In today’s briefing:
- Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses
- Nikkei 225 Index Rebalance: Passives Trade on Friday
- Nikkei 225 March 2023 Rebal Tomorrow
- Alibaba’s Sum of the Parts Valuation: Why the Initial Excitement May Be Overblown
- JD.com (9618 HK) Announces TWO Spin-Offs (That Were Always Going To Be Spinoffs)
- HSCEI Dividend Futures: Nearing the Pointy End of Results Season
- Rakuten Bank IPO – Thoughts on Valuation
- Delta Taiwan Vs. Thailand Monitor: Valuation Divergence Hits a New Extreme
- Tencent: Next Candidate for an Alibaba Style Split?
- Merdeka Battery Materials IPO – Commercializing One of the World’s Largest Nickel Mines
Nikkei 225 Index Rebalance Preview (Sep 2023): Potential Changes & Dark Horses
- The review period for the Nikkei 225 (NKY INDEX) September rebalance ends end July. We highlight 3 potential inclusions and exclusions for the index.
- There are a few alternate adds that are interesting and their inclusion in the index could move things around a fair bit.
- Due to the large size difference between the potential adds/deletes, there will be a large funding trade with passive trackers needing to sell over 0.5x ADV on many index constituents.
Nikkei 225 Index Rebalance: Passives Trade on Friday
- Oriental Land (4661 JP), Renesas Electronics (6723 JP), Japan Airlines (9201 JP) will replace Toyobo (3101 JP), Nippon Light Metal (5703 JP), Toho Zinc (5707 JP) in the Nikkei 225.
- Estimated one-way turnover at the rebalance is 1.08% and will result in a round-trip trade of JPY 412.8bn (US$3.16bn) at the close on 31 March.
- There has been recent pre-positioning on the stocks as well as movement in short interest over the last couple of months.
Nikkei 225 March 2023 Rebal Tomorrow
- The Nikkei 225 March 2023 Rebalance is 31 March at the close. There is about US$1.75bn of funding to sell against US$1.85bn of 3 names to buy.
- The impact on the Buy Side is middling at 3, 6.4, and 6.9 days of ADV to buy. The three DELETES are larger on average but they are all smallcaps.
- One trade – long an ADD vs a Peer – is still worth doing. Indexers buy the stock, it goes into a dark closet, and never comes out.
Alibaba’s Sum of the Parts Valuation: Why the Initial Excitement May Be Overblown
- Alibaba Group (9988 HK)‘s shares rallied after announcing the business split, with investors believing that the sum of parts could be worth more than the current valuation.
- Our analysis shows that NAV is only 12% higher than the current valuation, contrary to the idea of a significantly higher sum of parts value.
- Therefore, we would be looking to short Alibaba (ADR) (BABA US) yet again once this initial excitement settles.
JD.com (9618 HK) Announces TWO Spin-Offs (That Were Always Going To Be Spinoffs)
- Two days ago, media reported Alibaba Group (9988 HK) / Alibaba (ADR) (BABA US) would split and possibly list several businesses. Last night Cainiao was reported as starting listing preparations.
- Last night, JD.com Inc. (9618 HK) made two announcements it was proposing to spin off and list its JD Property and JD Industrial arms. This is NOT a spinoff war.
- JD raised Series A and B for both companies. These were always going to be spins, like Health, Digits, and Logistics. JD Properties will be biggish.
HSCEI Dividend Futures: Nearing the Pointy End of Results Season
- The HSCEI 2023 dividend futures have dropped over the last week as results have trickled in and some of the larger dividend payers have cut their final dividends.
- Over 50% of the DIPS are confirmed now and that number will increase significantly over the next couple of days as the remaining companies announce their final dividends.
- From our estimates, just over 80% of the DIPS will be confirmed by tomorrow though over 66% of the total DIPS will have CNYHKD risk attached to it.
Rakuten Bank IPO – Thoughts on Valuation
- Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$900m in its Japan listing in April 2023.
- RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
- In our earlier notes, we have looked at the company’s past performance and undertook a peer comparison. In this note, we provide our thoughts on valuation.
Delta Taiwan Vs. Thailand Monitor: Valuation Divergence Hits a New Extreme
- The valuation divergence between Delta Electronics Thai (DELTA TB) and its parent Delta Electronics (2308 TT) has hit a new extreme.
- Delta Thailand surged 9.3% Thursday on no news, even prompting the Thailand Stock Exchange to query the company.
- Delta Taiwan’s stake in Delta Thailand is now worth more than all of Delta Taiwan. The valuation divergence would seem unsustainable, however when things revert is uncertain.
Tencent: Next Candidate for an Alibaba Style Split?
- While all eyes are on Alibaba splitting its business into six mini-Babas, some were quick to conclude that Tencent could be the next candidate for a similar split.
- Unlike Alibaba (ADR) (BABA US) whose business units have clear divisions and stand on its own, Tencent (700 HK) ’s businesses are interconnected making a similar split very difficult.
- Having looked at Tencent’s business units and past regulatory probe on the company, it seems unlikely for the company to be the next candidate for an Alibaba style separation.
Merdeka Battery Materials IPO – Commercializing One of the World’s Largest Nickel Mines
- Merdeka Battery Materials (2012725D IJ) is looking to raise around US$580m in its Indonesian IPO.
- It has the largest resource globally in terms of contained nickel at the Konawe Nickel Mine (the SCM Mine), according to Wood Mackenzie.
- MBM aims to become a vertically integrated battery materials player. Through a series of acquisitions, it owns one of the world’s largest nickel mines.
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