Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei. Given extreme looking skews even in individual names it does not seem unreasonable that some relative value fund(s) are exiting positions aggressively prior to what could be a key long weekend for Japan with potentially heavy volatility on Monday. We examine some striking performance discrepancies below.

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> has been the target of an investor activism campaign by a UK based investment management company named Independent Franchise Partners (IFP).</li>
<li>We have covered the situation in detail during our two previous insights on Kirin Holdings.</li>
<li>IFP asked Kirin to focus on its core alcoholic beverages business and dispose its interests in pharmaceuticals, nutritional supplements, cosmetics and domestic non-alcoholic beverages. It also said to distribute the disposal proceeds by way of a share buyback and also requested permission to appoint independent directors to Kirin’s board.</li>
<li>Kirin was quick to reject those proposals and both IFP and Kirin gave away their perspectives for the proposals and reasons for rejection back and forth.</li>
<li>We analysed IFP and Kirin’s reasoning in the two insights below;</li>
</ul><a href="https://www.smartkarma.com/insights/kirin-activist-investor-seeks-600bn-buyback-and-a-nomination-of-an-independent-director" target="_blank" rel="noopener">Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director</a><a href="https://www.smartkarma.com/insights/a-better-kirin-by-activist-investor-franchise-partners" target="_blank" rel="noopener">“A Better Kirin” By Activist Investor Franchise Partners</a>



Kirin Holdings (2503 JP) has been the target of an investor activism campaign by a UK based investment management company named Independent Franchise Partners (IFP).
We have covered the situation in detail during our two previous insights on Kirin Holdings.
IFP asked Kirin to focus on its core alcoholic beverages business and dispose its interests in pharmaceuticals, nutritional supplements, cosmetics and domestic non-alcoholic beverages. It also said to distribute the disposal proceeds by way of a share buyback and also requested permission to appoint independent directors to Kirin’s board.
Kirin was quick to reject those proposals and both IFP and Kirin gave away their perspectives for the proposals and reasons for rejection back and forth.
We analysed IFP and Kirin’s reasoning in the two insights below;
Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director“A Better Kirin” By Activist Investor Franchise Partners

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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

Asahi Group Holdings / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group Holdings (2502 JP)</a> announced the acquisition of <a href="https://www.smartkarma.com/entities/anheuser-busch-inbev-sa-nv" target="_blank" data-smartkarma-citation="entities:865:1" rel="noopener">Anheuser Busch Inbev Sa/Nv (ABI BB)'s  </a>Australian business in July 2019.
The completion of the deal has been delayed beyond its original timeline (of 1Q20) due to concerns raised by ACCC. However, now the deal appears to be nearing completion. 
To finance this deal, Asahi had planned to raise JPY200bn (US$2bn) via placing shares. In this insight, we look at implication of the same.

Asahi Group Holdings (2502 JP) announced the acquisition of Anheuser Busch Inbev Sa/Nv (ABI BB)'s  Australian business in July 2019.
The completion of the deal has been delayed beyond its original timeline (of 1Q20) due to concerns raised by ACCC. However, now the deal appears to be nearing completion. 
To finance this deal, Asahi had planned to raise JPY200bn (US$2bn) via placing shares. In this insight, we look at implication of the same.

Trade Idea: Asahi Group - USD2bn Placement Overhang

<ul>
<li>Independent Franchise Partners relaunched its investor activism campaign against <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> last Friday, (14th February 2020) with a proposal to initiate a ¥600bn share buyback and requesting permission to appoint independent directors.</li>
<li>At the time we looked at it from the company’s point of view and felt that Franchise Partners’ proposal could harm Kirin’s long-term growth potential.</li>
</ul>
<a href="https://www.smartkarma.com/insights/kirin-activist-investor-seeks-600bn-buyback-and-a-nomination-of-an-independent-director" target="_blank" rel="noopener">Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director</a>
<ul>
<li>Kirin rejected Franchise Partners’ proposal and explained their reasons for rejecting them via a press release. Click here for Kirin's responses: <a href="https://pdf.irpocket.com/C2503/ly8K/KuFz/B01C.pdf" target="_blank" rel="noopener">Response 1</a>, <a href="https://pdf.irpocket.com/C2503/ly8K/yvj9/gsZl.pdf" target="_blank" rel="noopener">Response 2</a>
</li>
<li>As Franchise Partners lacked support from Kirin’s major investors, they have turned their attention towards retail and small institutional investors who together own more than 47% of Kirin’s share capital.</li>
<li>This was done via a launch of a website called “Better Kirin”</li>
</ul>
<a href="https://www.abetterkirin.com/" target="_blank" rel="noopener">https://www.abetterkirin.com/</a>
<ul>
<li>It contains the reasoning behind Franchise Partners’ proposals and it also appeals to Kirin’s existing shareholders to stand by Franchise Partners’ investor activism campaign.</li>
</ul>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/921/original/image_56125170421582117579489.png?1582117576" class="editor-image img-responsive" data-smartkarma-image-id="118921"></figure>
<ul>
<li>We have marked this insight bullish as Kirin has rejected this short-term oriented proposal from Franchise Partners.</li>
</ul>
Summary of the main recommendations 
<ul>
<li>Divest all non-core businesses including Kyowa Kirin Pharmaceuticals, Kyowa Hakko Bio, FANCL and the domestic non-alcoholic beverages segment.</li>
<li>Abandon the strategic initiative to bridge the gap in Kirin’s product line-up (F&amp;B to Healthcare)</li>
<li>Work towards substantial margin and working capital improvements.</li>
<li>Use cash from divestments to buyback up to a maximum of 300m shares at a purchase consideration of ¥600bn.</li>
<li>Substantially increase the dividend payout ratio.</li>
<li>Invest sensibly in the core business and return excess cash to shareholders.</li>
</ul>


Independent Franchise Partners relaunched its investor activism campaign against Kirin Holdings (2503 JP) last Friday, (14th February 2020) with a proposal to initiate a ¥600bn share buyback and requesting permission to appoint independent directors.
At the time we looked at it from the company’s point of view and felt that Franchise Partners’ proposal could harm Kirin’s long-term growth potential.

Kirin: Activist Investor Seeks ¥600bn Buyback and a Nomination of an Independent Director

Kirin rejected Franchise Partners’ proposal and explained their reasons for rejecting them via a press release. Click here for Kirin's responses: Response 1, Response 2

As Franchise Partners lacked support from Kirin’s major investors, they have turned their attention towards retail and small institutional investors who together own more than 47% of Kirin’s share capital.
This was done via a launch of a website called “Better Kirin”

https://www.abetterkirin.com/

It contains the reasoning behind Franchise Partners’ proposals and it also appeals to Kirin’s existing shareholders to stand by Franchise Partners’ investor activism campaign.



We have marked this insight bullish as Kirin has rejected this short-term oriented proposal from Franchise Partners.

Summary of the main recommendations 

Divest all non-core businesses including Kyowa Kirin Pharmaceuticals, Kyowa Hakko Bio, FANCL and the domestic non-alcoholic beverages segment.
Abandon the strategic initiative to bridge the gap in Kirin’s product line-up (F&amp;B to Healthcare)
Work towards substantial margin and working capital improvements.
Use cash from divestments to buyback up to a maximum of 300m shares at a purchase consideration of ¥600bn.
Substantially increase the dividend payout ratio.
Invest sensibly in the core business and return excess cash to shareholders.


"A Better Kirin" By Activist Investor Franchise Partners

'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. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/403/original/2020-02-18_08-44-22.png?1581983074" class="editor-image img-responsive" data-smartkarma-image-id="118403"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/404/original/2020-02-18_08-42-56.png?1581983098" class="editor-image img-responsive" data-smartkarma-image-id="118404"></figure><div class="content-caption">Source • Japan Analytics</div>THREE-YEAR LOW - With <a href="https://www.smartkarma.com/entities/bridgestone-corp" target="_blank" data-smartkarma-citation="entities:8914:1" rel="noopener">Bridgestone (5108 JP)</a>'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/405/original/2020-02-18_09-29-28.png?1581985792" class="editor-image img-responsive" data-smartkarma-image-id="118405"></figure><div class="content-caption">Source • Japan Analytics</div>LEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-<ul>
<li>Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.</li>
<li>The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.</li>
<li>The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.</li>
<li>
All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.
<hr>
• SECTOR SCORES •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/410/original/2020-02-18_09-55-29.png?1581987489" class="editor-image img-responsive" data-smartkarma-image-id="118410"></figure><div class="content-caption">Source • Japan Analytics</div>
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 
</li>
</ul>

Source • Japan AnalyticsTHREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. Source • Japan AnalyticsLEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-
Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.
The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.
The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.

All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.

• SECTOR SCORES •
Source • Japan Analytics
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 



🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

Japan

Kirin Holdings Company, Limited produces beer, soft drinks, food products, whisky, and pharmaceuticals.  The Company sells its products in Japan and overseas.

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Kirin Holdings (2503 JP)

What Is Getting Blown Out of Portfolios Before the Long Weekend in Japan?

We previously highlighted the strong skew between names which have a heavy weighting in Topix vs. those which have a heavy weighting in the Nikkei....

Mio Kato

Kirin: Latest on the Proxy Battle

Kirin Holdings (2503 JP) has been the target of an investor activism campaign by a UK based investment management company named Independent...

Oshadhi Kumarasiri

Trade Idea: Asahi Group - USD2bn Placement Overhang

Asahi Group Holdings (2502 JP) announced the acquisition of Anheuser Busch Inbev Sa/Nv (ABI BB)'s Australian business in July 2019. The completion...

Sumeet Singh

"A Better Kirin" By Activist Investor Franchise Partners

Independent Franchise Partners relaunched its investor activism campaign against Kirin Holdings (2503 JP) last Friday, (14th February 2020) with a...

Oshadhi Kumarasiri

🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

THREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our...

Campbell Gunn

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52-week Range

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