Most Read: Wuxi Biologics (Cayman) Inc, Keppel Corp Ltd, Tencent Holdings, Li Auto Inc., Beyond Meat Inc and more

In today’s briefing:

  • FTSE China 50 Index Rebalance Preview – Turnover Could Be Big
  • Keppel “Material Impairments” May Mean A MAC Mess
  • Tencent – Well Timed Transaction
  • Li Auto IPO: Valuation Insights
  • Smartkarma Webinar | Beyond Food: No Longer Impossible

FTSE China 50 Index Rebalance Preview – Turnover Could Be Big

By Brian Freitas

The FTSE China 50 index is designed to represent the performance of Chinese companies (H-shares, P-chips and Red chips) that are listed on the Hong Kong Stock Exchange. The index is a free float weighted market cap index and the weights of the constituents are capped at 9%.

The next rebalance will be effective after the close of trading on 18 September and the changes will be announced on 2 September. The September review will use data from the close of trading on 24 August to determine the stocks to be included and excluded.

At the current time, we see three possible additions BYD (1211 HK), Wuxi Biologics (Cayman) Inc (2269 HK) and Sino Biopharmaceutical (1177 HK), and three possible deletions China Railway Construction Corp (1186 HK), China Gas Holdings (384 HK) and China Railway Group Ltd H (390 HK).

There is also a possibility of China Unicom Hong Kong (762 HK) being excluded from the index and China Resources Beer Holdings (291 HK) being included.

Alibaba Group (9988 HK)‘s weight in the index will increase as part of the tranched inclusion of the stock in the index.


Keppel “Material Impairments” May Mean A MAC Mess

By Travis Lundy

The Keppel Corp Ltd (KEP SP) Partial Offer situation is now 9 months old. These pages have been relatively constantly filled with updates and insights on how one could position oneself with Keppel against its peers and Proxy Baskets, whether to tilt long or short, and where to think about Pro-Ration and Participation. 

The Pound-The-Table Bullish calls in early and mid-March paid off well, both directionally and against proxy baskets. Since 30 April, the back end trade (i.e. buy, see 95% of minorities tender (including yourself) and be long the residual at the implied breakeven price) had traded cheaper than the day before the announcement of the Deal compared to an average of the FTSE Straits Time Index, a Property Basket, and an Infra-Heavy Basket on only two days. It has traded well rich to an O&M Heavy Basket since then. 

Then came Friday 24 July 2020. 

On Friday, Keppel announced “Profit Guidance” which included significant impairments to the O&M business in Q2 and H1. 

My base case in my April and June insights had been that the deal would go through, but that there was increased possibility of bad timing of impairment. That, along with overvaluation vs Proxy Baskets, suggested to me that most of the time since 30 April, a long position in Keppel vs its peers or proxy baskets should be unwound.

That’s no longer my base case. The quantum of the writedown matters for any number of reasons, as does the possibility that Temasek will be badly advised. 

Past Insights on the Temasek Deal for Keppel

DateInsight TypeTitle
21 Oct 2019Deal-Specific BIG Temasek Partial Offer for Keppel 
29 Oct 2019Deal-Specific Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel 
27 Nov 2019General The Dummies’ Guide to Partial Offers/Tenders 
15 Dec 2019Deal-Specific Keppel Corp – Trading Cheap To Its Comp Basket 
2 Feb  2020Deal-Specific Keppel Corp Partial Offer Countdown – Still Cheap 
28 Feb 2020Deal-Specific Keppel Corp Update – STILL Trading Cheap 
16 Mar 2020Deal-Specific Keppel – Implied Likelihood of Temasek Walking Away or Dealbreak 
20 Mar 2020Deal-Specific Keppel Corp Update – Implied Likelihood Up As Market Falls, Meaning… 
20 Mar 2020Deal-Specific Keppel Corp Arb Grids – Updated 20 March 
30 April 2020 Deal-Specific Keppel Corp Partial Tender Update – Odds Less In Your Favor Now Than Before 
4 May 2020Deal-Specific Keppel Corp – Two Ways To Tender 
15 June 2020Deal-Specific Keppel Corp – Stretched Vs Proxy Baskets And Now With New Risk 

Tencent – Well Timed Transaction

By Thomas J. Monaco

*Another Material Developments At Afterpay: Afterpay Touch (APT.AU) confirmed another material development. The launch of its global rewards system called “Pulse” commenced in the US, and is set to be launched in the United Kingdom, Australia, and New Zealand in the coming months. In short, Afterpay is looking to reward regular users who pay on time (five purchases every six months) which turns the credit card model on its head, as it relies solely on increasing customer spend for points; 

*Other Recently Announced Positives: In addition to the update provided on Pulse, Afterpay has provided a solid update on its growth and traction post-deal; expressed its interest in a capital raise; and onboarded Apple Pay (AAPL.US) and Alphabet (GOOG.US) Google Pay; and

*Magic Fairy Dust: While no transaction particulars were disclosed, we calculate an average share purchase price of AUD 22.47 per share for the 5% stake or a hefty 6.8x P/BV for a company which is loss-making and where Tencent hasn’t control. Tencent has already earned 146% on this stake. 


Li Auto IPO: Valuation Insights

By Arun George

Li Auto Inc. (LI US) is the first company to successfully commercialise EREVs (extended-range electric vehicle) in China, the Li ONE. Li ONE is a six-seat, large premium electric SUV which began volume production and deliveries in November 2019 and December 2019, respectively. Li Auto has launched its IPO at an indicative price range of $8.00-10.00 per ADS. At the mid-point of the IPO price range, Li Auto will raise net proceeds of $813.2 million at a fully diluted market cap of $7.9 billion. Also, Li Auto will raise net proceeds of $380.0 million from concurrent private placements with existing shareholders. 

In our initiation note, we stated that the IPO seems to be timed to take advantage of the surging share prices of NEV (new energy passenger vehicles) manufacturers such as Tesla Motors (TSLA US) and NIO Inc (NIO US). On balance, for investors seeking exposure to the China NEV sector, Li Auto’s fundamentals are attractive, in our view. Our valuation analysis suggests that the price range is attractive. 


Smartkarma Webinar | Beyond Food: No Longer Impossible

By Smartkarma Research

In this Smartkarma Webinar, we speak to David Huggins, CFA, Nutrition Portfolio Manager at Blackrock’s BGF Nutrition Fund. David will discuss current trends in food and nutrition, including plant-based protein, changing consumer behaviour, and the future of food technology.

The webinar will be hosted on Wednesday, 29/July/2020, 5.00pm SGT/HKT.

David is co-portfolio manager of the BGF Nutrition fund, a Blackrock sustainable thematic fund. Areas of expertise include nutrition, food & beverage, agriculture, and cannabis/CBD. He has a solid track record in public equity investing and is skilled in bottom-up investment analysis, modelling, and big-picture thinking. He graduated from the University of Bristol and is a CFA Charterholder.


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