Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p><em>This week in StubWorld ...</em></p>
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<li>
<a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> outperforms as global carmakers face a chip shortage;</li>
<li>
<a href="https://www.smartkarma.com/entities/gulf-energy-development-public-company-limited" target="_blank" data-smartkarma-citation="entities:26038:1" rel="noopener">Gulf Energy Development Public Company (GULF TB)</a> increases its questionable stake in <a href="https://www.smartkarma.com/entities/intouch-holdings-pcl" target="_blank" data-smartkarma-citation="entities:17638:1" rel="noopener">Intouch Holdings (INTUCH TB)</a>; and</li>
<li>
<a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a>'s ramps up its buybacks.</li>
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<p>Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...




Tokyo Electron (8035 JP) outperforms as global carmakers face a chip shortage;

Gulf Energy Development Public Company (GULF TB) increases its questionable stake in Intouch Holdings (INTUCH TB); and

Jardine Matheson Holdings (JM SP)'s ramps up its buybacks.




Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: TBS/Tokyo Electron, Intouch/Gulf, Jardines' Buybacks

Travis Lundy

<p>On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. </p>
<p>There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a> on Friday, one of the big names to the buy side is indeed <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>.</p>
<p>For more on the rebalance, read on.</p>
<p><em>[A spreadsheet of all names and impacts is attached at the bottom of the insight]</em></p>

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

The Delayed TOPIX FFW Rebalance: $32bn To Trade

Last Week in Event SPACE: Japan Post, JD.com, Toyota, NTT, Jardines, Indices/Exec. Orders, Tianneng

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.

Equity Bottom-Up

<p>Positive news flow regarding Toyota’s ZEV strategy has driven the stock up 10.5% in the last four days. We have always maintained that Japanese automakers, and the Toyota group in particular, possessed the fundamental technologies necessary to launch EVs when they felt the timing was right. As they start to do so and join other major OEMs such as VW and GM, we believe the narrative bubble surrounding pure EV manufacturers will burst and valuations will collapse. Nevertheless, as the pure EV names are narrative rather than fact driven, timing such a collapse remains difficult. A simpler way of expressing this trade is through a long in traditional automakers with strong ZEV technology who are entering the EV space, where they will take mass market volume away from pure EV manufacturers just as VW has already done to Tesla in Europe.</p>

Positive news flow regarding Toyota’s ZEV strategy has driven the stock up 10.5% in the last four days. We have always maintained that Japanese automakers, and the Toyota group in particular, possessed the fundamental technologies necessary to launch EVs when they felt the timing was right. As they start to do so and join other major OEMs such as VW and GM, we believe the narrative bubble surrounding pure EV manufacturers will burst and valuations will collapse. Nevertheless, as the pure EV names are narrative rather than fact driven, timing such a collapse remains difficult. A simpler way of expressing this trade is through a long in traditional automakers with strong ZEV technology who are entering the EV space, where they will take mass market volume away from pure EV manufacturers just as VW has already done to Tesla in Europe.

Toyota – Solid State Batteries and Long Toyota as a Safer Short on the EV Bubble

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<p>Five and a half years ago, after the close of trading just before Golden Week on Tuesday April 28, 2015, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a><a href="http://www.toyota-global.com/investors/stock_information_ratings/share_2015/pdf/commonstock_20150428_01.pdf" target="_blank" rel="noopener">announced</a> the board had resolved to submit to shareholders a resolution to partially amend the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they called "Model AA Shares", so named as the first in a series of preferred shares named after the company's first production car released in 1936.</p>
<p>The announcement noted a first tranche of ¥500 billion, and possible future tranches of this shiny new security. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/178/310/original/Model%20AA%20color.jpg?1607935517" class="editor-image img-responsive" data-smartkarma-image-id="178310"></figure><p></p></section><section class="figure">The securities were to be unlisted, non-transferable, convertible, puttable, and callable. The strike price was up about 30-odd percent - about where a zero coupon convertible bond would have been priced. They were, in effect, a private convertible bond. With voting rights. And a dividend. </section>
</div><div><p>My first reaction was "Huh?"</p></div><div>
<p>After reading all the materials a second, third, and fourth time - in both Japanese and English - given the 15+yrs' experience I then had of looking at the microstructure of Japanese markets, special situations, unusual security issuances, and governance, my reaction evolved to a more considered, and evolved "Huh???"</p>
<h3>They were, unfortunately, a governance disaster.</h3>
<p></p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/178/311/original/toyota%20model%20AA%20ugly.jpg?1607935529" class="editor-image img-responsive" data-smartkarma-image-id="178311"></figure><p></p></section><p>The excuse used for issuing them was that Toyota needed the ¥500 billion of funding to invest in cutting-edge technology. Somehow the ¥3 trillion net cash position was not enough. Funny enough, the company immediately decided it did not need all that cash or cutting edge technologies and announced a ¥600 billion buyback to go with this issuance. Then they announced <em>another</em> ¥300 billion buyback before it was approved. Raising capital was <em>not</em> the reason why they were issued.</p>
<p>The issuance was UNECONOMIC, ILLOGICAL, UNNECESSARY, and UNFAIR. And I believed it clearly violated the new Japan Corporate Governance Code. Economically, it was issued at worse terms than a convertible bond would have been issued. It also involved relatively significant fees (see <a href="https://www.smartkarma.com/insights/toyota-aa-shares-happy-now-6-10yrs-of-dividend-differentials-paid-in-fees-to-nomura" target="_blank" data-smartkarma-citation="insights:1009" rel="noopener">TOYOTA AA-SHARES: Happy Now? 6-10yrs of dividend differentials paid in fees to Nomura</a>). There was literally no good reason for their issuance.</p>
<h3>Today, Toyota made an <a href="https://global.toyota/en/newsroom/corporate/34508205.html" target="_blank" rel="noopener">announcement</a>.</h3>
<p>The Company effectively seems to take credit for the development of stewardship and governance in Japan. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/178/312/original/Screenshot%202020-12-14%20at%204.48.58%20PM.png?1607935761" class="editor-image img-responsive" data-smartkarma-image-id="178312"></figure></section><p>Harumph. </p>
<p>Not quite. </p>
</div>


Five and a half years ago, after the close of trading just before Golden Week on Tuesday April 28, 2015, Toyota Motor (7203 JP)announced the board had resolved to submit to shareholders a resolution to partially amend the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they called "Model AA Shares", so named as the first in a series of preferred shares named after the company's first production car released in 1936.
The announcement noted a first tranche of ¥500 billion, and possible future tranches of this shiny new security. 
The securities were to be unlisted, non-transferable, convertible, puttable, and callable. The strike price was up about 30-odd percent - about where a zero coupon convertible bond would have been priced. They were, in effect, a private convertible bond. With voting rights. And a dividend. 
My first reaction was "Huh?"
After reading all the materials a second, third, and fourth time - in both Japanese and English - given the 15+yrs' experience I then had of looking at the microstructure of Japanese markets, special situations, unusual security issuances, and governance, my reaction evolved to a more considered, and evolved "Huh???"
They were, unfortunately, a governance disaster.

The excuse used for issuing them was that Toyota needed the ¥500 billion of funding to invest in cutting-edge technology. Somehow the ¥3 trillion net cash position was not enough. Funny enough, the company immediately decided it did not need all that cash or cutting edge technologies and announced a ¥600 billion buyback to go with this issuance. Then they announced another ¥300 billion buyback before it was approved. Raising capital was not the reason why they were issued.
The issuance was UNECONOMIC, ILLOGICAL, UNNECESSARY, and UNFAIR. And I believed it clearly violated the new Japan Corporate Governance Code. Economically, it was issued at worse terms than a convertible bond would have been issued. It also involved relatively significant fees (see TOYOTA AA-SHARES: Happy Now? 6-10yrs of dividend differentials paid in fees to Nomura). There was literally no good reason for their issuance.
Today, Toyota made an announcement.
The Company effectively seems to take credit for the development of stewardship and governance in Japan. 
Harumph. 
Not quite. 


Toyota Model AA Shares - Good Riddance to Bad Governance

Japan

Toyota Motor Corporation manufactures, sells, leases, and repairs passenger cars, trucks, buses, and their related parts worldwide. The Company also operates financing services through their subsidiaries. Toyota Motor builds homes, produces pleasure boats, and develops intelligent transportation systems including radar cruise control and electronic toll collection systems.

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Toyota Motor (7203 JP)

StubWorld: TBS/Tokyo Electron, Intouch/Gulf, Jardines' Buybacks

Tokyo Electron (8035 JP) outperforms as global carmakers face a chip shortage; Gulf Energy increases its questionable stake in Intouch; and Jardine...

David Blennerhassett

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

Last Week in Event SPACE: Japan Post, JD.com, Toyota, NTT, Jardines, Indices/Exec. Orders, Tianneng

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Toyota – Solid State Batteries and Long Toyota as a Safer Short on the EV Bubble

A simpler and safer way of expressing a short trade on the EV bubble is a long trade in traditional automakers with the technology to transition to...

Mio Kato

Toyota Model AA Shares - Good Riddance to Bad Governance

The Model AA Shares were UNECONOMIC, ILLOGICAL, UNNECESSARY, and UNFAIR. Toyota bought votes for money. Toyota is redeeming them, but investors...

Travis Lundy

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