Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Nexon, Japan Display, NTT/Docomo, Naspers, Harbin Electric, Glow Energy

Travis Lundy

Yesterday <a href="https://www.smartkarma.com/entities/nomura-research-institute-lt" target="_blank" data-smartkarma-citation="entities:18129:1">Nomura Research Institute Lt (4307 JP)</a> announced a Tender Offer to buy back 101.9mm shares for ¥160 billion. Those who know the stock know that price doesn't work, but it does when the Tender Offer is scheduled to start July 1 after a 3:1 stock split executed at the end of this month.It is a big buyback, at 13.52% of shares.  And it is a Tender Offer, so as is my wont, I have some thoughts. First and foremost: it's not for you.The tender offer is going to be launched at ¥1570/share which was a 9.25% discount to yesterday's split-adjusted close of ¥1730. That would give investors a free put option but there are other reasons why it won't work for the vast majority of investors even should the stock plummet.In many buybacks, there is a market impact. Not here. In many situations where the erstwhile one-time parent sells down a stake, it increases the float. Not here. But this situation IS interesting. On a pro-forma basis it leads to a net debt position for the company for only the second time in its listed history (the first being during the GFC).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/608/original/Screenshot%202019-06-19%20at%2011.33.02%20AM.png?1560915201" class="editor-image img-responsive" data-smartkarma-image-id="90608"></figure><div class="content-caption">data source: capitalIQ, Quiddity</div><hr><div style="text-align: left;" class="content-caption">For other insights on Japanese Tender Offers please check the list of Japan-related Event-Driven insights <a href="https://www.smartkarma.com/insights?collection=all-insights&amp;filters=countries%3AJapan%7Cverticals%3A29" target="_blank">here</a>. As a reference to Japan M&amp;A rules and practices, and rules regarding Tender Offers, please see the <a href="https://www.smartkarma.com/insights/quiddity-japan-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:28911">Quiddity Japan M&amp;A Guide 2019</a>.</div>

Yesterday Nomura Research Institute Lt (4307 JP) announced a Tender Offer to buy back 101.9mm shares for ¥160 billion. Those who know the stock know that price doesn't work, but it does when the Tender Offer is scheduled to start July 1 after a 3:1 stock split executed at the end of this month.It is a big buyback, at 13.52% of shares.  And it is a Tender Offer, so as is my wont, I have some thoughts. First and foremost: it's not for you.The tender offer is going to be launched at ¥1570/share which was a 9.25% discount to yesterday's split-adjusted close of ¥1730. That would give investors a free put option but there are other reasons why it won't work for the vast majority of investors even should the stock plummet.In many buybacks, there is a market impact. Not here. In many situations where the erstwhile one-time parent sells down a stake, it increases the float. Not here. But this situation IS interesting. On a pro-forma basis it leads to a net debt position for the company for only the second time in its listed history (the first being during the GFC).data source: capitalIQ, QuiddityFor other insights on Japanese Tender Offers please check the list of Japan-related Event-Driven insights here. As a reference to Japan M&amp;A rules and practices, and rules regarding Tender Offers, please see the Quiddity Japan M&amp;A Guide 2019.

Nomura Research Tender Buyback - 14% Additional EPS Accretion

Yesterday after the close, <a href="https://www.smartkarma.com/entities/nomura-holdings-inc" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a> announced its Board of Directors had approved a <a href="https://www.nomuraholdings.com/news/nr/holdings/20190618/20190618_a.pdf" target="_blank">buyback program</a> to buy up to ¥150bn and up to 300 million shares.The period eligible for execution of the buyback will run from 19 June 2019 through 31 March 2020, though the trust agreement enabling the execution has not been signed as of the board announcement. I would not expect it to take long. Nomura has been buying back shares most every year for many years. 300 million shares is 8.6% of shares outstanding and 9.06% of shares out ex-Treasury shares.This is larger than previous buybacks and is done for obvious reasons. The broker's shares are trading a few percent off a 6+ year low, and at 0.43x tangible book. The shares are in the doldrums as full-service brokers worldwide suffer from the ongoing move to passive, ongoing difficult trading conditions in bonds and credit, and the ever-increasing competition for deals. This past year the broker suffered its first annual pre-tax loss since the massive write-downs and markdowns suffered in the year to March 2009. This came as asset management and retail brokerage business saw pre-tax income drop in half from ¥169bn to ¥84bn, but the institutional securities business saw pre-tax income drop from +¥100bn to - ¥111bn, and other expenses hit (including a ¥19.8bn settlement with the DOJ and ¥12bn of associated legal costs, an ¥11bn loss on <a href="https://www.smartkarma.com/entities/mebuki-financial-group-inc" target="_blank" data-smartkarma-citation="entities:10048:1">Mebuki Financial Group (7167 JP)</a> and a little more here and there on cross-holding impairments).Nomura Holdings may be in the dumps, but the situation is worth a cursory look at least.

Yesterday after the close, Nomura Holdings (8604 JP) announced its Board of Directors had approved a buyback program to buy up to ¥150bn and up to 300 million shares.The period eligible for execution of the buyback will run from 19 June 2019 through 31 March 2020, though the trust agreement enabling the execution has not been signed as of the board announcement. I would not expect it to take long. Nomura has been buying back shares most every year for many years. 300 million shares is 8.6% of shares outstanding and 9.06% of shares out ex-Treasury shares.This is larger than previous buybacks and is done for obvious reasons. The broker's shares are trading a few percent off a 6+ year low, and at 0.43x tangible book. The shares are in the doldrums as full-service brokers worldwide suffer from the ongoing move to passive, ongoing difficult trading conditions in bonds and credit, and the ever-increasing competition for deals. This past year the broker suffered its first annual pre-tax loss since the massive write-downs and markdowns suffered in the year to March 2009. This came as asset management and retail brokerage business saw pre-tax income drop in half from ¥169bn to ¥84bn, but the institutional securities business saw pre-tax income drop from +¥100bn to - ¥111bn, and other expenses hit (including a ¥19.8bn settlement with the DOJ and ¥12bn of associated legal costs, an ¥11bn loss on Mebuki Financial Group (7167 JP) and a little more here and there on cross-holding impairments).Nomura Holdings may be in the dumps, but the situation is worth a cursory look at least. 

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds - but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA.

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in many cases, where they look after corporate interests more than shareholders. Some consider the largest banks in Japan like closed-end mutual funds - but with credit risk -due to their gigantic equity holdings. These all remain valid reasons to shun Japan’s banks in favor of others in the region.  Credit costs are another concern. With BOJ’s new announcement of continuing low rates there remains even less hope that loan volume will support profit and that NIM pressure will remain. A negative delta in credit costs is not easily absorbed by anaemic ROA. 

'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. 

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/341/original/2019-02-10_05-07-57.png?1549742898" class="editor-image img-responsive" data-smartkarma-image-id="78341"></figure><div class="content-caption">Source: Japan Analytics</div>BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor (7267 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi (6501 JP)</a> were the most significant contributors, each declining by more than ¥200b. Three 'financials', <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a>, and <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank (8358 JP)</a> subtracted ¥400b between them. Only <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a> and <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba (6502 JP)</a> added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.<div class="content-highlight">In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on <a href="https://www.smartkarma.com/entities/13176" target="_blank" data-smartkarma-citation="entities:13176:1">Nabtesco Corp (6268 JP)</a>, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>, <a href="https://www.smartkarma.com/entities/20823" target="_blank" data-smartkarma-citation="entities:20823:1">Nakanishi (7716 JP)</a>, and <a href="https://www.smartkarma.com/entities/747" target="_blank" data-smartkarma-citation="entities:747:1">DeNA (2432 JP)</a></div>

Source: Japan AnalyticsBOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which Toyota Motor (7203 JP), Honda Motor (7267 JP), Softbank Group (9984 JP), Hitachi (6501 JP) were the most significant contributors, each declining by more than ¥200b. Three 'financials', Nomura Holdings (8604 JP), Mizuho Financial Group (8411 JP), and Suruga Bank (8358 JP) subtracted ¥400b between them. Only Sony (6758 JP) and Toshiba (6502 JP) added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on Nabtesco Corp (6268 JP), Workman (7564 JP), Nakanishi (7716 JP), and DeNA (2432 JP)

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

Japan

Nomura Holdings, Inc. is a holding company which manages financial operations for its subsidiaries.  As a group, the Company provides a variety of financial services such as dealing, brokerage, underwriting, and asset management. Nomura Securities Co., a registered member of the New York and London Stock Exchanges, has branches around the world.

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Nomura Holdings (8604 JP)

Last Week in Event SPACE: Nexon, Japan Display, NTT/Docomo, Naspers, Harbin Electric, Glow Energy

Last Week in Event SPACE ... Media coverage of the Nexon (3659 JP) deal has been strangely uninformative, which means this situation is riskier...

David Blennerhassett

Nomura Research Tender Buyback - 14% Additional EPS Accretion

Yesterday Nomura Research Institute Lt (4307 JP) announced a Tender Offer to buy back 101.9mm shares for ¥160 billion. Those who know the stock...

Travis Lundy

HUGE Nomura Holdings (8604 JP) Buyback

Yesterday after the close, Nomura Holdings (8604 JP) announced its Board of Directors had approved a buyback program to buy up to ¥150bn and up to...

Travis Lundy

Japan Banks – Unloved for Many Reasons

The Bank of Japan (BOJ) offers negative interest rates on monies deposited. Japan’s banks are largely wholesale, with lumpy corporate loans and in...

Daniel Tabbush

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

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