The Smartkarma Weekly Starter is a newsletter published every Sunday and pulls together the 5 top research notes published over the last 7-days from across our platform.
In this week's edition of the Smartkarma Weekly Starter, we get a quick rundown on the top engaged insights for the week.
Start your week off on the right foot with:
September 2022 UK gilts crisis has proved a major wake up call for Central Bankers. It marked a major turning point in the Global Liquidity cycle. We conclude that watching the MOVE index is crucial.
- Global Liquidity cycle bottomed around October 2022 based on our calculations, immediately following the UK gilt crisis. That is no coincidence!
- Central Banks are increasingly using their balance sheets to focus on financial stability. Expect more subtle forms of YCC in the future
- QT (quantitative tightening) is effectively dead. Central Banks are becoming active collateral managers. Investors must closely watch the MOVE not the VIX
By Michael J. Howell in Cross Asset Strategy
Sembcorp Marine shareholders have agreed to acquire Keppel O&M. The transaction closes next week (28 Feb). KEP shareholders get SMM shares in their accounts March 1. That leads to lots of selling.
- This insight comes as one-half of a pair. The problem: I cannot label one insight as a pair trade, and there are different dynamics at play.
- This insight discusses the dynamics of Sembcorp Marine (SMM SP) as the takeover of Keppel O&M nears. The deal goes effective 28 February after last week's SMM shareholder approval.
- That will mean overhang. Lots of active overhang. There WILL be some index upweights, but index treatment remains nebulous, and one has to expect a lot more net index outflow.
By Travis Lundy in Event-Driven
Having risen more than 100% from the bottom in the past 3.5 months, we don’t think a small beat could drive up the share price any longer. Renewed US-China tensions are likely going to be a much bigge
- Alibaba Group (9988 HK)'s 3QFY23 results scheduled to release this Thursday is yet again going to be somewhat disappointing with our analysis indicating around RMB35.0bn OP cf. RMB49.7bn in 3QFY21.
- Nevertheless, 3QFY23 results could beat the conservative consensus revenue estimate by 2.8% while the OP is likely to be in line with consensus.
- Having risen 100%+ in few months, a small beat is unlikely to drive-up the share price any longer. Renewed US-China tensions are likely going to be a much bigger driver.
By Oshadhi Kumarasiri in Equity Bottom-Up
In the short term, Keppel's distribution in-specie of new SMM shares creates an overhang. Longer-term new SMM’s order book of S$18.1 billion implies an undemanding EV/order book of 0.60x.
- The transaction completes on 28 February and the distribution in-specie of 49% new Sembcorp Marine (SMM SP) shares will be credited to Keppel Corp (KEP SP)'s shareholders on 1 March.???
- While the potential index inclusions are likely to support new SMM shares, there is likely to be greater short-term downward pressure from the overhang created by the distribution in-specie.?
- New SMM trades at a premium P/NAV multiple of 1.81x vs peers. However, New SMM’s order book of S$18.1 billion implies an undemanding EV/order book of 0.60x vs historical ranges.
By Arun George in Event-Driven
While the sell-side has course corrected to lower their immediate and medium-term targets for Sea Ltd, our analysis points out that there could still be a surprise to the downside, when Sea Ltd report
- Although the sell-side has lowered their immediate and medium-term targets, our analysis points to another surprise to the downside for Sea Ltd (SE US) in 4Q22.
- Having exhausted pretty much all the cost-cutting in the past few quarters, we don’t see much room for Sea Ltd to further reduce its losses in the e-commerce business.
- With the sell-side optimistic once again expecting a narrower loss, a big miss in the fourth quarter could send Sea Ltd shares back towards their Nov 2022 lows.
By Oshadhi Kumarasiri in Equity Bottom-Up
This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight large flows into and out of Asia focused ETFs.
- The announcement of the changes to the FTSE GEIS was made on Friday post market close. Friday was also the cutoff for the March review of the S&P/ASX indices.
- Monday is the review cutoff for some indices, while Friday is the announcement of the changes to the Hang Seng family of indices and the SSE STAR50 (STAR50 INDEX).?
- There were big outflows from the IShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US) for yet another week taking YTD outflows to nearly US$3bn.
By Brian Freitas in Event-Driven
When your key man, who is instrumental to the company's fortunes - and its major shareholder - disappears without any explanation, it is a brave soul to be bullish.
- China Renaissance (1911 HK) was once touted as a "leading investment bank and asset manager dedicated to the new economy". At the time of its 1Q21 post-IPO high, it was.
- Late last Thursday, the 16 February, CR said it was unable to contact (hours, days, weeks?) Bao Fan, its chairman, CEO, and controlling shareholder. Shares subsequently fell 28%.
- Bao is the face of CR and instrumental in client dealing and complex large-scale deal making. Clarification is recommended before investors dip their toe back in the water.
By David Blennerhassett in Event-Driven
A 10.1% premium compares to the Offer price premiums for Sino Gas and Senex of 19% and 25%.? I 'd still buy here given the low Offer premium and therefore limited downside. I'd vote down this Scheme.
- On the 14 May 2018, coalbed methane producer AAG Energy Holdings (2686 HK) announced a partial offer (50.5%) from Xinjiang Xintai Natural Gas (603393 CH) at HK$1.75/share.?
- Xinjiang Xintai has returned to the pit with a $1.85/share Offer by way of a Scheme. The Cancellation Price will NOT be increased.
- This is hardly a knockout price, at a 10.1% premium to undisturbed; and just a 2.2% premium over the highest closing price of HK$1.81/share in the past year.
By David Blennerhassett in Event-Driven
Revenue grew by 2% YoY in 3Q22, but the operating margin began to improve. We believe the stock has an upside of 78% for March 2024.
- Revenue grew by 2% YoY in 3Q22, as the decrease of online sales offset the increase of physical stores.
- The operating margin began to improve, as the company cut sales and marketing expenses in minor businesses.
- We believe the stock has an upside of 78% for March 2024 and the price target will be HK$170.
By Ming Lu in Equity Bottom-Up
Chinese game revenue decreased for the first time since the statistic started. From 2018, the authorities had significantly reduced the number of new game license. Short video is taking time on site.
- Chinese online game revenue decreased year over year for the first time since the statistic started.
- From 2018, the Press and Publishing Administration had significantly reduced the number of new game license.
- Short video has been gradually taking time on site from online game.
By Ming Lu in Equity Bottom-Up
Ready to transform your investment journey??Get access?and subscribe to Asia's leading independent investment research network today. Read these insights in-depth, attend exclusive webinars and more.
