In today’s briefing:
- FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: 46% One-Way Turnover and US$5bn Two-Way Trade
- Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
- Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings
- 2023 High Conviction – GoTo – Burnt Through All Cash From the IPO, Weakest Cash Position Among Peers
- DPC Dash Pre-IPO – The Positives – On a Rapid Expansion Spree
- 2023 High Conviction: AviChina Industry (2357 HK) – The Sky Is the Limit
- Sea Ltd (SE US) – Wind Back in the Sails
- Growatt Technology Pre-IPO – Still Looks Good, Updated Thoughts on Valuation
- Trading Considerations on the OCI Demerger
FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: 46% One-Way Turnover and US$5bn Two-Way Trade
- Today is the review cutoff for dividend data and stock prices that will be used to select the inclusions and exclusions as well as for capping of index weights.
- We see 26 adds and 5 deletes for the index at the December rebalance resulting in one-way turnover of 46% and a one-way trade of TWD 78.1bn (US$2.51bn).
- Passive trackers will need to buy over 5 days of ADV on 15 stocks and sell over 5 days of ADV on 19 stocks and this will present trading opportunities.
Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
- With just over two months left in the review period, we expect three changes to the Nikkei 225 (NKY INDEX) at the March rebalance.
- Lasertec Corp (6920 JP), Oriental Land (4661 JP) and Renesas Electronics (6723 JP) could replace Toyobo Co Ltd (3101 JP), Nippon Light Metal (5703 JP) and Toho Zinc (5707 JP).
- As with the last rebalance, there will be a large funding trade estimated at JPY 417bn. There are many stocks with over 0.5x ADV to sell.
A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
- This post will specifically examine arb trade opportunities during the subscription rights trading period, with the recent HLB and Lotte Chemical cases.
- HLB gave an arb yield of 8%. As for Lotte Chemical, the size (₩1.1T) is much bigger, and it carries single-stock futures, a powerful incentive for arb traders.
- Another thing for Lotte Chemical is that it is unclear whether the major shareholders will participate in the subscription, which can lead to a widening of our arb spread.
Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings
- Days after the Tencent (700 HK) announcement about its planned distribution of the bulk of the Meituan (3690 HK) shares it owns, the Hang Seng Index team clarified index treatment.
- It will be treated in HS Indices as a “listed non-cash distribution” for Tencent. There is theoretically wiggle room on the Meituan side, but it appears it will follow JD.com.
- That means Meituan selling on 4 January at the close, limbo for two months, then Meituan buying. Full model below.
2023 High Conviction – GoTo – Burnt Through All Cash From the IPO, Weakest Cash Position Among Peers
- In Mar 2022, GoTo (GOTO IJ) raised around US$1bn from what was essentially a domestic Indonesian IPO.
- GoTo has already burnt through the cash it raised from the listing and cash burn still remains high, while its cash balance is amongst the lowest in its peer set.
- At its current cash burn pace, the company will have to come to the markets again soon.
DPC Dash Pre-IPO – The Positives – On a Rapid Expansion Spree
- DPC Dash aims to raise around US$100m in its Hong Kong IPO.
- The company is the exclusive master franchisee for Domino’s Pizza in China, HK and Macau. DPC operated 562 stores across 13 cities, as of Nov 2022.
- In this note, we will talk about the positive aspects of the deal.
2023 High Conviction: AviChina Industry (2357 HK) – The Sky Is the Limit
- AviChina Industry & Technology H (2357 HK) offers unique exposure to China’s aerospace and defense sector and it will ride on China’s ambition to solidify its military strengths.
- We think the key drivers are increase in civil and defense demand, commercialisation of C919 aircraft, localisation of helicopters and potential for corporate restructuring.
- The stock is undervalued with its holdings in four listed A-shares amounted to Rmb70.6bn, against its own market cap of HK$25bn. Also, earnings multiples are cheap relative to global peers.
Sea Ltd (SE US) – Wind Back in the Sails
- Sea Ltd 3Q2022 results should be seen as the poster child for the rest of the space given a crystal clear focus on profitability and pragmatic approach to future growth.
- The fact that the company is now contribution margin positive in ASEAN and even Adjusted EBITDA positive in Malaysia and Taiwan is a testament to its success in controlling costs.
- Sea Ltd (SE US) has seen a significant compression in valuations and now looks attractive on 2.1x FY2023V EV/Sales and 1.7x FY2024E EV/Sales.
Growatt Technology Pre-IPO – Still Looks Good, Updated Thoughts on Valuation
- Growatt Technology (1833969D CH) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
- Growatt Technology is a global distributed energy solution provider, specializing in sustainable energy generation, storage and consumption, as well as energy digitalization.
- In our previous notes, we looked at various aspects of the company’s performance. In this note, we’ll provide our updated thoughts on the company’s valuation.
Trading Considerations on the OCI Demerger
- Value accretion by unlocking the voting eligibility of treasury shares won’t happen as the company holds no treasury share.
- But KOSPI 200 passive flows will pose a noteworthy trading point. PASSIVE’s selling outflow will be about 700-800K shares, 1.6x ADTV.
- Market cap imbalance, primarily driven by the tender offer dynamic and the split ratio that is excessively focused on Holdco, will likely exacerbate Holdco → Opco migration after re-listing.
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