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Most Read: Hotel Property Investments, OUE Commercial REIT, Tencent, West Japan Railway Co and more

In today’s briefing:

  • FTSE EPRA NAREIT – Lots of Adds In Developed Asia
  • FTSE EPRA Nareit Rebalance Decided; Sub-Baskets Worth Trading Still
  • Tencent – An Analytical Framework For “Tomorrow’s” Gaming Minors
  • West Japan Railway Placement – A Large, Unexpected Dilution
  • JR West (9021 JP) New Issue: Index Implications

FTSE EPRA NAREIT – Lots of Adds In Developed Asia

By Brian Freitas

A short while ago, FTSE Russell announced the changes to the FTSE EPRA Nareit Global Real Estate Index Series that will become effective after the close of trading on 17 September.

As expected, there are a lot of inclusions for Developed Asia following the changes in the ground rules that lowered the basis points inclusion threshold from 0.3% to 0.1% to align the region with other Developed Markets.

There are 11 adds for Singapore, 10 for Australia, 3 for Japan, and 2 each for Hong Kong and New Zealand.

Stocks with the largest impact in terms of days of ADV to trade are Industria Reit (ADI AU), OUE Commercial REIT (OUECT SP), Cromwell European REIT (CERT SP), Sunlight REIT (435 HK), Far East Hospitality Trust (FEHT SP), Prosperity Reit (808 HK), Hotel Property Investments (HPI AU), Starhill Global REIT (SGREIT SP), Argosy Property (ARG NZ) and Growthpoint Properties Australia (GOZ AU).

The Australia inclusions have outperformed their peers significantly over the last couple of months and there could be some retracement there closer to the rebalance implementation date.

The Singapore inclusions have outperformed their peers marginally and there could be further gains till implementation date.


FTSE EPRA Nareit Rebalance Decided; Sub-Baskets Worth Trading Still

By Travis Lundy

The FTSE EPRA Nareit Global Real Estate Index Rebalance for September 2021 has been announced. There are 29 Additions – 28 from Asia – and two deletions. 

The original announcement caught investors by surprise, and baskets were hurriedly formed as impact was expected to be large. Mine, iterated as time went on, had 35-38 names in it, with two large-ish names from Australia, several large names from Japan, and a few Korean REITs which I expected to pass muster but which did not.  There were fewer changes than I expected, and in particular, fewer changes from Japan. I assume the hiccup was volume or float, though I didn’t see it. From the performances this morning of the names that I and others expected to go in but which did not make it in, it looks like others expected it too. The original caveat was that the breakdowns of revenue reporting were not that easy to identify

The inclusion date is 17 September.

The impact should still be large (it has been large so far).

More analysis below the fold.


Tencent – An Analytical Framework For “Tomorrow’s” Gaming Minors

By Jason Yap, CFA

Tencent (700 HK)‘s share price retreated 3.2% overnight on news that China would restrict playing time for minors to 3 hours a week – that is, 8pm to 9pm time slots on Friday, Saturday and Sunday, with an extra hour on public holidays.  The share price erased these losses and recorded an intra-day gain of 3.3% by Tuesday’s market close, suggesting that regulatory concerns were assuaged by Tencent’s affirmation of low single-digit revenue contribution of minors. 

Insight Provider Mio Kato wrote a unique but sensible piece about how the market may have misunderstood the significance of the restrictions, with the implications for the long-term growth of the industry more severe and an appreciation of the relevant issues would come sooner.  A key thrust of the argument is that habit-formation of gaming at an early age would be disrupted to an extent that gaming habits and user time spent do not carry over into adulthood. 

Tencent’s gaming revenue is derived primarily from the sales of in-game virtual items and the provision of adjacent services.  In this article, we expand on the above argument by highlighting how the habit-formation disruption not only affects user time spent but also have a knock-on impact with respect to in-game virtual item spending, subscription, and IP consumption. 

Further, Tencent’s revenue recognition on the provision of online games heavily depends on management’s assumptions of the gamer’s usage profile, which was in turn determined based on past gaming habits. This was historically raised as a Key Audit Matter in Tencent’s Audit Opinions. Accordingly, we also discuss in this article how the underlying management assumptions might change as a result of the regulations and consequent impact on Tencent’s gaming revenues. 


West Japan Railway Placement – A Large, Unexpected Dilution

By Zhen Zhou, Toh

West Japan Railway Co (9021 JP)  (JR West) is looking to raise up to US$2.7bn (including over-allocation) in its upcoming Japan follow-on offering.

In this note, we take a brief look at fundamentals, recent results, and share our thoughts on deal dynamics. We will also run the deal through our ECM framework.


JR West (9021 JP) New Issue: Index Implications

By Brian Freitas

On 1 September, West Japan Railway Co (9021 JP) announced an issuance of new shares and a secondary offering of shares amounting to US$2.7bn to fund strategic initiatives of the company and strengthen the financial position of the company.

A maximum of 52.667m shares will be issued and the price of the new issue and secondary placement will be determined between 13-15 September while settlement will take place between 20-23 September.

The current offering only covers 20% of the company’s bonds and loans outstanding and there could be more equity offerings if the COVID19 situation does not ease up significantly in the near future permitting the company to resume normal operations.

West Japan Railway Co (9021 JP) has underperformed its peers over the last 20 months and trades cheaper to the average of its peers.

Following the price drop yesterday and the passive buying that will emerge from the increased number of index shares, the stock could rebound in the near future.

The equity offering will increase the number of issued shares and the free float of the stock and will require MSCI, FTSE and Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) passive trackers to buy stock. This will provide near-term support for the stock with around 30% of the issue being bought up by passive trackers.

West Japan Railway Co (9021 JP) may be the first among its peers to raise additional capital and there could be more offerings from some of the other companies in the same sector.


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