Daily BriefsMost Read

Most Read: WH Group, 3peak, KakaoBank, Hitachi Transport System, Krafton Inc and more

In today’s briefing:

  • WH Group Post-Tender Outlook – Index Selldown and Back-End Trading/Valuations
  • STAR50 Index Rebalance: If You Obey All The Rules, You Miss All The Fun
  • Index Rebalance & ETF Flow Recap: FTSE GEIS/CH50/A50/TW50, UKX, KOSPI200, MLT/WHSP, Busy Week Ahead
  • Hitachi Transport Uncoupled – TSE Prime, Price Popping, And Supply To Come
  • MSCI Std Korea Nov SAIR Adds Checkup: SD Biosensor & Krafton

WH Group Post-Tender Outlook – Index Selldown and Back-End Trading/Valuations

By Travis Lundy

WH Group (288 HK) will see its Tender Offer completed on Monday 30 August. I expect the result will be out as per the 30 July Circular – at 7pm HKT. 

Then we wait. 

And things get a little weird and possibly a little bumpy this week. 

And into the week after…

But we wait anyway. 

More below the fold. 

Insights on This WH Group Event To Date

02-Jun-21David BWH Group (288 HK): Today’s Pig Is Tomorrow’s Bacon? 
06-Jun-21myselfWH Group Buyback Offer Announced – Strong Accretion Creates Accretion Risk 
20-Jun-21myselfWH Group Vs Peers – Too Many Piggies Going to Market? 
05-Jul-21myselfWH Group – Trading Opportunities Abound 
10-Jul-21myselfWH Group – Long-Only Fundamental Investors Can Take Advantage Too 
30-Jul-21myselfWH Group Offer Doc Out – This Little Piggy Went To Market 
17-Aug-21myselfWH Group Partial Buyback Offer Now Unconditional 
18-Aug-21myselfWH Group – Stock Plummets as Ousted Son Drags Pigs Into The Mud 

STAR50 Index Rebalance: If You Obey All The Rules, You Miss All The Fun

By Brian Freitas

Post market close on 27 August, the Shanghai Stock Exchange and China Securities Index Company announced the changes to the SSE STAR 50 (STAR50 INDEX). The changes will be effective after the close of trading on 10 September.

There are 5 inclusions and 5 exclusions in the review. The inclusions are Pylon Technologies Co Ltd (688063 CH), 3peak (688536 CH), Bestechnic Shanghai (688608 CH), Zhejiang Supcon Technology (688777 CH) and Tianneng Battery Group (688819 CH), while the deletions are Guangzhou Fangbang Electronics-A (688020 CH), Piesat Information Technology (688066 CH), Shanghai Shen Lian Biomedical (688098 CH), Shenzhen Lifotronic Technology-A (688389 CH) and Farasis Energy Gan Zhou Co-A (688567 CH)

The changes imply that a 6 month minimum listing was used. This is surprising (but not totally unexpected) since there were 141 stocks that were listed for longer than 1 year and that number was at the upper end of the 100-150 range where the methodology would change to use a minimum 12 month listing history.

Even more surprising is the deletion of Farasis Energy Gan Zhou Co-A (688567 CH). The stock ranks much higher than other index constituents and we cannot see any reason for its deletion from the index.

The inclusions, exclusions and capping changes will result in a one-way turnover of 10.46% and result in a one-way trade of CNY4.05bn.

Index Rebalance & ETF Flow Recap: FTSE GEIS/CH50/A50/TW50, UKX, KOSPI200, MLT/WHSP, Busy Week Ahead

By Brian Freitas

In this weeks recap, we look at:

Flows into KraneShares CSI China Internet Fund (KWEB US) continue even as the ETF price is near its lows. The ETF could now be the largest China ETF listed overseas, moving ahead of iShares MSCI China (ETF) (MCHI US).

Events This Week

Click on the link under Detail to go to the Insight




30 August
31 August
1 September (e)
1 September
FTSE China 50
1 September
FTSE China A50
1 September
1 September (e)
1 September (e)
2 September
Rebalance announcement
3 September
3 September
3 September
3 September
3 September
FTSE Taiwan 50

Hitachi Transport Uncoupled – TSE Prime, Price Popping, And Supply To Come

By Travis Lundy

This insight covers a bit of history, a bit of teaching about how TOPIX works, a bit about the foreseeable events, and a bit of the fundamentals of the company. If you think you know all that, please don’t hesitate to jump immediately to the bottom section where there is a Thin Red Line across the screen and a section titled Short & Sweet Version. That is also the conclusions. 

The Background

At the end of March 2016, Hitachi Ltd (6501 JP),  Hitachi Transport System (9086 JP), and as-yet unlisted SG Holdings (9143 JP)  announced Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary (Sagawa Express) of then still-unlisted SG Holdings (9143 JP), forming a capital and business tie-up looking to merge “within three years” (i.e. merger by 1 April 2019). Hitachi Ltd (6501 JP) was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion to SG. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and “Smart Logistics” capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake Yamato Holdings (9064 JP) in terms of revenue and get closer to industry top dog Nippon Express (9062 JP). It was supposed to help SG improve margins by doing more in B2B. 

SG IPOed in late 2017. Three years came and went. Nothing happened. There were a few collaborative projects but it was slow-going, and there were signs of friction. In May 2019 a Medium Term Management Plan (with no mention of SG or Sagawa) was announced, and the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration..

“I am aware that we are moving toward integration. I would like to harmonize future directions.” [Nikkei: He showed a positive attitude…] “We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions.”

On September 25 last year, the Diamond Online let fly a scoop saying the capital and business tie-up between the two was going to be scrapped. HTS shares fell 10+%. 

Hitachi Transport’s first release to the exchange said the article wasn’t based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares – at that point down 7% on the day – bounced sharply (they closed down 4%).

The announcement after the close talked about a “partial modification” of the business and capital tie-up, but it involved HTS selling its 20% stake in Sagawa Express, and buying back 27.675mm of the 32.35mm shares of HTS SG held. It was almost a full unwind. SG managed to sell fewer than 27.675mm shares in the ToSTNeT-3 transaction as others also jumped in to sell. 

My conclusion was to NOT sell that despite the opportunity to be able to do so in size. My conclusion was bullish HTS and basically bearish SG. 

That didn’t work so well in the first ten weeks, with the share price ratio falling 20% from 1.252 to 1.00 by 1 December 2020. 

When the TSE announced its new listing criteria for TSE Prime, there was going to be trouble. There had to be 35% of shares “tradable” and by that time, the register looked as follows:

It did not clear the 35%v threshold (it would have been fine but for the large number of public sellers in the 28 September ToSTNeT-3 transaction.) 

By early February 2020, the HTS/SG ratio had reached the ratio of that fateful day announcing the split and by mid-June, the ratio was 26% higher in 9 months. So I am now happier with that call from the past.

On 20 April 2021, SG Holdings announced they had sold 4.6mm shares (at JPY 3,119.5). And on 20 May (the yellow dot on the blue line in the chart above), HTS announced it would cancel 6,975,786 shares (6.2% of shs out) in order to put tradable shares back above 35%. In fact, the sale by SG had done that, and the market did not react. But it was a start, and it kept Hitachi Transport in the TSE Prime section and therefore the TOPIX Index when it launches in April 2022 because tradable shares were back above 35%. 

But there were still a lot of Treasury Shares, which as per the 6 May Results Presentation, included the use of stock (and cash) for alliance and M&A. 

With the shares rallying, on 19 August, the company announced that on 3 September, they would cancel 20,699,214 shares out (19.8% of total shares out), leaving treasury shares of 228,308. That would put Hitachi to just under 40% (where there is no question of consolidation if Hitachi Transport doesn’t want), it puts SG Holdings to 9.8% (i.e. still below 10%), and puts the public at greater than 50%. 

The shares reacted well to that too. 

But all this creates a curious problem. 

The float is now 50%, vs 41% pre-selldown, and 33.6% post-dealbreak, and the stock will stay in Prime.

But there is selling to come. 

More below the fold. 

MSCI Std Korea Nov SAIR Adds Checkup: SD Biosensor & Krafton

By Sanghyun Park

The review date for MSCI’s November semi-annual index review (SAIR) is October 31. The announcement date is November 11, and the effective date is December 1.

The market cap threshold in SAIR is 1.5 times the interim cutoff, and the float-adjusted market cap threshold is 0.75 times the interim cutoff.

Requirements (× Interim cutoff)Semi-annuallyQuarterlyIPO
Full market cap (add)1.501.801.80

Full market cap (delete)

Float market cap (add)0.750.900.90
Float market cap (delete)0.50
Source: MSCI

At this point, the interim cutoff is estimated at ₩3T. As a result, this November, SAIR’s full market cap threshold is estimated at ₩4.5T and the float-adjusted market cap threshold at ₩2.25T.

Interim cutoff estimations
Interim cutoff₩3.00T
Full market cap hurdle₩4.50T
Float-adjusted market cap hurdle₩2.25T
Source: Clepsydra Capital

Below is a list of recent major Korean IPOs whose size is large enough for consideration. Of these, only SD Biosensor and Krafton exceed the full market cap threshold. It is important to note that the minimum trading period of 3 months must be met based on the effective date (December 1). Hyundai Heavy Industries meets the market capitalization requirement but falls short of the 3-month minimum trading period requirement.

Recent major IPOsSD BiosensorKraftonHK Inno.NLotte RentalAjusteelHyundai Heavy Ind
Listing07. 1608. 1008. 0908. 1908. 20Mid-Sep
Market cap₩5.45T₩24.30T₩1.75T₩1.84T₩0.76T₩5.33T

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