Quick Idea's

Two new stocks and closing two

111, inc (YI) has run up to $3.25. For a spread of only about 11%. Which is not all that attractive since there is no definitive agreement signed. So I am closing it with a quick 13% gain here. These Chinese merger situations sometimes randomly spike up, and I think it is wise to trade around them when upside isn’t as juicy anymore.

Another Chinese merger arb that I have taken a position in is VNET group (VNET). Current price is >$5 but I got in a bit lower at $4.9. There are multiple parties that have shown interest in buying the company, but the latest and highest bid of $8.2 came from the company's founder in September. Since there is no definitive agreement it is pretty dicey, but then in November news came out that the founder is making serious effort in gathering funds for the buyout. The stock went to nearly $6 on that news, but has since slumped again to around $5.

So with upside of 61% and the stock trading near its 52 week lows, I like the odds here. There is a remote possibility another bid will come in above $8.2.

What I like about these Chinese merger arb situations is that if the business is legit, there should be a strong incentive to get them done. They are often done at low valuations and they can be easily uplisted on Chinese exchanges at much higher valuations. And it will be increasingly awkward to stay listed in the US.

Then I sold Consun Pharma (1681) for $4 and I will close that one with a gain of more than 30%. It is still cheapish, but there are others I like better. And there is a bit of a patent wall in a couple of years.

I will add TK Group (2283) to the list at a price of HK$1.6.

TK group is a high end plastics manufacturer. Apple is one of their customers and historically they have generated a ROIC of well above 20%. The stock currently trades at 5.8x LTM earnings and a 7.2% dividend yield. But earnings have been depressed by cost inflation, Covid, weak Auto sales and the trade war. I expect the first three to resolve in 2023-24 and earnings to recover above 2019 levels. The last one can be somewhat resolved by expanding their customer base into China. Forward estimates for 2024 put the company a <4x earnings and a >10% dividend yield.

The company has a 5 year plan in place to double sales to HK$ 4bn by 2025. And the CEO and majority shareholder has been steadily buying shares on the open market in the last couple of years.

Historically this stock usually traded between 7-12x earnings. So if costs are kept under control and revenue growth comes through, upside could be more than 100% with only limited downside risk.

As usual do your own research and I may buy and sell the above mentioned stocks at any time.