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.

Thematic (Sector/Industry)

<h2>Summary and Conclusion</h2>
<p><strong>What's Original?</strong></p>
<p>This insight is an in-depth look into the Asian wind energy industry, covering the value chain and related companies at each key stage of the value chain. Our research includes the following:</p>
<p><strong>Industry Background:</strong> This includes an in-depth analysis on the wind energy sector with an overview of wind energy, including the growth of global installed capacity wind energy and analysis of the Asian wind energy market.</p>
<p>We examine both global onshore and offshore wind energy and differences in installation costs, annual investments, levelised cost of electricity (LCoE) and the declining trend in installation costs.</p>
<p>The potential capacity level of offshore wind energy is higher than onshore, though installation costs, O&amp;M and transportation costs are currently higher for offshore which is clearly reflected in the LCoE of the two categories.</p>
<p>When comparing total global wind capacity against the Asian market alone, over the last decade the Asian market’s growth rate was higher than the global rate and 51% of global new capacity additions were made in the Asian region.</p>
<p>The majority of Asian new capacity installed in Asian market was in APAC and China remained the world’s largest onshore market accounting for 37% of total onshore installations in 2019 while in the offshore market China accounted for a slightly more modest 23% of installations, trailing the UK and Germany.</p>
<p>The total installed capacity of onshore wind is expected to grow at a CAGR of 9.2% and to reach 1,787 GW globally in 2030 and then 5,044 GW by 2050. Furthermore, Asia (mostly China) should continue to dominate the onshore wind power industry, with more than 50% of global installations by 2050. Offshore wind energy in Asia should grow at a CAGR of 28% during 2018-30 and reach 613 GW while the Asian onshore market is expected to grow at a 13% CAGR and reach 2,646 GW. We examine the leading Asian countries (India, Japan and China) in the sector and their growth potential.</p>
<p>We believe that, over the next decade, the Asian market will outperform in wind energy growth compared to Europe and the US. Further, the trend towards offshore wind energy development in the Asian region will start to gather steam. The growth will be still mainly driven by China, India and Japan, however, apart from those countries South Korea, Taiwan and Vietnam also demonstrate some potential to develop wind energy.</p>
<p><strong>Value Chain Analysis:</strong> We detail the value chain for wind energy highlighting the critical stages of the value chain (raw material supply, design and development services, component supply, wind turbine manufacturers, construction &amp; installation services and wind farm developers) and the leading players in those stages.</p>
<p><strong>Wind Farm Owners - </strong>By the end of 2019, the top 15 wind farm owner-operators held over 1/3 of the total 650 GW of onshore and offshore assets globally.  Chinese utilities continue to dominate the top 15 ranking of wind asset owners as China is the leader in the market. We believe that this situation will continue as wind energy installation in China is expected to grow at higher rate than other leading countries in the world.</p>
<p><strong>Original Equipment Manufacturing </strong>- OEMs usually manufacture some of the critical components such as the nacelle in-house, and blades and towers are produced either by the OEM or fabricated to the OEM's specifications by a supplier. The tower, gearbox, shafts, bearings, blades, generator, power converter and control systems accounted more than 80% of total costs.</p>
<p>Although most Asian suppliers have historically relied on turbine technologies licensed from Europe to enter the wind industry, the Asia Pacific has now become the world’s largest wind turbine manufacturing hub after a decade of development. In 2019, some 33 wind turbine manufacturers installed an estimated 22,893 wind turbines globally with a combined capacity of 63,076 MW. Of the 33 suppliers, 20 are from APAC.</p>
<p>Further, we have noticed that Chinese and Indian players have maintained their leading market position in the Asian region while international players like Siemens Gamesa and GE were able to obtain market share in the region.</p>
<p><strong>Rotors -</strong> Turbine rotor diameters have been getting larger as a result of greater pressure for turbine OEMs to reduce the LCOE by launching new turbines with larger rotors that allow for better capacity factors and an improvement in AEP (Annual Energy Production). China is the key driver behind the trend of larger wind turbine rotors as out of the 6,691 units of 2.0 MW wind turbines installed globally in 2018, nearly 80% are located in China, of which more than half the turbines installed are equipped with rotors that are 120m or larger. We see the trend of building larger and light weight rotors continuing, especially with Asian market started to develop more offshore wind projects.</p>
<p><strong>Blades -</strong> Blade core material balsa shortages have prompted turbine OEMs and blade manufacturers to switch to PET and hybrid designs with Balsa and PET. Wood Mackenzie forecasts the share of PET to increase from 20% in 2018 to more than 55% by 2023.</p>
<p><strong>Gearboxes - </strong>GWEC predicted that annual global wind gearbox demand is likely to reach 56.4 GW in 2019 and then peak in 2020 at 59.1GW driven by the installation rush in China and the US. Regionally, around 40-48% of total demand is likely to be produced in South East Asia between 2019-2023. Furthermore, around 75 GW of gearbox manufacturing capacity is available globally, thus GWEC does not expect any major bottleneck. Around 70% of the global market share is represented by three main players, Winergy, NGC and ZF. Winergy and NGC have maintained similar levels of wind turbine gear box market share over a decade while ZF was increase its market share by acquiring other leading companies around the globe.</p>
<p><strong>Towers -</strong> The tower has low technical requirements compared to other components and is thus usually sourced locally. A considerable percentage of Asian tower manufacturers ship their wind towers to North American and European countries, as production costs are lower in Asian countries and they are able to offer towers at competitive prices. Some players like Suzlon have invented lower cost hybrid tower structures which can be built at much lower cost than traditional designs.</p>
<p><strong>Services &amp; Support Opportunities</strong> – Broadly speaking, the services opportunities can be categorised into: Project development Geotechnical services Logistics support for wind farm Construction opportunities Operations and maintenance. These service providing companies generate higher margins compared to OEMs and wind turbine manufactures and as with solar power, we see a trend for OEM and component manufactures to expand services segments by introducing new technological innovation.</p>

Summary and Conclusion
What's Original?
This insight is an in-depth look into the Asian wind energy industry, covering the value chain and related companies at each key stage of the value chain. Our research includes the following:
Industry Background: This includes an in-depth analysis on the wind energy sector with an overview of wind energy, including the growth of global installed capacity wind energy and analysis of the Asian wind energy market.
We examine both global onshore and offshore wind energy and differences in installation costs, annual investments, levelised cost of electricity (LCoE) and the declining trend in installation costs.
The potential capacity level of offshore wind energy is higher than onshore, though installation costs, O&amp;M and transportation costs are currently higher for offshore which is clearly reflected in the LCoE of the two categories.
When comparing total global wind capacity against the Asian market alone, over the last decade the Asian market’s growth rate was higher than the global rate and 51% of global new capacity additions were made in the Asian region.
The majority of Asian new capacity installed in Asian market was in APAC and China remained the world’s largest onshore market accounting for 37% of total onshore installations in 2019 while in the offshore market China accounted for a slightly more modest 23% of installations, trailing the UK and Germany.
The total installed capacity of onshore wind is expected to grow at a CAGR of 9.2% and to reach 1,787 GW globally in 2030 and then 5,044 GW by 2050. Furthermore, Asia (mostly China) should continue to dominate the onshore wind power industry, with more than 50% of global installations by 2050. Offshore wind energy in Asia should grow at a CAGR of 28% during 2018-30 and reach 613 GW while the Asian onshore market is expected to grow at a 13% CAGR and reach 2,646 GW. We examine the leading Asian countries (India, Japan and China) in the sector and their growth potential.
We believe that, over the next decade, the Asian market will outperform in wind energy growth compared to Europe and the US. Further, the trend towards offshore wind energy development in the Asian region will start to gather steam. The growth will be still mainly driven by China, India and Japan, however, apart from those countries South Korea, Taiwan and Vietnam also demonstrate some potential to develop wind energy.
Value Chain Analysis: We detail the value chain for wind energy highlighting the critical stages of the value chain (raw material supply, design and development services, component supply, wind turbine manufacturers, construction &amp; installation services and wind farm developers) and the leading players in those stages.
Wind Farm Owners - By the end of 2019, the top 15 wind farm owner-operators held over 1/3 of the total 650 GW of onshore and offshore assets globally.  Chinese utilities continue to dominate the top 15 ranking of wind asset owners as China is the leader in the market. We believe that this situation will continue as wind energy installation in China is expected to grow at higher rate than other leading countries in the world.
Original Equipment Manufacturing - OEMs usually manufacture some of the critical components such as the nacelle in-house, and blades and towers are produced either by the OEM or fabricated to the OEM's specifications by a supplier. The tower, gearbox, shafts, bearings, blades, generator, power converter and control systems accounted more than 80% of total costs.
Although most Asian suppliers have historically relied on turbine technologies licensed from Europe to enter the wind industry, the Asia Pacific has now become the world’s largest wind turbine manufacturing hub after a decade of development. In 2019, some 33 wind turbine manufacturers installed an estimated 22,893 wind turbines globally with a combined capacity of 63,076 MW. Of the 33 suppliers, 20 are from APAC.
Further, we have noticed that Chinese and Indian players have maintained their leading market position in the Asian region while international players like Siemens Gamesa and GE were able to obtain market share in the region.
Rotors - Turbine rotor diameters have been getting larger as a result of greater pressure for turbine OEMs to reduce the LCOE by launching new turbines with larger rotors that allow for better capacity factors and an improvement in AEP (Annual Energy Production). China is the key driver behind the trend of larger wind turbine rotors as out of the 6,691 units of 2.0 MW wind turbines installed globally in 2018, nearly 80% are located in China, of which more than half the turbines installed are equipped with rotors that are 120m or larger. We see the trend of building larger and light weight rotors continuing, especially with Asian market started to develop more offshore wind projects.
Blades - Blade core material balsa shortages have prompted turbine OEMs and blade manufacturers to switch to PET and hybrid designs with Balsa and PET. Wood Mackenzie forecasts the share of PET to increase from 20% in 2018 to more than 55% by 2023.
Gearboxes - GWEC predicted that annual global wind gearbox demand is likely to reach 56.4 GW in 2019 and then peak in 2020 at 59.1GW driven by the installation rush in China and the US. Regionally, around 40-48% of total demand is likely to be produced in South East Asia between 2019-2023. Furthermore, around 75 GW of gearbox manufacturing capacity is available globally, thus GWEC does not expect any major bottleneck. Around 70% of the global market share is represented by three main players, Winergy, NGC and ZF. Winergy and NGC have maintained similar levels of wind turbine gear box market share over a decade while ZF was increase its market share by acquiring other leading companies around the globe.
Towers - The tower has low technical requirements compared to other components and is thus usually sourced locally. A considerable percentage of Asian tower manufacturers ship their wind towers to North American and European countries, as production costs are lower in Asian countries and they are able to offer towers at competitive prices. Some players like Suzlon have invented lower cost hybrid tower structures which can be built at much lower cost than traditional designs.
Services &amp; Support Opportunities – Broadly speaking, the services opportunities can be categorised into: Project development Geotechnical services Logistics support for wind farm Construction opportunities Operations and maintenance. These service providing companies generate higher margins compared to OEMs and wind turbine manufactures and as with solar power, we see a trend for OEM and component manufactures to expand services segments by introducing new technological innovation.

Asian Wind Energy: Efficiency and Cost Reduction in Focus as Players Eye a Post FiT Future

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<div>
<p>In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.</p>
</div>
<div>
<div>
<div class="content-highlight">
<p><strong>What's Original?</strong></p>
<ul style="list-style-type: disc;">
<li>We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.</li>
<li>Our back test results are very encouraging with &gt;85% hit rate for our Buyback Raise model and &gt;94% hit rate for our Buyback Cut model.</li>
<li>For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the "Long-term Revenue CAGR" parameter. </li>
</ul>
</div>
</div>
</div>
<div>
<h3>Insight Flow</h3>
</div>
<div>
<ul style="list-style-type: disc;">
<li>Live Dashboard</li>
<li> Methodology
<ul style="list-style-type: circle;">
<li>Buyback Raise Model</li>
<li>Buyback Cut Model</li>
</ul>
</li>
<li>Universe</li>
<li>Back Test Results
<ul style="list-style-type: circle;">
<li>Buyback Raise Model</li>
<li>Buyback Cut Model</li>
</ul>
</li>
<li>Model Results
<ul style="list-style-type: circle;">
<li>Summary Statistics</li>
<li>Companies with High Probability of Buyback Raise</li>
<li>Companies with High Probability of Buyback Cut</li>
</ul>
</li>
<li>Buyback Timing</li>
<li>Model Risks &amp; Limitations</li>
<li>Conclusion</li>
</ul>
</div>


In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.




What's Original?

We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.
Our back test results are very encouraging with &gt;85% hit rate for our Buyback Raise model and &gt;94% hit rate for our Buyback Cut model.
For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the "Long-term Revenue CAGR" parameter. 





Insight Flow



Live Dashboard
 Methodology

Buyback Raise Model
Buyback Cut Model


Universe
Back Test Results

Buyback Raise Model
Buyback Cut Model


Model Results

Summary Statistics
Companies with High Probability of Buyback Raise
Companies with High Probability of Buyback Cut


Buyback Timing
Model Risks &amp; Limitations
Conclusion



Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Toshiba, Cathay, OFAC's Walk Back, Trad Chi Med, Enplas, Car, Japan Asia

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

<p>In the month of January 2021, one of the most anticipated TOPIX Inclusion candidates, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> announced its move to TSE1 triggering what could potentially be one of the largest TOPIX Inclusion events in recent memory. The stock could see its TOPIX Inclusion take place at the end of February, along with <a href="https://www.smartkarma.com/entities/sansan-inc" target="_blank" data-smartkarma-citation="entities:28112:1" rel="noopener">Sansan Inc (4443 JP)</a> - another larger-than-usual candidate - and two other super-high-impact names <a href="https://www.smartkarma.com/entities/bull-dog-sauce-co-ltd" target="_blank" data-smartkarma-citation="entities:16235:1" rel="noopener">Bull Dog Sauce (2804 JP)</a> and <a href="https://www.smartkarma.com/entities/alps-logistics-co-ltd" target="_blank" data-smartkarma-citation="entities:3935:1" rel="noopener">Alps Logistics (9055 JP)</a>. There is plenty to look forward to. </p><p>In this insight, I have provided performance updates for 6 "Live" event stocks (including the names mentioned above) which are expected to have Inclusion Events at the end of February 2021 and 14 "Post" event stocks that completed their Inclusion Events at the end of December 2020 and January 2021 (on 28 January 2021).</p><p>Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. </p>

In the month of January 2021, one of the most anticipated TOPIX Inclusion candidates, Toshiba Corp (6502 JP) announced its move to TSE1 triggering what could potentially be one of the largest TOPIX Inclusion events in recent memory. The stock could see its TOPIX Inclusion take place at the end of February, along with Sansan Inc (4443 JP) - another larger-than-usual candidate - and two other super-high-impact names Bull Dog Sauce (2804 JP) and Alps Logistics (9055 JP). There is plenty to look forward to. In this insight, I have provided performance updates for 6 "Live" event stocks (including the names mentioned above) which are expected to have Inclusion Events at the end of February 2021 and 14 "Post" event stocks that completed their Inclusion Events at the end of December 2020 and January 2021 (on 28 January 2021).Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 

Travis Lundy

<p>In February 2017, when the accounting and loss scandal surrounding <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> was just taking shape, I published <a href="https://www.smartkarma.com/insights/toshiba-possible-demotion-to-tse2-the-mechanics-impact" target="_blank" data-smartkarma-citation="insights:8838" rel="noopener">Toshiba: Possible Demotion to TSE2? The Mechanics &amp; Impact</a> based on the fact that the loss envisaged would take Toshiba's shareholder equity below zero at the photo some 40 days later. That meant demotion to the TSE2, but it wasn't on people's minds yet so was not worth shorting until people got less excited about a bounce (when the real facts about the losses and its implications became clearer. THEN it would be worth a short, because the dip-buyers would have bought the dip, then the passive funds would have to sell, and new dip buyers would have to show up. So in June we got the news, as expected, and covered in <a href="https://www.smartkarma.com/insights/toshiba-demotion-from-tse1-to-tse2-topix-exclusion-jul31-close" target="_blank" data-smartkarma-citation="insights:11664" rel="noopener">Toshiba Demotion from TSE1 to TSE2; TOPIX Exclusion Jul31 Close</a>, and the stock fell.  </p><p>Later that year, after the company successfully fought to retain its listing in late summer, it made an equity placement of ¥600bn in late November 2017 with promises of eventual shareholder return after it had sold its Toshiba Memory business. They avoided delisting through this capital raise, but hopes for an early return to TOPIX as had been the case with <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a> (which only spent a year in purgatory), were dashed when investors figured out (covered in <a href="https://www.smartkarma.com/insights/toshiba-and-topix-it-s-gonna-be-a-long-wait" target="_blank" data-smartkarma-citation="insights:16853" rel="noopener">TOSHIBA and TOPIX - It's Gonna Be a Long Wait.</a>) that TSE Listing Regulations had clauses which meant companies which had received Opinion Withheld on their accounting statements were ineligible for TSE1 listing until five years afterwards. Noises surfaced later that spring and summer so I wrote <a href="https://www.smartkarma.com/insights/toshiba-a-possible-route-to-early-tse1-topix-inclusion" target="_blank" data-smartkarma-citation="insights:21544" rel="noopener">Toshiba:  A Possible Route to Early TSE1/TOPIX Inclusion?</a> discussing <em>possible</em> loopholes which could allow an earlier return than spring 2022. My conclusion then was <em>"It is tougher than it looks, but there are other reasons one should own."</em></p><p>Fast forward a couple of years past a revival plan, ¥700bn of buybacks, and buy-ins of subsidiaries, in November 2019 the TSE decided, as it was starting its cash equity market structure review <em>designed to raise standards for blue chips to gain more international goodwill on governance, </em>to lower the standards of TSE1 promotion to those of TSE2. That was changed to allow the TSE to admit Toshiba back to TOPIX early, discussed in <a href="https://www.smartkarma.com/insights/nikkei-tse-rule-change-to-allow-toshiba-an-early-return-to-topix" target="_blank" data-smartkarma-citation="insights:34839" rel="noopener">[Nikkei] TSE Rule Change to Allow Toshiba An Early Return to TOPIX</a>.</p><p>Toshiba announced five months later in April 2020 it had applied for a return to TSE1, discussed in <a href="https://www.smartkarma.com/insights/toshiba-return-to-topix-timing-and-size" target="_blank" data-smartkarma-citation="insights:38189" rel="noopener">Toshiba Return to TOPIX? Timing and Size</a> and after 4+ months had passed I looked at the ongoing issues of inclusion in <a href="https://www.smartkarma.com/insights/toshiba-topix-inclusion-jack-be-nimble-jack-be-quick" target="_blank" data-smartkarma-citation="insights:42235" rel="noopener">Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick...</a> (I was not bullish then price-wise, though after the price fell I became positive again).  <em>Regular Smartkarma readers who want to see the whole series on Toshiba going back four years can look <a href="https://www.smartkarma.com/profiles/travis-lundy/insights?fulltext=Toshiba" target="_blank" rel="noopener">here</a>.</em></p><h3>The NEW News</h3><p>The NEW News is that on Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (<a href="https://www.jpx.co.jp/english/markets/indices/topix/tvdivq00000030ne-att/e_cal_3_topix.pdf" target="_blank" rel="noopener">25 Dec 2020 version</a>), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery <a href="http://www.toshiba.co.jp/about/ir/en/news/20210122_1.pdf" target="_blank" rel="noopener">announcement</a> full of words about the seriousness of its governance and compliance.</p><p>Long-suffering activists may rejoice. This creates liquidity for a <em>partial</em> exit.</p><p>The shares are up roughly 20% since the TOPIX Deletion on 31 July 2017. The shares are up about 10% from the placement in late November 2017 raising capital. This hasn't been the best of trades, but my relatively constant refrain has been to feed the ducks when they are quacking (my most recent insight on Toshiba was <a href="https://www.smartkarma.com/insights/toshiba-is-a-range-trade-still" target="_blank" data-smartkarma-citation="insights:43366" rel="noopener">Toshiba Is A Range Trade. Still.</a> four+ months ago and on that day, shares closed at ¥2,959. Today they closed at ¥2,963. </p><p>But a TOPIX Inclusion of this size is a rare species, and one of this anticipation is practically mythological. So we're going to talk about it.</p><p>I have a personal favourite mythological creature from Japanese folklore (originally, I believe, derived from Chinese traditions). It's called a Baku (<a href="https://ja.wikipedia.org/wiki/%E7%8D%8F" target="_blank" data-ved="2ahUKEwji-KzBqq_uAhUSGKYKHa2oBuUQFjAAegQIAhAC" rel="noopener"></a>獏) and it looks a bit like a cross between a lion and an elephant, and visitors to temples have undoubtedly seen them before.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/086/original/baku+asada-ji+Matsusaka+City+Soga+Shohaku.jpg?1611312861" class="editor-image img-responsive" data-smartkarma-image-id="184086"></figure><div class="content-caption">Baku, Door Painting by Soga Shohaku, Asada-ji (Matsusaka City)</div></section><p>This creature is perhaps an apt metaphor for the TOPIX Inclusion as far as activists and event traders are concerned.</p><p>Those who want to know why should read on...</p>

In February 2017, when the accounting and loss scandal surrounding Toshiba Corp (6502 JP) was just taking shape, I published Toshiba: Possible Demotion to TSE2? The Mechanics &amp; Impact based on the fact that the loss envisaged would take Toshiba's shareholder equity below zero at the photo some 40 days later. That meant demotion to the TSE2, but it wasn't on people's minds yet so was not worth shorting until people got less excited about a bounce (when the real facts about the losses and its implications became clearer. THEN it would be worth a short, because the dip-buyers would have bought the dip, then the passive funds would have to sell, and new dip buyers would have to show up. So in June we got the news, as expected, and covered in Toshiba Demotion from TSE1 to TSE2; TOPIX Exclusion Jul31 Close, and the stock fell.  Later that year, after the company successfully fought to retain its listing in late summer, it made an equity placement of ¥600bn in late November 2017 with promises of eventual shareholder return after it had sold its Toshiba Memory business. They avoided delisting through this capital raise, but hopes for an early return to TOPIX as had been the case with Sharp Corp (6753 JP) (which only spent a year in purgatory), were dashed when investors figured out (covered in TOSHIBA and TOPIX - It's Gonna Be a Long Wait.) that TSE Listing Regulations had clauses which meant companies which had received Opinion Withheld on their accounting statements were ineligible for TSE1 listing until five years afterwards. Noises surfaced later that spring and summer so I wrote Toshiba:  A Possible Route to Early TSE1/TOPIX Inclusion? discussing possible loopholes which could allow an earlier return than spring 2022. My conclusion then was "It is tougher than it looks, but there are other reasons one should own."Fast forward a couple of years past a revival plan, ¥700bn of buybacks, and buy-ins of subsidiaries, in November 2019 the TSE decided, as it was starting its cash equity market structure review designed to raise standards for blue chips to gain more international goodwill on governance, to lower the standards of TSE1 promotion to those of TSE2. That was changed to allow the TSE to admit Toshiba back to TOPIX early, discussed in [Nikkei] TSE Rule Change to Allow Toshiba An Early Return to TOPIX.Toshiba announced five months later in April 2020 it had applied for a return to TSE1, discussed in Toshiba Return to TOPIX? Timing and Size and after 4+ months had passed I looked at the ongoing issues of inclusion in Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick... (I was not bullish then price-wise, though after the price fell I became positive again).  Regular Smartkarma readers who want to see the whole series on Toshiba going back four years can look here.The NEW NewsThe NEW News is that on Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (25 Dec 2020 version), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery announcement full of words about the seriousness of its governance and compliance.Long-suffering activists may rejoice. This creates liquidity for a partial exit.The shares are up roughly 20% since the TOPIX Deletion on 31 July 2017. The shares are up about 10% from the placement in late November 2017 raising capital. This hasn't been the best of trades, but my relatively constant refrain has been to feed the ducks when they are quacking (my most recent insight on Toshiba was Toshiba Is A Range Trade. Still. four+ months ago and on that day, shares closed at ¥2,959. Today they closed at ¥2,963. But a TOPIX Inclusion of this size is a rare species, and one of this anticipation is practically mythological. So we're going to talk about it.I have a personal favourite mythological creature from Japanese folklore (originally, I believe, derived from Chinese traditions). It's called a Baku (獏) and it looks a bit like a cross between a lion and an elephant, and visitors to temples have undoubtedly seen them before.Baku, Door Painting by Soga Shohaku, Asada-ji (Matsusaka City)This creature is perhaps an apt metaphor for the TOPIX Inclusion as far as activists and event traders are concerned.Those who want to know why should read on...

Toshiba Finally Gets Into TOPIX but Beware the Baku  (It's Complicated)

Japan

Toshiba Corporation manufactures and markets electrical and electronic products. The Company's products include digital products such as PCs and televisions, NAND flash memories, and system LSIs (large-scale integrated), as well as social infrastructures such as power generators, medical equipment, and home appliances.

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Toshiba Corp (6502 JP)

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Toshiba Finally Gets Into TOPIX but Beware the Baku (It's Complicated)

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