In today’s briefing:
- Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Xiaomi (1810 HK)’s US$5bn Placement: Unfavourable Index Dynamics but Strong Momentum
- Tsuruha (3391) – Welcia (3141) – Tsuruha Earnings In a Week – Still Good To Be Long The Ratio
- Seven & I Holdings (3382 JP): Uncomfortable Truths
- 7&I (3382) – Clarifications of Clarifications But Progress Is Apparent
- Nikkei 225 Index Rebalance: Positioning With a Few Days to Implementation
- Revisiting Korea’s Local Rights Issue Arb Setup
- Fuji Soft (9749 JP) – KKR Does Deal With the Family To Squeeze Out Minorities – You Can Join Too
- More Gold Fever: Gold Field’s Hostile Tilt For Gold Road
- HSCI Index Rebalance Preview: Three Hot Inclusions to Stock Connect in June
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.
Xiaomi (1810 HK)’s US$5bn Placement: Unfavourable Index Dynamics but Strong Momentum
- Xiaomi Corp (1810 HK) is looking to place 750m shares at a price range of HK$52.8-54.6/share, a 4.2-7.4% discount from last. That could raise up to HK$40.95bn (US$5.27bn).
- There will be limited passive buying near-term. There will be more passive buying at the end of May. Then there will be passive selling early June.
- Shorts will be hurting from the relentless move higher in the stock and there could be short covering if the stock moves lower from these levels.
Tsuruha (3391) – Welcia (3141) – Tsuruha Earnings In a Week – Still Good To Be Long The Ratio
- Tsuruha and Welcia are on the road to a merger, where Tsuruha takes over Welcia but Aeon ends up owning “more than 50% but less than 51%” of Tsuruha.
- The Price Ratio is now 4.24x. Trailing EPS ratios is >5. Forward EPS ratios are further above 5. BVPS ratio? Near 5. Welcia grows storecount. Tsuruha makes more money/store.
- Tsuruha changed its FY-end to match that of Welcia/Aeon so both will report earnings/guidance in just over 3 weeks. That will likely influence the ratio.
Seven & I Holdings (3382 JP): Uncomfortable Truths
- Seven & I Holdings (3382 JP) has published two documents to respond to misinformation and detail its “constructive engagement” with Alimentation Couche-Tard (ATD CN).
- The statements underscore the Board’s serious doubts about securing US antitrust approval. The significant discrepancies in the engagement timeline point to two parties at loggerheads.
- While the Board claims it is pursuing a dual-track process to create value, the reality is that the process is designed to hinder Couche-Tard’s offer to facilitate the restructuring plan.
7&I (3382) – Clarifications of Clarifications But Progress Is Apparent
- On 10 March, Seven & I Holdings (3382 JP) released a statement about its interactions with Alimentation Couche-Tard (ATD CN). The next day, ATD released its own. They didn’t match.
- The 7&i spokesperson admitted one technical point, but investors seemed to believe ATD over 7&i. On 13 March, ATD held a presentation in Tokyo. Materials? Unchanged. Earnings comments? Unchanged.
- This morning, 7&i released a document which “corrects the record regarding critical false and misleading claims about 7&i’s engagement with Alimentation Couche-Tard (ACT).” OUCH. The stock fell.
Nikkei 225 Index Rebalance: Positioning With a Few Days to Implementation
- BayCurrent Consulting (6532 JP) replaces Mitsubishi Logistics (9301 JP) in the Nikkei 225 (NKY INDEX) at the close of trading on 31 March.
- Since announcement, BayCurrent Consulting (6532 JP) stock is up with cumulative excess volume increasing, while Mitsubishi Logistics (9301 JP) is lower on a much bigger increase in cumulative excess volume.
- Some of the forecast adds and deletes have moved as one would expect, but positioning for the September rebalance could lead to reversals over the next few weeks and months.
Revisiting Korea’s Local Rights Issue Arb Setup
- Korea’s rights issues offer a clean arb setup—track stock rights vs. spot price, with first price as a cap, and lock in predictable entry vs. exit costs.
- Aggressive locals skip hedging, betting the discount holds between final pricing and listing. History backs it, but it’s a case-by-case call—not a blanket recommendation.
- Samsung SDI and Hanwha Aerospace’s KRW 5.5T raise is massive, likely flooding stock rights into the market—prime setup for arb plays.
Fuji Soft (9749 JP) – KKR Does Deal With the Family To Squeeze Out Minorities – You Can Join Too
- KKR’s Second Tender Offer for Fuji Soft Inc (9749 JP) ended 19 February 2025 and KKR got a whopping 57.9% after Bain bowed out. It was close.
- The Nozawa founder said it would not tender. Others family members may have, but now KKR has signed a deal with Nozawa family company YK NFC, to support the squeezeout.
- Assuming, Nozawa Hiroshi’s stake and the NFC stake remain unchanged, that cements the result of the 25 April AGM. But there may be games to play.
More Gold Fever: Gold Field’s Hostile Tilt For Gold Road
- Gold Road Resources (GOR AU) has rejected an unsolicited offer from Gold Fields Ltd (GFI SJ),
- In a bid to secure control over the Gruyere JV mine in WA, Gold Roads offered A$2.27/share, “plus … Gold Road’s interest in .. De Grey Mining (DEG AU).“
- To spice things up Gold Road countered with a proposal to acquire Gold Fields’ interest in Gruyere, which was also rejected by Gold Fields.
HSCI Index Rebalance Preview: Three Hot Inclusions to Stock Connect in June
- There have been 14 new listings on the Main Board of the HKEX in Q1. One listing is a transfer from the GEM Board and one is a De-SPAC.
- Of the 14 stocks, we see Mixue Group (2097 HK), Guming Holdings (1364 HK) and Bloks Group (1850960D CH) as potential HSCI inclusions in June.
- There are no lock-up expiries in the stocks ahead of inclusion in Southbound Stock Connect and the low float could take the stocks higher ahead of the index inclusion announcement.
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