750 HK) short offers higher return albeit at a much higher level of risk.
Soundwill Holdings (878 HK): 23rd May Vote On Founder’s Offer
- On the 7th March, small-cap property developer Soundwill (878 HK) announced an Offer from Grace Foo (ED) and her family, controlling 74.97% of shares out, by way of a Scheme.
- The Offer Price of $8.50/share, including a $1.00/share dividend, was a 62.84% premium to undisturbed. But a 87.66% discount to the (then) most recent NAV. Terms were final.
- The Scheme Doc is now out, with a Court Meeting on the 23rd May, and payment on or before the 11th June. The IFA (Altus Capital) says “fair & reasonable”.
[Japan Activism/M&A] – Thinking About Positioning Around the Tsuruha/Welcia Vote
- The Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) AGMs to elect directors and approve the share exchange agreement to merge the two.
- 10% Tsuruha shareholder Orbis objects to the merger ratio AND the later tender whereby Aeon goes to 51%, saying everything is underpriced. ISS/GlassLewis recommend voting against the merger.
- I haven’t seen the proxy reports but I’ve done the math. Investors/arbs should look at the possibilities/probabilities and understand what dependencies exist. Shareholders are not helpless, no matter the outcome.
Soundwill Holdings (878 HK): An Opportunity or Another HK Arbageddon?
- The spread to the Foo family’s HK$8.50 offer for Soundwill Holdings (878 HK) has materially increased to 15.8% over the last two trading days. The vote is on 23 May.
- Several readers have asked if the Soundwill offer will mirror the Goldlion Holdings (533 HK) deal break. The two schemes share similarities but are also different in several ways.
- The share price action either reflects an imminent deal break or a result of a negative feedback loop. Tread carefully as this is a high-risk/high-reward situation.
PCOMP Index Rebalance Preview: One Set of Changes as PLUS Runs Away
- With 90% of the review period for the August rebalance of the Philippines Stock Exchange PSEi Index (PCOMP INDEX) complete, there could be one change for the index.
- DigiPlus Interactive (PLUS PM) should replace Bloomberry Resorts (BLOOM PM) in the index. Bloomberry Resorts (BLOOM PM) also has some global passive selling at the close on 30 May.
- DigiPlus Interactive (PLUS PM) is up 25x over the last couple of years and is up 46% since we identified the stock as a potential index inclusion.
HD Hyundai Marine Solution Block Deal Sale of 8.5% of Outstanding Shares
- After the market close today, it was announced that KKR is selling 3.81 million shares (8.5% of outstanding shares) of HD Hyundai Marine Solution in a block deal sale.
- The expected block deal sale price is 145,000 won to 148,000 won per share, which represent 7.96% to 9.83% discount to the closing price of 160,800 won on 22 May.
- Once this block deal is completed, KKR’s remaining stake in HD Hyundai Marine Solution will be reduced to 11% (4.94 million shares).
SENSEX Index Rebalance: Trent, Bharat Electronics to Replace Nestle, IndusInd Bank
- In line with forecasts, Trent and Bharat Electronics will replace Nestle India and Indusind Bank in the S&P BSE SENSEX Index after the close of trading on 20 June.
- Passive funds are estimated to buy 3-4 days of ADV in the adds and sell 1-10 days of ADV in the deletes. That increase to 3.5-17 days of delivery volume.
- Indusind Bank (IIB IN) stock has dropped recently due to a large quarterly loss and allegations of fraud. The stock is also a potential deletion from the NIFTY Index.
Dowoo Insys IPO Preview
- Dowoo Insys is getting ready to complete its IPO in Korea. Dowoo Insys is one of the first companies in Korea to commercialize ultra thin glass (UTG) for foldable displays.
- The IPO price range is 29,000 won to 32,000 won. At the high end of the IPO price range, the expected market cap of the company is 351 billion won.
- The bankers used five companies including Synopex, Duksan Neolux, and Innox Advanced Materials as comparable companies. The bankers used these companies’ average EV/EBITDA multiple of 15x to value Dowoo Insys.
Xanadu (XAM AU): A Mongolian Face To A Mongolian Project
- Back on the 21st May, Xanadu Mines (XAM AU), a Mongolian copper-gold mining play, inked an off-market deal with Bastion @A$0.08/share in cash.
- Bastion comprises Singapore-based Baroo (comprising board members from Mongolia) and Xanadu director Ganbayer Lkhagvasuren. Bastion is also subscribing for 286.8mn shares, at A$0.06/share, or 13% fully diluted.
- A follow-up Q&A session is worth listening to in full to gauge why Zijin (JV partner and 19.8% shareholder) may view Bastion taking control of XAM as a good thing.
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