Weekly Top Ten Event-Driven and Index Rebalance – Mar 3, 2024

1. Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger?

By Travis Lundy, Quiddity Advisors

• Over the weekend there was an article in the Nikkei saying that Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) were considering a merger. Other media outlets followed.
• This has been a possible outcome. Aeon Co Ltd (8267 JP) owns 51% of Welcia, 13.6% in Tsuruha, and is negotiating to buy another 13% in Tsuruha from Oasis.
• This would create a behemoth. ¥2.2trln in revenues vs ¥1trln for MatsukiyoCocokara (3088 JP). It would be 25% of the market. Questions will be asked about concentration. 

2. Keisei Electric Rail (9009) – A BUYBACK! But It’s Likely To Be Crossholders Selling in ToSTNeT-3

By Travis Lundy, Quiddity Advisors

• Keisei Electric Railway Co (9009 JP) has long been the target of activist-ish-y holders who seek to have the company monetise its 20+% stake in Oriental Land (4661 JP). 
• Last autumn (17-Oct-2023), Keisei was the subject of a presentation by activist-ish-y fund Palliser Capital who called the stock 43% undervalued. They want Keisei to sell some OLC shares.
• Palliser wanted Keisei to use resulting monies for growth capex+shareholder return, improve IR/governance, shrink board, adopt KPIs, etc. Thursday we got an announcement of a 2.9% stock buyback. 

3. JAPAN ACTIVISM:  Is Murakami-San Going To Do A PacMetals Rug Pull on Aozora? Or Is This For Real?

By Travis Lundy, Quiddity Advisors

• Yesterday after the close, well-known Japanese activist Murakami-san’s preferred entity City Index Eleventh filed a Large Shareholder Report. 
• The blast across Bloomberg was “*AOZORA 5.4% STAKE REPORTED BY CITY INDEX ELEVENTH.” Sounds exciting after the shares dropped 34% in two days earlier this month after reporting big writedowns. 
• But there has to be a question here. Why? And Why this way? And what kind of activism would be possible? 

4. Hyosung Corp (004800 KS): Spin-Off & KOSPI200 Index Implications

By Brian Freitas, Periscope Analytics

• Hyosung Corporation (004800 KS) has announced that it is spinning off part of its business holdings to Hyosung New Holding Corporation in a 0.818:0.182 ratio.
• The stock will remain suspended from late June to late July. We expect Hyosung Corporation (004800 KS) to maintain its index membership while the New Entity will not be added.
• The dynamics between listed ETFs and non-listed passive trackers differ and we take a look at the potential index flows.

5. Hong Kong To Scrap All “Spicy Measures” (Property Cooling Measures)

By Travis Lundy, Quiddity Advisors

• RTHK just reporting that HK Finance Secretary Paul Chan has said in his budget speech that HK will remove all property cooling measures in place, with immediate effect. 
• That would be That is Special Stamp Duty, Buyer’s Stamp Duty, New Residential Stamp Duty. “Measures no longer necessary given the current economic and market conditions.”
• This should cause people to get excited short-term about property developers.

6. Details of Korea Value-Up Initiatives & Index, Announced This Morning

By Sanghyun Park, Clepsydra Capital

• The rollout of the Korea Value-Up Index has encountered a minor delay. Completion of the index is slated for 3Q, with ETFs scheduled for release in 4Q.
• The government will encourage the National Pension Service to utilize it as a benchmark.
• Dividend payout ratio, dividend yield, PER, and cash flow will be included as screening factors for this index, in addition to the already known factors of PBR and ROE.

7. ESR Group (1821 HK): Evaluating a Potential Privatisation

By Arun George, Global Equity Research Ltd

• On 21 February, Bloomberg reported that due to the steep share price declines, major ESR Group (1821 HK) shareholders are considering options for their stakes, including ESR’s privatisation.
• The reports also noted buyer interest in ESR’s significant assets. Past share dealings suggest that Warburg Pincus and the co-founders are the likely consortium to lead a potential privatisation. 
• The offer probability is low as a scheme would likely require a HK$16.00 offer, posing a funding challenge. Nevertheless, the upside remains as ESR trades at an undemanding valuation. 

8. Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger! [Redux]

By Travis Lundy, Quiddity Advisors

• The first piece had a question mark in the title. This one has an exclamation point. The exclamation point has value for one investor. Other people? Not so much.
• Today post-close we got the deal. I was a little surprised it came this fast, but it’s now mostly done it appears – largely as predicted in the last piece.
• There are things one can probably read into the details. It is probably worth thinking about those, and how those details affect the industry. 

9. Ecopro BM (247540 KS): Index Impact of KOSDAQ to KOSPI Transfer

By Brian Freitas, Periscope Analytics

• Ecopro BM (247540 KS)‘s Board has approved the delisting of the stock from the KOSDAQ market and to list on the KOSPI market. The shareholder meeting is on 26 March. 
• Historically, the KRX has taken an average of 64 days from application to approve the listing to transfer from the KOSDAQ market to the KOSPI market.
• Ecopro BM (247540 KS) will be deleted from the KOSDAQ 150 Index on its last trading day and inclusion in the KOSPI 200 Index could take place in September.

10. HSI, HSCEI, HSTECH, HSIII: Rebalance Flows Post Capping (Mar 2024)

By Brian Freitas, Periscope Analytics

• The March rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
• Tencent (700 HK), Meituan (3690 HK) and Tongcheng Travel (780 HK) are the biggest buys while Alibaba (9988 HK), Li Auto (2015 HK),  HSBC (5 HK) are the biggest sells.
• The round-trip trade across all stocks across the four indices is estimated at HK$16.16bn (US$2.06bn).