Last Week in Event SPACE: OFAC's Longer List, Haier, Avex, Beijing Jingneng, Naspers/Tencent

On the 31 July this year, Haier Electronics Group Co (1169 HK) (HEG) announced a pre-conditional Scheme such that HEG shareholders would receive 1.6 new HSH H shares plus HK$1.95 in cash. HEG's shares were suspended on the 11 December subsequent to its privatisation, with an implied look-through discount for HSH's H shares to the As of 30.4%. The Hs received by HEG shareholders commenced trading under the code Haier Smart Home Co Ltd (6690 HK) on the 23 December with a closing discount to the As of 22.1%. It was 21.6% at the time of my insight. This is not sustainable.

links to:
Daniel Hellberg's insight: Major Shareholders of CLPH (1589:HK) Selling! Revisiting Narrative & Valuations
my insight: China Logistics (1589 HK): Possible Offer As Major Shareholders Seek Exit

Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK)

Back on the 30 October, Prosus announced it would conduct a US$5bn buyback of Prosus shares and Naspers shares (i.e. the subsidiary would buy shares in the parent to avoid passing down income from sub to parent which could be taxed). This was discussed at length by Travis Lundy in Naspers & Prosus - A $5bn Catalyst Arrives. The buyback of Prosus shares and Naspers shares wasn't a lot in the grand scheme of things, but $5bn is $5bn, and the Naspers discount was quite wide. Prosus' discount to NAV has subsequently narrowed to ~23% (at the time of the insight), from a pre-buyback discount of 38%.

• The three-year anniversary of the sale of shares of Tencent is coming up in March, just before the fiscal year-end. That means Prosus/Naspers comes off lockup and could sell more shares of Tencent. There is nothing keeping Prosus from selling another US$10-15bn of Tencent (the position is currently worth US$211bn) and locking themselves up for another year, then continuing to buy Naspers and Prosus shares at a wide-ish discount.
• Stay long Naspers vs Tencent at the current look-through value. I would expect Tencent's operations to come under greater scrutiny, under a wider regulatory mandate.
• If Naspers+Prosus decide to sell some more Tencent in late March 2021 while the Naspers discount is still 50%, I would expect that Naspers+Prosus might decide to buy more Naspers shares back rather than pay too much for something.

after the close on 22nd December 2020, ODK announced they had received approval to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 29th December 2020. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021.

• Janaghan Jeyakumar, CFA estimates the Inclusion quantity to be 615,000-738,000 shares. This translates to an Inclusion Size of ¥0.45-0.54bn and an Impact of 24-28 days of volume based on 3-month ADV.
• According to the company's most recent "Long-term Management Plan" the company's revenue target for FY22E is ¥7bn which is 36% higher than their FY20A revenue. This translates to a revenue CAGR of ~16.6% from FY20A to FY22E. Going by FY20A numbers, the current price translates to EV/Revenue and EV/EBITDA multiples of 0.8x and 4.6x, respectively, which are significantly lower than the estimated average for peers.
• Janaghan would be Bullish until the Inclusion Date (28th January 2021).

The previous week saw a gentle rebound in Quiddity H/A Share Recommendations (mixed long/short the spreads). Spread momentum continues to rule the day in most sectors, but finally not all. There were 54 delta-neutral spread recommendations which gained 0.97% on average. We have ~50 spread recommendations for this past week.