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Most Read: Sea Ltd, JD Health, Perfect Shape Medical, Shimachu Co Ltd and more

In today’s briefing:

  • Trump’s Executive Order on Chinese Military Companies
  • MSCI Singapore Index: Impact of SEA Inclusion
  • JD Health (京东健康) Pre-IPO – Assumptions and Valuations
  • Perfect Shape Is Not Perfect But Here Is What We Like About It
  • Nitori’s Bid for Shimachu Goes Friendly as Shimachu Dumps DCM

Trump’s Executive Order on Chinese Military Companies

By Travis Lundy

In 1998, before the US and China entered into Permanent Normal Trade Relations with China in 2000, the US Congress enacted a law requiring the Clinton Administration to publish a list of Chinese companies in the US which did business with the People’s Liberation Army (Public Law 105-261, Section 1237), and a “Communist Chinese military company” was defined in that law as any company named in to Defense Intelligence Agency documents from 1990 and 1995 and “any other entity owned or controlled by the PLA and engaged in providing commercial services, manufacturing, or exporting.”

That law basically lay dormant until last year when the Pentagon launched a review of such companies following the Trump White House’s labelling of China (and Russia) a “revisionist” power in its first National Security Strategy report in 2017. The goal was to investigate and warn about supply-chain vulnerabilities. The Department of Defense published a list in June 2020 of 20 companies which were “Qualified Entities”. It updated the list in late August 2020. The former Secretary of Defense was ousted several days ago and the new Secretary of Defense is now responsible for the list. 

There is, as of last night, an Executive Order by the White House blocking US ‘persons’ investment in any of the names mentioned – a list now 31 names long.

More below on the impact.


MSCI Singapore Index: Impact of SEA Inclusion

By Brian Freitas

On 11 November (Asia time), MSCI announced the changes to the index constituents of the MSCI Global Investable Market Indexes (GIMI).

MSCI also announced the eligibility of foreign listings in the MSCI Singapore Index following the market meeting the Foreign Listing Materiality Requirements at the November 2020 Semi-Annual Index Review (SAIR).

We expect Sea Ltd (SE US) will be included in the MSCI World Index (MXWO INDEX) and the MSCI Singapore Free Index (SIMSCI INDEX) at the May 2021 SAIR. We estimate passive buying of US$2.81bn at the close of trading on 27 May 2021.

In this Insight, we take a look at the impact the inclusion will have on the MSCI Singapore index.


JD Health (京东健康) Pre-IPO – Assumptions and Valuations

By Zhen Zhou, Toh

JD Health (JDH HK) is looking to raise about US$3bn in its upcoming Hong Kong IPO.

JDH’s retail pharmacy and online healthcare services form a strong, closed loop, end-to-end healthcare ecosystem that is well-positioned to benefit from the digitalization of China’s healthcare system. It has an extensive network of online and offline pharmacies which is expanding into offering more online healthcare services. Revenue has been strong in the past three years and it has accelerated further due to COVID-19. 

In this note, we will discuss our assumptions and valuation of JDH and compared to peers.

Our previous coverage of the IPO:


Perfect Shape Is Not Perfect But Here Is What We Like About It

By Steven Chen

  • No company is perfect from an investing perspective, with Perfect Shape being no exception;
  • Meanwhile, there is a lot that long-term, quality-focused investors like us can like about the stock;
  • In particular, skillful capital allocation, promising growth prospects, a track record of outperforming competitors, and an attractive valuation can together lead to a long-term alpha opportunity with a margin of safety.

Nitori’s Bid for Shimachu Goes Friendly as Shimachu Dumps DCM

By Travis Lundy

Overnight it became clear in a Nikkei article that Shimachu Co Ltd (8184 JP) was going to succumb to the charms of bidder Nitori Holdings (9843 JP) and accept its proposal of a takeover at ¥5500. Shimachu had heretofore officially supported a bid by DCM Holdings (3050 JP) at ¥4200/share, but acceptance of Nitori means that its bid will not be officially “hostile.”

After the close, Shimachu and Nitori defined that support in a set of documents and the comment in the media from Shimachu was that DCM had not responded. 

DCM’s Tender Offer (discussed in DCM Does a Full Takeover of Shimachu – Looks Like a Strong Price. Look Again.) ends on 16 November, the same day Nitori’s starts. 

DCM can still respond by a) extending the time period at the same price, b) raising the price and creating an automatic extension, or c) doing nothing. At the very least, I expect DCM to extend by 10 business days because doing so would extend their own Tender Offer past the JFTC Phase 1 response deadline to the Nitori application (Nitori will launch without having received official approval). 

More below.

The list of insights in this series (on this particular event) are as below:

Previous Insights on the DCM (3050) and Nitori (9843) Approaches to Shimachu (8184)

Date Insight Title
21 Sep 2020 DCM Partial Offer for Shimachu Coming? 
4 Oct 2020 DCM Does a Full Takeover of Shimachu – Looks Like a Strong Price. Look Again. 
21 Oct 2020 Nitori To Make a Rival Bid for Shimachu? More Fun To Go 
28 Oct 2020 Gaming Out a Nitori Bid for Shimachu 
29 Oct 2020 Nitori Bids UP For Shimachu – Now Things Slow Down 

Before it’s here, it’s on Smartkarma