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Most Read: JD Logistics, AEM, SK Telecom, Xiaomi Corp and more

In today’s briefing:

  • JD Logistics IPO: Fast Entry Possibilities into MSCI, FTSE, China 50, HSCEI, HSTECH, HSCI
  • Korea Short Selling: What Day 1 Looked Like
  • AEM: Temporary Weakness Creates Buying Opportunity Going into New Product Cycle as of 3Q21
  • SK Telecom Share Cancellation: Why Doing It Now & Potential Impacts
  • FTSE China 50 Index Rebalance Preview: Two Changes for Now; Two More Are Close

JD Logistics IPO: Fast Entry Possibilities into MSCI, FTSE, China 50, HSCEI, HSTECH, HSCI

By Brian Freitas

JD Logistics (JDL HK) is a leading technology driven supply chain solutions and logistics services provider in China. The company started off as an in-house logistics department for the JD Group in 2007 and opened up to external customers in 2017.

JD Logistics (JDL HK) got the green light from the HKEX (388 HK) on 29 April and media reports indicate that the company is looking to raise US$4bn at a valuation of US$40bn. Pre-marketing is said to have started and the shares could start trading later this month.

The stock has a high probability of inclusion in the Hang Seng Tech Index (HSTECH INDEX) and Hang Seng Composite Index. A listing day rally is needed for inclusion to the Hang Seng China Enterprises Index (HSCEI INDEX), while inclusion in the MSCI Standard, FTSE All-World and FTSE China 50 indices depends on the cornerstone allocations (plus a listing day pop). 

In this Insight, we break down the possibility of the stock being included in the MSCI Standard index, the FTSE All-World index, the FTSE China 50 index, Hang Seng China Enterprises Index (HSCEI INDEX), Hang Seng Tech Index (HSTECH INDEX) and the Hang Seng Composite Index (HSCI).


Korea Short Selling: What Day 1 Looked Like

By Brian Freitas

Short selling resumed in Korea yesterday after a ban that lasted almost 14 months. Given the large run up in the Korea Stock Exchange Kospi Index (KOSPI INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) markets for the duration of the short sell ban, there was bound to be some action on day 1 and it did not disappoint.

The Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) opened lower and sold off for most of the day with the KOSDAQ150 ending a lot lower than the KOSPI200. This is a theme that could continue being played out over the near term.

The most shorted stocks in the KOSPI market in notional terms were Celltrion Inc (068270 KS), LG Display (034220 KS), Shinpoong Pharmaceutical (019170 KS), LG Chem Ltd (051910 KS) and HMM Co., Ltd. (011200 KS). Among the KOSDAQ stocks, the most shorted names were Seegene Inc (096530 KS), Celltrion Healthcare (091990 KS), KMW Co Ltd (032500 KS), Hyundai Ibt (048410 KS) and Kakao Games Corp (293490 KS).

Stocks that had the largest percentage of short selling to traded volume were Samsung Card Co (029780 KS), Hyundai Marine & Fire Insurance Co., (001450 KS), Ottogi Corporation (007310 KS), LOTTE Corporation (004990 KS) and Hanjin KAL Corp (180640 KS) in the KOSPI market. Among KOSDAQ stocks, the largest percentage of short selling to traded volume were on Dawonsys Co Ltd (068240 KS), NKMax (182400 KS), Dongkook Pharmaceutical Co Ltd (086450 KS), Seegene Inc (096530 KS) and S.M.Entertainment Co (041510 KS).

There was a lot of short selling on potential deletions from the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX), KOSDAQ 150 Index (KOSDQ150 INDEX) and MSCI Standard indices with the largest price drops on the MSCI potential delete names due to the large impact expected from passive funds.


AEM: Temporary Weakness Creates Buying Opportunity Going into New Product Cycle as of 3Q21

By Nicolas Van Broekhoven

AEM (AEM SP) posted 1Q21 results which were relatively soft YoY. Management noted that 1Q21 was still much stronger than 1Q19 and 1Q20 was an anomaly. AEM also shared annual guidance between 460-520M SGD for 2021. This was the first time management shared guidance for the year. Given AEM’s history we believe this guidance is conservative.

During the call the CEO and CFO were confident that growth would significantly pick up from 3Q21 as its largest customer Intel Corp (INTC US) ramps up requirement for its latest test handlers. Longer term the company is hopeful to announce multiple new significant customer wins by 2022. This has been a multi-year process which could now bear fruits next year and would be an important catalyst for the company. We remain convinced AEM also becomes an M&A target at some point which provides downside support to the stock.

Nothing in 1Q21 results changes the long-term bull thesis on AEM. Fair Value remains unchanged 5 SGD (40% upside). 


SK Telecom Share Cancellation: Why Doing It Now & Potential Impacts

By Sanghyun Park

SK Telecom made another surprising announcement. It just said that it would cancel 8.7M treasury shares (all of them are ordinary shares) on May 6.

They represent 10.76% of the total shares and 90.61% of the current treasury shares. They are worth ₩2.64T at the last close. After this cancellation, SKT’s treasury shareholding comes down to only 900,000 shares, representing a meager 1.11% of the shares outstanding.

Cancellation overview
Shares outstanding80,745,711
Treasury shares9,585,568
Target quantity for cancellation8,685,568
– % of shares outstanding10.76%
– % of treasury shares90.61%
Shares outstanding after cancellation72,060,143
Treasury shares after cancellation900,000
– % of SO1.25%
Source: DART

Why canceling shares now?

  • SKT’s treasury shares should come in handy for an eventual merger with SK Holdings. So, the initial speculation was transferring all the treasury shares to SKT intermediary Holdco so that SK Holdings can enjoy an increased amount of voting shares in SKT Opco after a merger.
  • That means, if there is no such merger in the future, SKT’s treasury shares would not be much of use. The announced split is an equity spinoff, but this isn’t a typical holding company conversion requiring a post-split tender offer to move SKT Opco under SKT intermediary Holdco. That is, these treasury shares regaining voting rights for SKT Opco wouldn’t mean much for the major shareholder.
  • So, keeping the treasury shares can send a wrong signal to SKT shareholders that a merger with SK Holdings may not be completely thrown away even though the management confirmed no such plan.
  • Obviously, the short-term priority is getting approval on the split from SKT shareholders, and anything that may impede it should be addressed now.

FTSE China 50 Index Rebalance Preview: Two Changes for Now; Two More Are Close

By Brian Freitas

The FTSE China 50 index is designed to represent the performance of Chinese companies (H-shares, P-chips and Red chips) that are listed on the Hong Kong Stock Exchange. The index is a free float weighted market cap index and the weights of the constituents are capped at 9% on a quarterly basis.

The next rebalance will be effective after the close of trading on 18 June and the changes will be announced on 2 June. The June review will use data from close of trading on 24 May to determine the stocks to be included and excluded.

Using the last market cap, we see Xiaomi Corp (1810 HK) and Cosco Shipping Holdings Co., Ltd (H) (1919 HK) being included in the index, while the most probable deletion candidates are Evergrande Real Estate Group (3333 HK) and China Merchants Securities Co Ltd (H) (6099 HK).

Country Garden Services Holdings (6098 HK) and Citic Ltd (267 HK) are close adds and their inclusion would put China Tower (788 HK) and Geely Auto (175 HK) at risk of deletion from the index.

Xiaomi Corp (1810 HK) is eligible for inclusion in the index at this review following the preliminary injunction granted on 12 March by the US District Court for the District of Columbia and FTSE’s subsequent announcement that Xiaomi Corp (1810 HK) would be eligible for inclusion in the FTSE indices from the June 2021 review as long as there were no further developments that would preclude its inclusion in the index.

Estimated one-way turnover for the June review is 6.25% and would result in a one-way trade of HK$2.61bn.


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