In today’s briefing:
- 7&I (3382) – In Limbo, Dipping, But Stories Coming Together
- Shin Kong (2888 TT) / Taishin (2887 TT) – Waiting on the FSC
- NIFTY50 Index Rebalance Preview: Adds Secure; Tight Among the Deletes
- Japan: Last Look at Potential Passive Selling in February
- A Partial Tender Offer of Englewood Lab by Cosmecca Korea
- SBI Sumishin NetBank (7163) – Oops! NTT Docomo May Not Be There As a Buyer
- Australia: Last Look at Potential Passive Selling in February
- China/HK: Passive Activity Expected Later This Month
- Hexaware Technologies IPO: The Bear Case
- EQD | Toyota (7203 JP // TM US) – Option Opportunities Amid Tariff Tension
7&I (3382) – In Limbo, Dipping, But Stories Coming Together
- In the past month we have seen Seven & I Holdings (3382 JP) earnings, confirmation of the York Holdings timeline, stories about Apollo, KKR, and CP Group providing MBO financing.
- We’ve also seen Itochu confirm the financing request from the Ito family, and two American banks tapped to provide LBO financing.
- York Holdings itself gets created this month, and a buyer decided “in spring” with a Group Buyer/Outcome possibly decided by the May AGM. Looks skewed to me.
Shin Kong (2888 TT) / Taishin (2887 TT) – Waiting on the FSC
- The TFTC approved in early January, The TFTC said market power would be limited and competition unrestricted. Another CNA article suggested the two FHCs were completing employee placement plans.
- Apparently, as of a month ago, only the Shin Kong Bank employee settlement plan had not been completed but the FSC has rules about that. Consideration likely proceeds.
- There are specific rules about how these things are dealt with. In the meantime, the spread – still wide – is narrowing.
NIFTY50 Index Rebalance Preview: Adds Secure; Tight Among the Deletes
- Following their inclusion in the F&O segment in November, Zomato (ZOMATO IN) and Jio Financial Services (JIOFIN IN) appear to be sure-shot inclusions to the NIFTY Index in March.
- Bharat Petroleum Corp (BPCL IN) is a certain deletion from the index. Britannia Industries‘ average free-float market cap is less than 0.004% below Hero Motocorp‘s. It’s very close.
- Passive trackers need to trade between 3.7-11.8 days of ADV on the stocks. The impact increases significantly to between 8.4-21.8 days of delivery volume to trade on the stocks.
Japan: Last Look at Potential Passive Selling in February
- There are 14 Japanese stocks at risk of being deleted from global passive portfolios in February. The number will be smaller depending on the day of the review period chosen.
- Selling from passive trackers will range from US$176m-354m and the impact ranges from 3.1-18.4 days of ADV. Short interest has increased in nearly all stocks over the last 4 weeks.
- The forecast deletes have underperformed the TSE Tokyo Price Index TOPIX on average over the last 1-3 months, while there has been marginal outperformance over the last week or two.
A Partial Tender Offer of Englewood Lab by Cosmecca Korea
- On 6 February, Cosmecca Korea (241710 KS) launched a partial tender offer on Englewood Lab (950140 KS).
- Cosmecca Korea announced that it plans to purchase 11% (2.185 million) of Englewood Lab’s outstanding shares at the tender offer price of 10,000 won.
- It appears that this partial tender offer is an attempt by Cosmecca Korea to increase its stake in Englewood Lab even further, capitalizing on the lower share price.
SBI Sumishin NetBank (7163) – Oops! NTT Docomo May Not Be There As a Buyer
- On Friday, SBI Sumishin Net Bank (7163 JP) fell 12.5% in the last 90 minutes of trading. This was not due to their Q3 earnings release (out 30 January).
- It seemed due to investor disappointment in the content of the NTT earnings call. As discussed in the forked insight, there had been speculation NTT would buy SBI Sumishin.
- Investors had thought NTT would pay more than 28x earnings and a ¥600bn premium to book to buy the business. At 23.7x Mar25e EPS and 4.1x book, it’s still expensive.
Australia: Last Look at Potential Passive Selling in February
- There are 6 stocks in Australia that could be deleted from global passive portfolios later this month, though the probability of deletion varies across the stocks.
- If deleted, passive trackers will need to sell between US$234m-330m in the stocks. Impact is high at between 7-23 days of ADV.
- The potential deletions have underperformed the S&P/ASX 200 (AS51 INDEX) over nearly every time period from 1 week to 3 months. Shorts have increased on all stocks recently.
China/HK: Passive Activity Expected Later This Month
- There could be up to 10 adds/ 29 deletes for the China global index in February. The actual number of changes will be smaller depending on the review date chosen.
- The flow on the forecast adds varies from US$17.5m-US$175m (0.05x-15x ADV) while the flow on the forecast deletes varies from US$14.4m-US$100.4m (0.25x-22.75x ADV).
- Bestechnic Shanghai (688608 CH) is a potential inclusion to multiple indices in June and there will be much larger passive flows to the stock then.
Hexaware Technologies IPO: The Bear Case
- Hexaware Technologies (HEXW IN), an Indian mid-sized global IT services company, aims to raise up to US$1.0 billion.
- In Hexaware Technologies IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
- The bear case rests on mid-tier revenue growth, bottom-tier margins, low offshore mix, rising unbilled receivables/contract assets and a large post-IPO share overhang.
EQD | Toyota (7203 JP // TM US) – Option Opportunities Amid Tariff Tension
- Japanese Prime Minister Shigeru Ishiba’s meeting with US President Trump shines the spotlight on potential US tariffs on Japanese cars. Toyota Motor’s (7203 JP) high implied volatility expresses elevated risk.
- Risk analysis suggests a range of option strategies. Implementation is challenging due to low liquidity in the Japanese market.
- Option liquidity is higher in the US traded Toyota Motor Corp Spon ADR (TM US) which is the preferred route of implementation.
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