Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Thematic (Sector/Industry)

<p>The JPX Nikkei 400 Rebalances are, from announcement to end, rarely an interesting event. I was not bullish the Adds vs Deletes performance this year, and<em> in the end</em>, I did not need to be. This year, the arithmetic average performance of the Adds vs the Deletes from pre-announcement to event was -6bp. That is a bit better than the historical average.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/449/original/Screenshot%202019-08-29%20at%206.28.31%20PM.png?1567074543" class="editor-image img-responsive" data-smartkarma-image-id="97449"></figure><div style="text-align: left;" class="content-caption">source: capitalIQ, Quiddity</div><p>On a 100 reference price on the day before, Adds vs Deletes this year did better than most years (the peach-coloured line above, the peach-dotted line below) in the first two weeks, gaining almost 4% at one stage, but true to form, the Adds tailed off into the close. Historically, from this point until the end of October, the Adds vs Deletes have lost on average another 150bp (i.e. newly Added underperform newly deleted).</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/450/original/Screenshot%202019-08-29%20at%206.29.24%20PM.png?1567074599" class="editor-image img-responsive" data-smartkarma-image-id="97450"></figure><div style="text-align: left;" class="content-caption">source: capitalIQ, Quiddity</div><p>Why do they trade like that? Because too many people trade jump on the idea that index inclusion trades are great money-makers because of all the flow that MUST trade. The single largest sell trade was about US$225mm of <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a>, which did its part and underperformed its sector by 6+% from the close before announcement through yesterday, perhaps by dint of idiosyncratic flow. However, the flows near the close today when the 2.3 days of ADV <em>needed</em> to trade were indicative of people unwinding the long Adds vs Deletes trade, not people being forced to sell it.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/097/459/original/Screenshot%202019-08-29%20at%207.23.42%20PM.png?1567077887" class="editor-image img-responsive" data-smartkarma-image-id="97459"></figure><div class="content-caption">source: tradingview.com, Quiddity</div><p>The stock traded about 21mm shares of excess volume today alone, and if historical patterns to JPX Nikkei 400 rebalance events hold true, Nissan volume should be 8-10mm shares over the average tomorrow (regardless of other info). <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11747:1" rel="noopener">Takeda Pharmaceutical (4502 JP)</a> was the second largest delete by value and it saw a similar spike in the last two minutes.</p><p>My calculation as per <a href="https://www.smartkarma.com/insights/jpx-nikkei-400-rebalance-2019-edition-part-i" target="_blank" data-smartkarma-citation="insights:31637" rel="noopener">JPX Nikkei 400 Rebalance - 2019 Edition Part I</a>  was that ¥330bn or ¥165bn a side would be traded. There is not exact data of course, but the data which we do have for now does not contradict it, yet, but it appears a bunch of it got crossed off-market against previous owners. It looks like about one-third of the trade or so. That is not a bad trade historically for those who made that market. </p><p>More below.</p>

The JPX Nikkei 400 Rebalances are, from announcement to end, rarely an interesting event. I was not bullish the Adds vs Deletes performance this year, and in the end, I did not need to be. This year, the arithmetic average performance of the Adds vs the Deletes from pre-announcement to event was -6bp. That is a bit better than the historical average.source: capitalIQ, QuiddityOn a 100 reference price on the day before, Adds vs Deletes this year did better than most years (the peach-coloured line above, the peach-dotted line below) in the first two weeks, gaining almost 4% at one stage, but true to form, the Adds tailed off into the close. Historically, from this point until the end of October, the Adds vs Deletes have lost on average another 150bp (i.e. newly Added underperform newly deleted).source: capitalIQ, QuiddityWhy do they trade like that? Because too many people trade jump on the idea that index inclusion trades are great money-makers because of all the flow that MUST trade. The single largest sell trade was about US$225mm of Nissan Motor (7201 JP), which did its part and underperformed its sector by 6+% from the close before announcement through yesterday, perhaps by dint of idiosyncratic flow. However, the flows near the close today when the 2.3 days of ADV needed to trade were indicative of people unwinding the long Adds vs Deletes trade, not people being forced to sell it.source: tradingview.com, QuiddityThe stock traded about 21mm shares of excess volume today alone, and if historical patterns to JPX Nikkei 400 rebalance events hold true, Nissan volume should be 8-10mm shares over the average tomorrow (regardless of other info). Takeda Pharmaceutical (4502 JP) was the second largest delete by value and it saw a similar spike in the last two minutes.My calculation as per JPX Nikkei 400 Rebalance - 2019 Edition Part I  was that ¥330bn or ¥165bn a side would be traded. There is not exact data of course, but the data which we do have for now does not contradict it, yet, but it appears a bunch of it got crossed off-market against previous owners. It looks like about one-third of the trade or so. That is not a bad trade historically for those who made that market. More below.

JPX Nikkei 400 Rebalance - 2019 Edition Done

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<p>The Japan Exchange Group (JPX) publishes a daily report that details the short sell activity by market participants. Investors are required to submit their short sale position to the brokers when their short positions exceed 0.20% of the outstanding shares. The brokers then pass the short position reports to the exchange. JPX aggregates the reports and discloses information such as the short sale positions, the names of the investors etc. whose short sale positions reach 0.5% of the outstanding shares.</p><p>The largest short positions in notional terms are <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/takeda-pharmaceutical-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a>, <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18448:1">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:1:1">Canon Inc (7751 JP)</a> while the largest short positions as a percentage of free float are <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:8244:1">Leopalace21 Corp (8848 JP)</a>, <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9924:1">Taiyo Yuden (6976 JP)</a>, <a href="https://www.smartkarma.com/entities/tokai-carbon-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9145:1">Tokai Carbon (5301 JP)</a> and <a href="https://www.smartkarma.com/entities/nippon-carbon-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:3348:1">Nippon Carbon (5302 JP)</a>. The upcoming Nikkei deletion name <a href="https://www.smartkarma.com/entities/chiyoda-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:6232:1">Chiyoda Corp (6366 JP)</a> has 17.2% of its free float short sold and there should be a fair bit of volatility in the lead up to the rebalance.</p>

The Japan Exchange Group (JPX) publishes a daily report that details the short sell activity by market participants. Investors are required to submit their short sale position to the brokers when their short positions exceed 0.20% of the outstanding shares. The brokers then pass the short position reports to the exchange. JPX aggregates the reports and discloses information such as the short sale positions, the names of the investors etc. whose short sale positions reach 0.5% of the outstanding shares.The largest short positions in notional terms are Fast Retailing (9983 JP), Takeda Pharmaceutical (4502 JP), Itochu Corp (8001 JP), Toyota Motor (7203 JP) and Canon Inc (7751 JP) while the largest short positions as a percentage of free float are Leopalace21 Corp (8848 JP), Taiyo Yuden (6976 JP), Tokai Carbon (5301 JP) and Nippon Carbon (5302 JP). The upcoming Nikkei deletion name Chiyoda Corp (6366 JP) has 17.2% of its free float short sold and there should be a fair bit of volatility in the lead up to the rebalance.

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Ascentage Pharma Group Corp / Equity Capital Markets

<p>Ascentage Pharma is pre-marketing the USD 200 - 300 million IPO to list in Hong Kong. In our previous insight, we highlight the company's key product pipeline and its shareholders. We are of the view that the company is still in the early stages of development hence it has significant R&amp;D risks relative to other biotech listings in Hong Kong.</p>
<p>In this insight, we will provide an update on new information available from both the approved prospectus and the progress of its clinical trials. We will also do a more thorough comparison between its core product HQP1351 and the benchmark product ponatinib. We will also discuss the background of ponatinib and the challenges for HQP1351 for it to become a billion-dollar drug.</p>
<h2>Our previous coverage on Ascentage Pharma</h2>
<ul>
<li><a href="https://www.smartkarma.com/insights/ascentage-pharma-ipo-too-early-for-an-ipo" target="_blank">Ascentage Pharma (亚盛医药) IPO: Too Early for an IPO</a></li>
</ul>

Ascentage Pharma is pre-marketing the USD 200 - 300 million IPO to list in Hong Kong. In our previous insight, we highlight the company's key product pipeline and its shareholders. We are of the view that the company is still in the early stages of development hence it has significant R&amp;D risks relative to other biotech listings in Hong Kong.
In this insight, we will provide an update on new information available from both the approved prospectus and the progress of its clinical trials. We will also do a more thorough comparison between its core product HQP1351 and the benchmark product ponatinib. We will also discuss the background of ponatinib and the challenges for HQP1351 for it to become a billion-dollar drug.
Our previous coverage on Ascentage Pharma

Ascentage Pharma (亚盛医药) IPO: Too Early for an IPO


Ascentage Pharma (亚盛医药) IPO: Updates and Thoughts on HQP1351 (3rd Gen Bcr-Abl TKI)

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/401/original/2019-05-21_15-51-33.png?1558421503" class="editor-image img-responsive" data-smartkarma-image-id="88401"></figure><p>Source: Japan Analytics</p>
</div><p><strong>SECOND DOWN QUARTER</strong> - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are at least four reported quarters. We shall also cover our updated Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Having declined by 2.50% in the 'winter' quarter reported Operating Income fell by another 0.96%. The declines in Net Income were 8.04% and 4.93%, respectively. Aggregate Net Income is now at the same level as in February 2018.</p><p><strong>NOT THAT 'CONSERVATIVE'</strong> - For most companies, the 'spring' quarter marks the end of the fiscal year and is accompanied by the release of forecasts for the current year ending March 2020.  The normal sell-side 'mantra' is that such forecasts are always 'conservative'. In light of current economic conditions (imports -17.2% qoq annualised) and the outlook global trade, we consider the 2020 forecasts to be relatively optimistic. Operating Income is expected to rise by 0.5% compared to last quarter and by 2.6% relative to the trailing-twelve-month (TTM) results. Forecast Net Income is unchanged from last quarter but is 4% above TTM. </p><p><strong>NO LONGER 'CHEAP' </strong>- As a result of the weaker TTM results, the market multiple has risen to close to 15 times and the market is no longer the bargain it reached on Christmas Day. The upside to a 'normal' market multiple (16.7) is now only 11%, or the market is implying that Net Income has to fall by a similar amount.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/408/original/2019-05-21_16-29-55.png?1558423805" class="editor-image img-responsive" data-smartkarma-image-id="88408"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/411/original/2019-05-21_16-39-58.png?1558424413" class="editor-image img-responsive" data-smartkarma-image-id="88411"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>ROLLING TTMs AND PEAKING MARGINS</strong> - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5% a year; however, the rolling quarterly rate of increase is slowing. The 2% Revenue growth forecast for this year appears optimistic. Operating Income declined by 0.9% qoq in the quarter just declared which was forecast to be flat. TTM Operating Income is now lower than in any of the last five quarters. As noted above, the forecast is for 2.6% growth this fiscal year. Operating margins peaked at 7.78% one year ago and have declined by 45 basis points since then. They are forecast to remain at current levels this year.  TTM Net Margins (not shown above) are now 5.02% having fallen 83 basis points in the last two quarters. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/088/418/original/2019-05-21_17-16-38.png?1558426621" class="editor-image img-responsive" data-smartkarma-image-id="88418"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RESULT &amp; REVISION SCORE FLATTENS OUT</strong> - Our Results &amp; Revision Score - details on the methodology are provided below - has a better correlation (0.80) with the market than the TTM results (0.70) and, as it includes elements of momentum, is often an excellent leading indicator. The detailed breakdown between the three components (Results, Annual Forecast/Revision, Interim Forecast/Revision) is provided below, however, the improvement in Annual Forecast/Revision  Score was sufficient to offset declines in the other two components and produced the most significant increase (+22%) in the Score since November 2017.</p><p><strong>SECOND HALF RECOVERY?</strong> - We had expected the Score to be negative by this month and for the upturn to be in late 2019. Although the now-negative Interim Forecast/Revision Score suggests further weakness ahead, Japanese corporates are collectively signalling a strong recovery in the second half. </p><p>In the <strong>DETAIL</strong> section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite and look at the breakdown of the Market Composite Results &amp; Revision Score and our 30 Sector Scores.</p>


Source: Japan Analytics
SECOND DOWN QUARTER - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are at least four reported quarters. We shall also cover our updated Results &amp; Revision Scores for the Market Composite and each of our 30 Sectors. Having declined by 2.50% in the 'winter' quarter reported Operating Income fell by another 0.96%. The declines in Net Income were 8.04% and 4.93%, respectively. Aggregate Net Income is now at the same level as in February 2018.NOT THAT 'CONSERVATIVE' - For most companies, the 'spring' quarter marks the end of the fiscal year and is accompanied by the release of forecasts for the current year ending March 2020.  The normal sell-side 'mantra' is that such forecasts are always 'conservative'. In light of current economic conditions (imports -17.2% qoq annualised) and the outlook global trade, we consider the 2020 forecasts to be relatively optimistic. Operating Income is expected to rise by 0.5% compared to last quarter and by 2.6% relative to the trailing-twelve-month (TTM) results. Forecast Net Income is unchanged from last quarter but is 4% above TTM. NO LONGER 'CHEAP' - As a result of the weaker TTM results, the market multiple has risen to close to 15 times and the market is no longer the bargain it reached on Christmas Day. The upside to a 'normal' market multiple (16.7) is now only 11%, or the market is implying that Net Income has to fall by a similar amount.   Source: Japan AnalyticsROLLING TTMs AND PEAKING MARGINS - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5% a year; however, the rolling quarterly rate of increase is slowing. The 2% Revenue growth forecast for this year appears optimistic. Operating Income declined by 0.9% qoq in the quarter just declared which was forecast to be flat. TTM Operating Income is now lower than in any of the last five quarters. As noted above, the forecast is for 2.6% growth this fiscal year. Operating margins peaked at 7.78% one year ago and have declined by 45 basis points since then. They are forecast to remain at current levels this year.  TTM Net Margins (not shown above) are now 5.02% having fallen 83 basis points in the last two quarters. Source: Japan AnalyticsRESULT &amp; REVISION SCORE FLATTENS OUT - Our Results &amp; Revision Score - details on the methodology are provided below - has a better correlation (0.80) with the market than the TTM results (0.70) and, as it includes elements of momentum, is often an excellent leading indicator. The detailed breakdown between the three components (Results, Annual Forecast/Revision, Interim Forecast/Revision) is provided below, however, the improvement in Annual Forecast/Revision  Score was sufficient to offset declines in the other two components and produced the most significant increase (+22%) in the Score since November 2017.SECOND HALF RECOVERY? - We had expected the Score to be negative by this month and for the upturn to be in late 2019. Although the now-negative Interim Forecast/Revision Score suggests further weakness ahead, Japanese corporates are collectively signalling a strong recovery in the second half. In the DETAIL section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite and look at the breakdown of the Market Composite Results &amp; Revision Score and our 30 Sector Scores.

🇯🇵 JAPAN • Spring Results & Revisions - Market  & Sector Aggregates & Scores - 2nd▼Quarter

Event-Driven

<p>On December 17th 2018, the TSE announced a somewhat strange and unexpected treatment of the TSE-calculated indices for two companies where shares were issued to shareholders of a foreign company where the Japanese company had acquired the foreign company through a Scheme of Arrangement under foreign jurisdiction. </p><p>The two companies were <a href="https://www.smartkarma.com/entities/13749" target="_blank" data-smartkarma-citation="entities:13749:1">LIFULL (2120 JP)</a> and <a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a>.</p><p>The announcements for <a href="https://www.jpx.co.jp/english/news/1044/b5b4pj000002mamy-att/e_tuuti.pdf" target="_blank">TOPIX</a> and <a href="https://www.jpx.co.jp/english/news/1044/b5b4pj000002maqs-att/new_E.pdf" target="_blank">JPX Nikkei 400</a> were made then, and despite the events being entirely similar in construct, but different in month of Scheme Effective Date, they were put in the same month for Mitula and the first tranche of the Takeda inclusion, which was split between two months because of its large impact. </p><p>The large IPO last month of <a href="https://www.smartkarma.com/entities/27445" target="_blank" data-smartkarma-citation="entities:27445:1">Softbank Corp (9434 JP)</a> means there is another large inclusion going effective as of the open of trading on 31 January. </p><p>Wednesday is going to be a big day.</p><p>If everyone trades their required index amount on the day, it should be a trillion yen plus of flows.</p>

On December 17th 2018, the TSE announced a somewhat strange and unexpected treatment of the TSE-calculated indices for two companies where shares were issued to shareholders of a foreign company where the Japanese company had acquired the foreign company through a Scheme of Arrangement under foreign jurisdiction. The two companies were LIFULL (2120 JP) and Takeda Pharmaceutical (4502 JP).The announcements for TOPIX and JPX Nikkei 400 were made then, and despite the events being entirely similar in construct, but different in month of Scheme Effective Date, they were put in the same month for Mitula and the first tranche of the Takeda inclusion, which was split between two months because of its large impact. The large IPO last month of Softbank Corp (9434 JP) means there is another large inclusion going effective as of the open of trading on 31 January. Wednesday is going to be a big day.If everyone trades their required index amount on the day, it should be a trillion yen plus of flows.

31 January TOPIX & JPX Nikkei 400 Major Index Changes

Japan

Takeda Pharmaceutical Co Ltd focuses on the Research & Development, Manufacturing, Sales and Marketing and Import/Export of Pharmaceutical Drugs. The Company focuses on the following core therapeutic areas: Cardiovascular & Metabolic, Oncology, Central Nervous System, Respiratory & Immunology, General Medicine (Gastrointestinal & Genitourinary) and Vaccine.

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Takeda Pharmaceutical (4502 JP)

JPX Nikkei 400 Rebalance - 2019 Edition Done

The JPX Nikkei 400 Rebalances are, from announcement to end, rarely an interesting event. I was not bullish the Adds vs Deletes performance this...

Travis Lundy

Short Selling Is Big in Japan

The Japan Exchange Group (JPX) publishes a daily report that details the short sell activity by market participants. Investors are required to...

Brian Freitas

Ascentage Pharma (亚盛医药) IPO: Updates and Thoughts on HQP1351 (3rd Gen Bcr-Abl TKI)

Ascentage Pharma is pre-marketing the USD 200 - 300 million IPO to list in Hong Kong. In our previous insight, we highlight the company's key...

Ke Yan, CFA, FRM

🇯🇵 JAPAN • Spring Results & Revisions - Market & Sector Aggregates & Scores - 2nd▼Quarter

SECOND DOWN QUARTER - This Insight will review the aggregate results for the 3765 listed Japanese companies as of 20th May 2019 for which there are...

Campbell Gunn

31 January TOPIX & JPX Nikkei 400 Major Index Changes

On December 17th 2018, the TSE announced a somewhat strange and unexpected treatment of the TSE-calculated indices for two companies where shares...

Travis Lundy

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