In today’s briefing:
- Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Sun Corp (6736) – Still Cheap
- KOSDAQ150 Index Adhoc Rebalance: Binex (053030 KS) To Replace HLB Life Science (067630 KS)
- Korea’s FSC Just Dropped the Final Playbook on the Full Restart of Short Selling.
- China & HK Strategy: Assessing Placement Risks, Who Needs Money?
- Meituan (3690 HK): 4Q24, High Growth and Higher Margin, 60% Upside
- (Mostly) Asia-Pac M&A: Westgold/Spartan, Dropsuite, Shandong Fengxiang, Proto Corp, Shinko Electric
- Detailing KRX Market Alerts & Passive Flow Plays
- Kum Yang: A Potential Delisting? [Murphy’s Law in Progress]
- A/H Premium Tracker (To 21 Mar 2025): AH Premia Still Falling; Expect Curve Torsion or AH Widening
Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Hang Seng Indexes has announced a change in the FreeFloat-Adjusted Factor (FAF) methodology for Secondary Listings that will be implemented from the next rebalance in June.
- NetEase (9999 HK), Baidu (9888 HK), Trip.com (9961 HK), NIO (9866 HK), New Oriental Education & Techn (9901 HK) and Weibo (9898 HK) benefit; GDS Holdings (9698 HK) loses out.
- The FAF changes along with capping changes will result in a round-trip trade of HK$34.2bn (US$4.4bn) at the June rebalance with the largest turnover for the Hang Seng TECH Index.
Sun Corp (6736) – Still Cheap
- Eight months on from the Tender Offer which changed the shape of the shareholder register, Sun Corp (6736 JP) is as cheap to its main asset as it was before.
- Sun Corp is cheap to its holding in Cellebrite DI (CLBT US). How cheap depends on the form and structure of its eventual exit.
- Understanding what the options are (and the dynamics around hedging/exposure) is worthwhile.
KOSDAQ150 Index Adhoc Rebalance: Binex (053030 KS) To Replace HLB Life Science (067630 KS)
- HLB Life Science (067630 KS) was added to the Investment Attention Issue list on 21 March and traded limit down. Then came the announcement of the KOSDAQ 150 Index deletion.
- As the highest ranked non-constituent from the Healthcare sector at the December rebalance, Binex (053030 KS) will be added to the KOSDAQ 150 Index at the close on 25 March.
- Historically, intra-review inclusions have moved higher between announcement and implementation and there has been reversion post the index inclusion.
Korea’s FSC Just Dropped the Final Playbook on the Full Restart of Short Selling.
- Today’s update clarifies which brokers are fully linked to NSDS, giving them an edge in short-selling speed and flexibility, while others face more execution constraints.
- This leads to a clear execution risk gap, requiring traders to factor in trade efficiency differences based on their broker.
- With lower short-selling restriction triggers, liquidity and short-covering dynamics will shift, requiring traders to reassess market impact and adjust strategies accordingly.
China & HK Strategy: Assessing Placement Risks, Who Needs Money?
- The YTD rally in the Hong Kong and China markets has made it appealing for highly leveraged and outperforming stocks to make placements to raise fresh equity.
- GDS Holdings (9698 HK), China Youran Dairy Group (9858 HK), Shandong Gold Mining (1787 HK), Zhaojin Mining Industry (1818 HK), and BYD Electronics (285 HK) are possible candidates.
- Four of the top 30 YTD best-performing Hang Seng Composite stocks have made placements in the last three months, raising a total of HK$1.3bn with mixed performance since then.
Meituan (3690 HK): 4Q24, High Growth and Higher Margin, 60% Upside
- In 4Q24, Meituan’s revenue growth rate was 20% YoY with all businesses rising.
- The operating margin improved to 8.8% in 4Q24 versus about zero in 4Q23.
- We set an upside of 61% and a price target of HK$270. Buy.
(Mostly) Asia-Pac M&A: Westgold/Spartan, Dropsuite, Shandong Fengxiang, Proto Corp, Shinko Electric
- I tally 52 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma.
- Three news new deals discussed this week: the Westgold Resources (WGX AU)/Spartan Resources (SPR AU) merger, and EcoNaviSta (5585 JP)‘s Tender Offer.
- Key updates/news took place on: Dropsuite Ltd (DSE AU),Shandong Fengxiang (9977 HK), Proto Corp (4298 JP), and Shinko Electric Industries (6967 JP).
Detailing KRX Market Alerts & Passive Flow Plays
- HLB Life Science faces delisting if it stays in ATTENTION for four years or gets a disclaimer in an audit—barring surprises, there’s still runway before it’s a real threat.
- HLB Inc getting ATTENTION in May looks likely, as KRX factors in frequent correction disclosures—HLB’s history with Rivoceranib filings and the failed FDA bid add to the risk.
- If HLB Inc. gets ATTENTION in May and drops from KOSDAQ 150, VIOL (335890 KS) steps in—worth positioning ahead of late April.
Kum Yang: A Potential Delisting? [Murphy’s Law in Progress]
- Murphy’s law is at progress for Kum Yang (001570 KS).
- On 21 March, Kum Yang’s external auditor gave a disclaimer of opinion on the on its audit report.
- Korea Exchange is becoming more serious about delisting shady companies, especially one that receives inappropriate audit opinions for two consecutive years.
A/H Premium Tracker (To 21 Mar 2025): AH Premia Still Falling; Expect Curve Torsion or AH Widening
- AH Premia continue to fall. Spread curve torsion was a barbell this week. Narrow and wide spreads see Hs outperform. Middling spreads outperform less.
- To me, warning signs are flashing on spreads. They are at their narrowest in 5yrs and they are volatile, though volatility is coming down.
- Lots of spreads see the HA premium less than 15%. That is historically tight.
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