In today’s briefing:
- Rakuten US$2.4bn Placement – Recent Updates and Comparison to past Deals
- Rakuten Bank – Big TOPIX Inclusion Next Week
- Quiddity Leaderboard TDIV Jun 23: Five Changes and US$922mn One-Way Flows
- KOSPI200 Ad Hoc Index Rebalance: Youlchon Chem to Replace Dongkuk Steel Mill
- Two of KS200/KQ150 Additions Are Prime-Targeted for Shorting Due to Their Inflated Float Shares
- Rakuten (4755 JP): The Current Playbook
- Growatt Technology IPO: The Investment Case
- Ferrotec. Accelerating Growth Across Multiple Niche Semi Segments
- Ohayo Japan |SPX -1.1% as Equities Start to Heed Debt Risks; NUGGET: JP Autos- Painful EV Transition
- KOSPI 200 Ad-Hoc Changes for Dongkuk Steel Spinoff: Discussing Flow Trading Timeline
Rakuten US$2.4bn Placement – Recent Updates and Comparison to past Deals
- Rakuten (4755 JP) aims to raise up to US$2.4bn (JPY323bn) via a global offering.
- We have covered various aspects of the deal in our earlier notes, see here and here.
- In this note, we will talk about the updates since our last note, as well as the performance of some of the past large primary raises in Japan.
Rakuten Bank – Big TOPIX Inclusion Next Week
- Rakuten Bank priced its IPO low and then immediately bounced. Earnings came in as forecast, and the forecast next year did too. Highish PBR, high ROE, not-so-high-PER on low ROA.
- The stock fell on 16 May after Rakuten Bank announced its capital raising. That was probably a knee-jerk reaction, and had no reason.
- Next week sees the TOPIX inclusion. And the Real World Float has gotten smaller since the offering. And some of those people aren’t going to sell near-term.
Quiddity Leaderboard TDIV Jun 23: Five Changes and US$922mn One-Way Flows
- In this insight, we take a look at Quiddity’s flow expectations for the June 2023 index rebalance.
- I currently see 5 ADDs/DELs. Some of these names are different from the ones I specified in my previous insight.
- I have also discussed some long-short trading ideas involving names with significant flow implications.
KOSPI200 Ad Hoc Index Rebalance: Youlchon Chem to Replace Dongkuk Steel Mill
- Following the spin-off, Dongkuk Steel Mill (001230 KS) will be deleted from the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and replaced with Youlchon Chemical (008730 KS).
- Youlchon Chemical (008730 KS) just missed being added to the index at the June rebalance but will be added a couple of weeks after the regular rebalance.
- Shorts on Dongkuk Steel Mill (001230 KS) have increased over the last month but overall short interest is way below historical levels.
Two of KS200/KQ150 Additions Are Prime-Targeted for Shorting Due to Their Inflated Float Shares
- Lutronic Corp and Jeisys Medical have considerably lower DTV in comparison to their float shares. It is highly probable that they have artificially increased their float shares.
- Coincidentally, these two stocks are the ones that have experienced the most dramatic increase in borrow balance after the result announcement.
- These two stocks are being targeted for short-selling from a post-event perspective because the market believes they will exhibit abnormal passive (price) impact due to their inflated float shares.
Rakuten (4755 JP): The Current Playbook
- Since the announcement of the placement, Rakuten (4755 JP)’s shares are down -15.7% from the undisturbed price of JPY707 per share (12 May prior to press reports of the placement).
- To understand how the shares will trade as the offer is launched, we think it is instructive to look at recent large Japanese placements. Pricing date is likely 24 May.
- So far, Rakuten’s shares have mostly followed the pattern of previous large placements. Investors participating in previous large Japanese placements tend to secure positive returns.
Growatt Technology IPO: The Investment Case
- Growatt Technology (1833969D CH), a leading PV inverters manufacturer, is pre-marketing a US$400 million HKEx IPO, according to press reports.
- We previously discussed the IPO in Growatt Technology IPO: Growing Watts, Growatt Technology IPO: The Bull Case and Growatt Technology IPO: The Bear Case.
- The updated PHIP which disclosed the 2022 results and latest developments suggests that Growatt continues to deliver profitable and cash-generative growth.
Ferrotec. Accelerating Growth Across Multiple Niche Semi Segments
- Delivered FY’23 net sales of ¥$211 billion, up 57.5% sequentially.
- FY’23 operating profit of ¥35 billion was up 63% sequentially
- Our favourite Japanese semi stock with a TTM P/E <5
Ohayo Japan |SPX -1.1% as Equities Start to Heed Debt Risks; NUGGET: JP Autos- Painful EV Transition
- OVERSEAS. SPX Closed -1.1% as US Debt Default risks rise; Democrats and Republicans still far apart; STRONG US new home Sales; Boeing says Supply Chain Resolution will take Time
- JAPAN. NKY Futs -0.9% vs Cash; Japan likely falls 2nd day ; JP Real Wages Fall most in 8 years; S&P Cuts Softbank’s Debt in deeper Junk – Company protests
- NUGGET. Japanese Automaker face massive R&D and Capex spend for years to come as they transition to EVs. Free Cash Flow likely turn negative, and profits stagnate.
KOSPI 200 Ad-Hoc Changes for Dongkuk Steel Spinoff: Discussing Flow Trading Timeline
- Applying the T+3 relisting date as the effective date will again lead to noteworthy changes to the timeline of rebalancing flow trading.
- It seems unnecessary to concentrate shorting on the trading halt day for Dongkuk Steel. We should aim for price corrections driven by passive flows on the T+2 period before effective.
- Despite the Dongkuk Steel shareholders’ approval on the 12th, Youlchon Chemical’s price experienced a significant decline. The ongoing risk of major shareholder stake sales appears to have overshadowed this event.
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