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Toshiba Corp

Last Week in Event SPACE: Toshiba, MMC Corp, Japan Post, China Logistics, Pershing Square, Hang Lung

246 Views13 Jun 2021 07:47
SUMMARY

Last Week in Event SPACE ...

  • Toshiba Corp (6502 JP) is open to a takeover. If Toshiba is interested in not being taken over, the best defense is a higher share price. Separately, the METI report vindicates the activists in their accusations of inappropriate behaviour by Toshiba's management.
  • This deal for MMC Corp Bhd (MMC MK) looks to be ring-fenced by Mokhtar. The big question mark is on timing. Canvassing 10 SCRs over the past thirteen years suggests this may be wrapped up around mid-late November.
  • The only way that Japan Post Holdings (6178 JP) manages to make accretive capital decisions is by selling highly discounted shares of its subsidiaries and buying back its own highly-discounted shares. It has done that with Japan Post Insurance (7181 JP) and it is likely to stand pat for a while.
  • Sub $3.50/share is the wrong price for China Logistics Property Holdings (1589 HK). The post-money book value is $3.96 and this should at least trade at book.
  • Bill Ackman's SPAC Pershing Square Tontine Holdings-A (PSTH US) is in talks with Vivendi SA to do a deal to buy 10% of Universal Music Group before its IPO/listing in Q3. It isn't a done deal. It isn't a normal deal. It IS an interesting deal.
  • Hang Lung (10 HK)'s is coming up expensive, yet at 0.3x P/B, against 0.47x for a basket of peers, HLG is one of the cheapest property plays in Hong Kong.
  • Plus, other events, CCASS movements, and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)

EVENTS

Toshiba Corp (6502 JP)(Mkt Cap: $19.2bn; Liquidity: $160mn)

Toshiba announced results in mid-May along with a somewhat surprising plan to "return ¥150bn to shareholders", with method to be specified later - in early June. It is now early June and this morning Toshiba has announced how it will allocate the ¥150bn. Toshiba will pay a ¥50bn dividend (¥110/share) to shareholders of record on 30 June 2021. The company has updated its annual dividend forecast for the year to be ¥110/share, including a ¥40/share dividend for both first half and second half. Toshiba will buy back up to 27mm shares spending up to ¥100 billion in a buyback using ToSTNeT-3 and open-market buybacks, with the program lasting until the end of calendar 2021. How to play this is a different story. More below.

  • Talk of chip shortages lasting into 2022 tells you there is a LOT of demand and pricing will be tight so it might be a decent time to IPO Kioxia at a nice price. If there is demand, then there will be quantity sold. Toshiba has said they do not intend to hold Kioxia as a core holding and they have also said that in addition to the Standard Shareholder Return policy, more than half the net proceeds from the sale of Kioxia (6600 JP) will be returned to shareholders.
  • Travis Lundy says: Get long. Be long. Don't sell into a ToSTNeT-3 buyback unless the share price is higher or unless you really want out. IF you are large and long and want to get out with minimal friction ASAP, sell into the ToSTNeT-3 buyback. Toshiba is open to takeover. Whatever takeover approach happens will a) take time, b) be robustly debated. If Toshiba is interested in not being taken over, the best defense is a higher share price. The fact that a buyback has been announced tells you that a takeover proposal is not currently under advanced discussion/negotiation at the board level.
  • After the Extraordinary General Meeting of 18 March, 2021, Toshiba announced that the measure to investigate the "status of the operations and property of the stock company" was passed in its original form. Toshiba clearly tried to get METI to use its might to shoot down the intentions of Effissimo and 3D, and to influence the voting decisions of Effissimo, 3D, Harvard Management, and others. Toshiba has, once again, in its guise of "new, post-scandal, management" shown that its governance is not appropriately conducted. This gives activists new ammunition to demand more. That is a GOOD THING and has positive economic value.
  • Activists will not likely sell on this news. Any knee-jerk selling reaction should be considered a chance to buy shares. Travis reckons the report makes some kind of "formal" offer MORE likely, not LESS likely in my opinion because it is better and easier to clean up "confusion" away from the limelight, and METI and management now look like their collusion is anti-good governance, which means collusion against people who would seek to get better value from the company going forward would also be deemed to be inappropriate.
  • Mio Kato reckons that while the immediate optics of the report are bad, that much of it is unlikely to be unexpected by investors. Mostly it looks bad due to the salacious details rather than because investors are likely to be shocked by the dark arts dealings at hand. METI also comes out looking rather bad in this. It has always had a reputation for improper backroom dealings but having this out in the open will make life difficult for the ministry and could force it to be more circumspect and disciplined in its approach. That is not at all a bad thing for Japanese governance.

Links to:
Travis' insights: Toshiba Shareholder Return - A Little of This, A Little of That, But Sticky and Accretive & Toshiba's 2020 AGM Investigative Report Is Damning
Mio's insights: Toshiba – Hands in the Cookie Jar

Japan Post Holdings (6178 JP) (Mkt Cap: $34bn; Liquidity: $74mn)

On 14 May, JPH announced earnings, a new Medium Term Management Plan and an expected sale of shares of subsidiary Japan Post Insurance (7181 JP) so that it would end up owning less than 50.00% after the ToSTNeT-3 sale to be conducted 17 May, and the placing of a certain number of shares in trust so that JPH's voting rights into JPI became 49.9%. On Thursday JPH announced that it had arranged the trust to take 559,900 shares of JPI so that it only owned 49.90%, thereby lifting certain restrictions placed on JPI by the Postal Service Privatization Act and lifting certain reporting requirements on JPH under the Insurance Business Act because it no longer held more than 50% of an insurer. On Friday JPH announced that it would buy back up to 276,090,500 shares (6.14% of shares out) for up to ¥250 billion in a ToSTNeT-3 buyback conducted at ¥905.5/share on 11 June 2021 before the open.

  • JPH currently trades at 84% of its holdings in JPI, JPH, Rakuten Inc (4755 JP), and Aflac Inc (AFL US). Promising more capital efficiency actions is likely something where it would suit JPB to buy back stock from JPH to make the shares go up, then JPH could arrange to sell some, then JPH would buy back more of its own shares. For that, JPH probably deserves to trade at a discount to its holdings. If it buys back shares when it is trading at a premium to its holdings, it is cementing the relative loss vs subs and holdings. JPH is between a rock and a hard place.
  • At the current point within its range, Travis would be inclined to sell the JPH holdco vs its component parts if it pops after the buyback. He thinks we probably need a big event on JPB or a final multi-hundred billion yen offering PLUS a buyback to make JPH more interesting. This is a short-term opinion. JPH is hamstrung because JPB is hamstrung. And JPB is seemingly hamstrung on a permanent basis. It is not clear to me how JPB gets out of its low ROE run-off business construct.

Ten months ago, Mcdonald's Corp (MCD US),'s CFO Kevin Ozan said that McDs fully supported Mcdonald's Holdings Co Japan (2702 JP), but they would be selling down their stake from ~49% and would in any case retain a stake of at least 35%. They started selling in the market. On 20 August, MCD announced it had sold a bit over 3% of McD J, selling 4.2mm shares at ¥5,340/share on 19 August 2020. On 20 November 2020, they announced they had sold another 4,000,000 shares at ¥5,370/share on 19 November. On 1 March, another tranche of 4,000,000 shares was transacted at ¥5,280/share (reported 4 March). On Friday McDs announced it had reduced its stake to 37.95%, which meant they sold 3.8mm shares. The two short-term trades are: Buying the clean-up/end of selldown trade; and making a bet on TSE1/TSE Prime ascension. The first is "Easy to predict". The second is not, though I expect it to arrive eventually. Travis remains surprised MCDJ and MCD Parent have not arranged for TSE1 promotion/transfer simply to absorb some of what MCD Parent is selling. Link to Travis' insight: McDs Japan (2702) Update: Parent Selldown 80% Done, or 63.6% Done.

SK Telecom (017670 KS) announced it will spin off a new investment company (tentatively named SKT Investment Co). SKT Investment will become the holding company of 16 companies including SK Hynix (000660 KS), 11st, One Store, and T Map Mobility. SKT also plans to complete IPOs of numerous companies owned by the company. In 2021, it plans to IPO One Store. For the remaining SK Telecom, it will focus on its core telecom business as well s new technologies such as artificial intelligence, data centers, and metaverse-based services. Link to Douglas' insight: SK Telecom: Details of Spin-Off Ratios & Expected Impact on Dividends

M&A - ASIA

MMC Corp Bhd (MMC MK) (Mkt Cap: $1.3bn; Liquidity: $5mn)

On the 3 June, port operator and utility play MMC announced Seaport Terminal (Johore) Sdn Bhd, a wholly-owned entity of Tan Sri Syed Mokhtar Albukhary, had made an Offer for all shares not owned at RM2.00/share, a premium to last close of 70.94%., and a price last cleared back in January 2018. The Offer is being done via a selective capital reduction and repayment (SCR) exercise. Seaport Terminal owns 51.76% of MMC. This deal looks to be ring-fenced by Mokhtar. The big question mark is on timing. I looked at 10 SCRs over the past thirteen years, the analysis of which suggests this may be wrapped up around mid-late November.

  • The timing on SCRs vary tremendously. The wild card is on the High Court approval. The average time to issue the circular, hold the EGM, through to the effective date, is 64, 88, and 179 days, from the announcement. These SCRs were selected randomly. I sighted a handful of others, most of which completed within a 6-month window. There will be exceptions. Not surprisingly, the timelines initially increased at the onset of Covid.
  • I think this is a done deal and would expect shares to trade tighter to terms - the current gross spread is 11.1%, wider than the average for precedent SCRs. As this is a Scheme, and this is Malaysia, I would target ~15% annualised - assuming mid-Nov completion - or ~6.3% gross spread, therefore I'd be happy to bid up to RM1.88/share.
    The pushback? This is Malaysia and being conservative on the timing of M&A deals is prudent.

(link to my insight: MMC Corp (MMC MK): Let's Talk About Timing)

China Logistics Property Holdings (1589 HK) (Mkt Cap: $1.7bn; Liquidity: $9mn)

Back on the 29 December (CLPH) announced its two largest shareholders - Li Shifa (chairman, holding ~28.2%) and RRJ Capital (~23.35%) - were "conducting a preliminary strategic review of their stakes in the Company, which involves up to approximately 51.5% shareholding of the Company." Reportedly the two key shareholders were seeking an exit price of ~$4.70. Now CLPH has announced a placement of 220mn new shares (6.67% of shares out, 6.33% on a diluted basis) at a placing price of $3.54/share, an 18.24% discount to last close. Net proceeds are expected to total HK$767mn to new land acquisition and the development and construction of warehousing facilities. Shares were subsequently cremated.

  • This was and remains a pre-event and there is no guarantee an Offer will be forthcoming. This placement does muddy the outcome, even if the placement is just the company going about a normal fundraising exercise. Also note Li and RRJ didn’t participate may suggest they still have plans to sell. Also note a new CFO joined on the 10 May, and instead of waiting for Li & RRJ to reach some deal, gets on with the company’s expansion plans irrespective.
  • I still consider the company as being in play. Given the scarcity of logistic assets, I like this space. Shares look to have over-corrected. I see a book value at HK$3.95 post-money. This is trading too cheap to book at $3.49/share.

Ijm Plantations (IJMP MK) (Mkt Cap: $0.7bn; Liquidity: $1mn)

Palm oil play Kuala Lumpur Kepong (KLK MK) has made an Offer for Ijm Corp Bhd (IJM MK)'s 56.2% stake in IJMP. The RM3.10/share Offer price, a 26% premium to last close, values IJMP at RM2.7bn, or US$0.65bn. Should the transaction conclude, KLK will be obligated to make an unconditional mandatory general offer for all shares in IJMP not held. The transaction is subject to shareholder approval at EGMs for both IJM Corp and KLK. The SPA is also conditional on the consent from the lenders of IJM Corp and IJMP. IJM Corp is required to confirm on or before 5pm on June 11, if it wishes to proceed. IJM Corp said its board is in principle agreeable to finalise the terms and conditions with KLK. This looks done. PLUS, there is a RM0.10/share divy to be added.

  • RM3.10/share backs out a trailing PBR & EV/EBITDA of 1.9x and 10x vs its five-year average of 1.3x and 17x. The forward EV/EBITDA is 9.4x against a five-year average of 12.5x. IJMP appears fairly priced under the Offer with respect to peers. Optically, IJMP last traded through terms back in August 2017. Overall, this appears to be IJM taking advantage of a recent run-up in crude palm oil prices to offload what has been a loss-making plantation division.
  • Allowing a month to hold the EGMs for KLK and IJM, another week to complete the SPA, 21 days to dispatch the circular, and 10 days from the circular to settle tendered shares (should investors choose to do so), I think receipt of that payment could occur around the middle of August.
  • Assuming a mid-August completion, I estimate this is trading at a gross/annualised spread of 4.9%/28.9%. including the dividend. Enter here or a spread or two below.

UPDATE: IJM Corp has now executed the SPA KLK.

Otsuka Kagu Ltd (8186 JP) had cash problems in 2019 which required a saviour. Yamada Denki (9831 JP) stepped in as that saviour, injecting cash and buying shares, leaving Kumiko Otsuka in charge of the previous family battleground company. Yamada Denki and Otsuka Kagu have announced plans to merge. The Otsuka Kagu shareholder meeting is in 7 weeks (record date was 30 April), and the merger is scheduled to be effective in 12 weeks. This deal should be considered a done deal. It will trade tight. There are no dividends. One can do the risk arb safely Travis believes. One should probably be long Yamada Denki here. Yamada Denki is a low-volatility asset, with decent earning power, and Effissimo may be or may no longer be a seller of their remaining stake. Link to Travis' insight: Yamada Denki and Otsuka Kagu Do The Deed - A Quick Merger.

Hansen Technologies (HSN AU), a provider of software and services globally, announced Australian PE outfit BGH Capital had made a non-binding conditional proposal valuing the company at $1.3bn. The A$6.50/share cash offer by way of a Scheme, is a 25% premium to last close and a 33% premium to the one-month VWAP. Andrew Hansen, the company's MD and CEO, has agreed to vote his 17.5% stake in favour of a firm deal. Due diligence, which is expected to take around six weeks, has been granted on an exclusive basis. Other directors, including David Osborn and Bruce Adam, also intend to unanimously recommend the proposal to shareholders - subject to Hansen and BGH entering into a binding Scheme Implementation Deed. This looks done. Link to my insight: Hansen Technologies (HSN AU)'s Assured Deal With BGH

Friday after the close, Invesco Real Estate (Cayman) ("IRE"), affiliate/parent of the various entities which either own Invesco Office J Reit (3298 JP) shares (such as Invesco Investments (Bermuda)) or manage the office REIT, which had made its original proposal on 20 May, just prior to the original 24 May 2021 expiry of the Tender Offer by Starwood Group, released an announcement suggesting a change to its original proposal. IRE announced it would increase its proposed Tender Offer Price to ¥22,750/share from ¥22,500/share which is the original proposed level AND the level to which Starwood lifted their Tender Offer Price on 1 June 2021. IRE expects to launch their deal on 18 June. Expect Starwood to complain, then reiterate their offer is good, and live, then Travis expects them to extend and probably outbid the IRE deal shortly after IRE launches. Link to Travis' insight: Invesco Real Estate Bumps Intended Tender Offer Price

Altium Ltd (ALU AU), a global software company, confirmed and subsequently rejected a non-binding proposal from Autodesk Inc (ADSK US). The A$38.50/share cash offer by way of a Scheme, was a 41.5% premium to last close and a 47.4% premium to the one-month VWAP. The indicative proposal was subject to a number of conditions including due diligence, Altium board support, the receipt of all applicable regulatory approvals, and no material adverse changes. Valuations under the indicative Offer are punchy. The offer metrics exceed all forward multiples on a five-year average. Yet Altium is clearly in play, and optically, Autodesk's bid appears opportunistic in the face of Covid and Altium's restructuring. An offer north of the recent high of $42/share last year appears a valid starting point. Link to my insight: Altium Ltd (ALU) Rebuffs Autodesk Offer

Electrical and mechanical engineering service provider Analogue Holdings Ltd (1977 HK) ("ATAL") has been on a tear lately, up 33% in the past three weeks, and up 58% YTD. This small-cap company ticks some interesting boxes: the profit attributable to shareholders was up 23% to HK$301.4mn in FY20, despite Covid challenges; ATAL has net cash of HK$1.1bn vs its market cap of HK$2.8bn; it is trading at a trailing PER and P/B of 9.2x and 1.4x; it boasts an excellent payout ratio - 50.3% in FY20. The dividend per share of HK$0.0892 was up 21.3% yoy. That backs out a ~5.1% yield currently; despite its size, it has a detailed website, together with a comprehensive corporate presentation; It holds a 24.44% stake in Nanjing Canatal Data Centr-A (603912 CH). That is held at cost of HK$116.6mn under interests in associates, however, the market value is currently ~HK$1.04bn. Oh ... and David Webb holds 7.01%. Link to my insight: Analogue Holdings (1977 HK): Lift-Off!

Since Janaghan Jeyakumar's last insight Mainstream (MAI AU): +120% in ~2 Months but Bidding War Continues..., there have been five new bids. The latest bid of A$2.80/share by Apex translates to EV/EBITDA (21E) of 32.6x for MAI and when considering the projected EBITDA CAGR of 28%+ for the following two years, it does not look too expensive to rule out more over bids. However, MAI shares are currently at A$2.83 and the downside risk is non-negligible. If SS&C fail to exercise their matching right, the shares could dip below Terms. It is also worth noting that Apex's proposal is non-binding and the fall to undisturbed price is quite large too. Janaghan would avoid this situation unless the share price dips below Terms. Link to Janaghan's insight: Mainstream (MAI AU): Apex on Top Again as Bidding War Continues....

In my short note Lansen Pharma (503 HK): This Is A Buy on the 14 May, I recommended buying Lansen Pharmaceutical Holdings Co, Ltd. (503 HK) when it was trading at $1.97. It's now $2.64/share. Since that insight, Lansen has announced it will further sell its remaining stake in Zhejiang Starry Pharmaceut-A (603520 CH). And after getting shareholder approval at its EGM, Lansen bought back 1mn shares - paying between $2.23-$2.22/share. Then bought back 219k shares - 0.055% of shares out - on the 8 June with a price range of HK$2.48-HK$2.50. That buyback serves to increase the chairman's stake, which is currently around 70%. This huge share price run-up in the last six months still has legs. Link to my insight: Lansen Pharma (503 HK): This Is Still A Buy.

In Cosmax Rights Offering Details & Trading Opportunities, Douglas discusses the details of the Cosmax Inc (192820 KS) rights offering details and potential trading opportunities. Cosmax is one of the top five listed cosmetics companies in Korea.

In SM Korea Line Rights Offering & Trading Opportunities, Douglas discusses the details of the Korea Line Corp (005880 KS) rights offering details and potential trading opportunities.

STUBS

I estimate the discount to NAV at ~56% versus its 12-month average of 59%. Both the long-term stub and the simple ratio (HLG/HLP) remain at around decade-lows, although off recent lows in the middle of last year.

Source: HLG, my estimates, CapIQ
  • At 0.3x P/B, only Chinese Estates Holdings (127 HK) is lower at 0.25x. The current peer average is 0.47x. HLP is at 0.64x. From a longer-term standpoint, HLG's 10-year P/B average is 0.6x. It is Currently trading at a discount to peers of ~37% against a 10-year average of 4%. Separately, HLP's 10 year-average is 0.76x, and it is currently trading at a premium to peers of 35% against a ten-year average of 26%.
  • I cannot envisage HLG privatising HLP given the pricing (P/B) disparity. I think Ronnie Chan should follow the Woo/Wheelock (20 HK) template, and HLG distributes the holding into HLP. He would be left with just 22+% directly in HLP, which would still be sufficient to block a competitive buyout of HLP. He doesn't seem to be interested in increasing his stake in HLG, and in-specie-ing HLP would be an altruistic gesture - perhaps to the powers that be - to clean up a Holdco when there really shouldn't be one.
  • I would go long HLG and short HLP here. I think there is a probably 25-30% upside to HLG here to get back to a simple ratio of 1.3x, the five-year average.

(link to my insight: StubWorld: Hang Lung Group Is Still Cheap)

M&A - US

Pershing Square Tontine Holdings-A (PSTH US) (Mkt Cap: $4.6bn; Liquidity: $68mn)

The deal, if done, is done. There is no PSTH shareholder vote. The redemption option comes from a Tender Offer. Putting aside whether UMG is a "good deal" at the tentatively agreed price of $40bn of market cap, the structure of the Proposed Transaction is complex, and leaves PSTH as a listed company, and creates a new set of listed warrants on a future deal. Because the structure has been done once, and it can be copied or improved in subsequent iterations, it seems likely to me that Pershing Square will seek to use the construct iteratively. SPARC will do a deal, and release options to SPARC2. SPARC2 will do a deal and will release options to SPARC3. If this happens, and there is any value to the optionality, that means PSTH has extra optionality here and now.

  • Those long call options on PSTH will presumably get long call options on UMG and PSTH RemainCo. Those short call options will be short those call options. Travis has no idea if there will be options on SPARC but if there are, those will have a VERY high volatility and volatility of volatility. Because the skew appears to be high for PSTH options, being long call spreads and calendar spreads seems like a decent idea but this is delicate and requires more attention to detail than one can put into an insight like this. Happy to discuss in messages or separately.
  • If you like UMG at $40bn market cap and you believe in the Everlasting Gobstopper Option theory of valuing the SPARC, then owning it is a no-brainer at US$22. If you like UMG at US$40bn market cap, but you are less enamoured of the Everlasting Gobstopper Option theory, PSTH is a buy at US$21.00 and below. If you really like the Everlasting Gobstopper Theory, if the SPARs are listed and trade at a very low price, you should buy a lot of them. There is more EGT optionality in the SPARs than there is embedded in the PSTH RemainCo. RemainCo below US$5.00/share is probably a buy. There IS both cash and optionality in it.
  • Travis would be strongly inclined to own PSTH below US$21.50 and buy more below (he likes the UMG asset at US$40bn).

TOPIX INCLUSIONS!

Money Forward (3994 JP) (Mkt Cap: $0.7bn; Liquidity: $9mn)

Business accounting software company Money Forward announced they had received approval to move from Mothers Section to the First Section of the Tokyo Stock Exchange, effective 14th June 2021. TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to occur at the close of trading on 29th July 2021.

  • Janaghan estimates the Inclusion quantity to be 3.5-4.2mn shares. This translates to an Inclusion Size of ¥20.7 - 24.8bn and an Impact of 10.1 - 12.1 days of volume based on 3-month ADV. The stock has been listed for more than 3 years and since there were no offerings, this TSE1 promotion could come as a surprise for most market participants.
  • This is a high-growth business with a projected top line CAGR 31%+ for Nov 20A-Nov 23E. The company claims that it currently has a total addressable market of ¥4.1trillion. With increasing adoption of cloud-based accounting in Japan, the company's revenues are expected in expand rapidly in the next few years. Money Forward is currently trading at a EV/Revenue (FY20A) of ~25x which is lower than the ~45x for closest Japanese peer, freee (4478 JP).
  • Janaghan would be Bullish between now and the Inclusion Event (29th July 2021)
(link to Janaghan's insight: TOPIX Inclusion: Money Forward (3994 JP))

Meiko Electronics (6787 JP) (Mkt Cap: $0.7bn; Liquidity: $6mn)

On 8 March, Meiko announced its intention to transfer from JASDAQ to TOPIX - the first such company to do so under the new TSE1 Listing Criteria - with implied desire for future membership in TSE Prime - since the rules went into effect on 1 November 2021. Travis wrote about that in TOPIX Inclusion Pre-Event for Meiko Electronics (6787). On Friday, the company announced that it had received approval to move to the TSE1, effective 18 June. That means it will be included in TOPIX at the close of the second-to-last business day of July.

  • Since the pre-announcement in February, shares are up 25% with 20% of that available to investors and pre-event players. Earnings were better than expected. Forecasts were much better than expected. The company has done a deal (a business and capital alliance with Kyosha) Kyosha is acquiring JPY 100 million of Meiko shares in the market over the next 6mos, which is 33,000 shares - effectively nothing. The company is buying back shares in the market.
  • The inclusion will be between 2.2-2.7mm shares, which is 13-16 days of ADV. This is a larger TOPIX inclusion than people will give it credit for.
  • Travis continues to see this as an attractive TOPIX Inclusion trade. He expects the shares to rise on Monday 14 June. He expects this to trade well most of the way through the inclusion. I do not news on the schedule which could de-rail news positivity.

(link to Travis' insight: Meiko Electronics (6787) Makes It To TOPIX)

SHARE CLASS

The Thai NVDR Company has announced that investors can now resume buying Non-Voting Depository Receipts (NVDR) in Kasikornbank PCL (KBANK TB) following the current issuance falling a fair way below the 25% issuance threshold. With buying now allowed, there could be a rush to convert local shares to NVDRs as well as outright buying and the NVDR issuance could increase again over the next few days. Since KBANK was deleted from the MSCI indices and has its investability weight reduced in the FTSE indices due to insufficient headroom, the stock will not be eligible for inclusion in the MSCI indices for 12 months and will not have its investability weight in the FTSE indices reversed till the March 2022 review. Link to Brian Freitas' insight: Kasikornbank (KBANK): NVDR Issuance Resumes but No Immediate Passive Inflows.

M&A - EUROPE

On 18 February Acciona SA (ANA SM) announced it would list 25% of its renewables subsidiary, Acciona Energías Renovables, and would retain control. On 7 June, the Spanish Securities and Markets Commission (CNMV) approved the registration document for the IPO, exclusively aimed at institutional investors. The objective is to have the shares listed on the last week of June. Jesus Rodriguez Aguilar's fair value is €172.4/share, 25% upside, although planned growth acceleration for Acciona Energías Renovables, should allow further upward revisions in the parent company target prices. Link to Jesus' insight: Spin-Off of Acciona Renewables.

On 4 May, Cinven Limited made a proposal (the third one) to acquire Sanne Group PLC (SNN LN) for £1.3 billion, or 830p/share. In addition, eligible Sanne shareholders would also retain the right to receive the final dividend of 9.9p per share declared on 19 March 2021. Cinven cancelled the acquisition on 12 May 12, 2021. The proposal was unanimously rejected by the Board of Sanne on 12 May. On 29 May, Sanne said its Board had received and unanimously rejected a fourth unsolicited, nonbinding offer from Cinven for 850p. Cinven has until 11 June to announce a firm intention to make an offer for Sanne or to announce that it does not intend to do so. Sanne is trading at 20.6x EV/Fwd EBITDA, 4.5x P/Fwd BV and 16.7x P/Fwd CFPS. In Cinven/Sanne: PUSU Deadline Is Tomorrow, Jesus believes that the Board's rejection is justified, given the quality of Sanne's business, time needed to digest the latest acquisitions and standalone prospects. His recommendation is long Sanne, with a TP of 915p.

INDEX REBALS

The Korea Exchange (KRX) will announce the results of the December 2021 review of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in November. The constituent changes will be effective after the close of trading on 9 December. At the current time, Brian sees 3 potential changes at the regular review in December with F&F Co (383220 KS), Sl Corp (005850 KS) and Seah Besteel (001430 KS) replacing Samyang Foods (003230 KS), F&F Co Ltd (007700 KS) and Jw Pharmaceutical (001060 KS). These names could change over the next few months and their prices (and the prices of the other stocks) move around. Link to Brian's insight: KOSPI200 Index Rebalance Preview: Focus Shifts to December After a Fantastic June Review.

For the KOSDAQ 150 Index (KOSDQ150 INDEX), Brian see the potential inclusions or Eubiologics (206650 KS), Nanos Co Ltd (151910 KS), Huons Co Ltd (084110 KS), Access Bio Inc (950130 KS), Cellid (299660 KS), Kona I Co Ltd (052400 KS), Wonik Qnc Corp (074600 KS), Dk D&I Co Ltd (033310 KS), KoMiCo Ltd. (183300 KS), PSK Inc (319660 KS), APTC Co Ltd (089970 KS) and Tk Chemical (104480 KS). The potential deletions are Daea Ti Co Ltd (045390 KS), Advanced Process Systems (265520 KS), Telcon Inc (200230 KS), Winix Inc (044340 KS), Icure Pharm Inc (175250 KS), Ubiquoss Holding (078070 KS), Danawa Co Ltd (119860 KS), Wisol Co Ltd (122990 KS), Spigen Korea (192440 KS), Dongkuk Structures & Constru (100130 KS), G Treebnt (115450 KS) and Lemon Co Ltd (294140 KQ). Link to Brian's insight: KOSPI200 Index Rebalance Preview: Focus Shifts to December After a Fantastic June Review.

On 4 June post market close in the US, FTSE Russell announced the preliminary list of inclusions and exclusions to the Russell 3000 Index (RAY INDEX). The changes are effective after the close of trading on 25 June. There are 255 additions and 295 deletions in this review. The rebalance leads to one of the highest volume days in the US markets with over US$10.6 trillion benchmarked to the FTSE Russell US indices. Link to Brian's insight: Russell 3000 Index Rebalance: The BIG One Is Back.

STAR50 Index Rebalance Sep Preview. At the September review, potential deletions include Shanghai Shen Lian Biomedical (688098 CH), Piesat Information Technology (688066 CH), Guangzhou Fang Bang Electr-A (688020 CH), Shenzhen Lifotronic Techno-A (688389 CH), and Appotronics Corp Ltd (688007 CH). The likelier inclusions are Eyebright Medical Technology Beijing Co Ltd (688050 CH), Sinocelltech Group Ltd (688520 CH), Beijing Huafeng Test & Con-A (688200 CH), Tinavi Medical Technologies (688277 CH), and Zhejiang Orient Gene Biotech-A (688298 CH). Link to Brian's insight: STAR Board - STAR50 Index Rebalance Sep Preview: Stocks On The Move.

Post the switch in listing from Alibaba Group (BABA US) to Alibaba Group (9988 HK) in the MSCI Standard indices, the number of shares registered in Hong Kong CCASS has continued to increase and last night crossed the threshold for an ad hoc index rebalance that will be implemented at the close of trading on 16 July. The announcement of the ad hoc rebalance should be made on 13 July. We estimate passive trackers indexed to the Hong Kong Hang Seng Index (HSI INDEX), Hang Seng China Enterprises Index (HSCEI INDEX) and the Hang Seng Tech Index (HSTECH INDEX) will need to buy 46.05m shares (HK$9.58bn; 2 days of ADV) at the close on 16 July. Link to Brian's insight: Alibaba (9988 HK): Potential Passive Inflow Post MSCI Listing Switch.

ASX20 Index Rebalance. There are 3 sets of changes to the index at the June review. The inclusions are Chalice Gold Mines (CHN AU), Orocobre Ltd (ORE AU) and Uniti Group Ltd (UWL AU). The deletions are Austal Ltd (ASB AU), Perenti Global (PRN AU) and Resolute Mining (RSG AU). Link to Brian's insight: ASX200 Index Rebalance: A Lot of Pre-Positions Built Up.

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.

Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.

Name

% chg

Into

Out of

Prosper One International (1470 HK) 75.00%UBSCiti
Shanghai Gench (1525 HK)18.33%EssenceUBS
China Biontech (8037 HK) 12.97%DBSBright Joy
North Asia Strategic Holdings (8080 HK) 12.23%EmperorOriental
Wah Ho (9938 HK)50.00%HSBCOutside CCASS
SDM Group Holdings (8363 HK) 58.57%ExcelOutside CCASS
Jinshang Bank Co Ltd (2558 HK) 10.305ShanxiShanghai Pudong
Plover Bay Technologies (1523 HK) 34.28%SouthwestBEA
Gain Plus (9900 HK)28.13%FutureOutside CCASS
Plover Bay Technologies (1523 HK) 35.21%SouthwestBNP
Honma Golf (6858 HK) 31.61%MSYuanta
Newborntown (9911 HK)15.50%MSOutside CCASS
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Sunac Services Holdings (1516 HK) 51.38%MSOutside CCASS
First Service (2107 HK)39.43%FutuOutside CCASS
Yue Kan (2110 HK)75.00%ChaoshangOutside CCASS
Sciclone Pharmaceuticals (6600 HK) 13.36%BociOutside CCASS
Pop Mart International Group Limited (9992 HK) 56.05%UBS, CiticOutside CCASS
Source: HKEx
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