Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Quantitative Analysis

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When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur. This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 
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In this insight, I have provided performance updates for 7 "Live" event stocks which are expected to have Inclusion Events at the end of December 2020 or January 2021 and 8 "Post" event stocks that completed their Inclusion Events at the end of October 2020 and November 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 
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When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur. This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 


In this insight, I have provided performance updates for 7 "Live" event stocks which are expected to have Inclusion Events at the end of December 2020 or January 2021 and 8 "Post" event stocks that completed their Inclusion Events at the end of October 2020 and November 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 


There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets as we recently witnessed in the case of <a href="https://www.smartkarma.com/insights/topix-inclusion-4931-jp-shinnihonseiyaku" target="_blank" data-smartkarma-citation="insights:45660" rel="noopener">TOPIX Inclusion (4931 JP): Shinnihonseiyaku</a> where the stock gained 90%+ in the ~5 months leading to the TSE1-reassignment announcement. However, in July 2020, TSE introduced more stringent new Section Transfer Requirements and TSE1 Listing Criteria adding a new layer of complexity to this prediction process, especially during the period of transition from the old rules to the new rules. In this insight, we take a look at how some of the potential TSE1 candidates will fare against these New Section Transfer Requirements and evaluate their attractiveness at the Pre-event phase. <hr><div class="content-remarks">This insight is an update to <a href="https://www.smartkarma.com/insights/topix-inclusion-pre-events-who-is-ready" target="_blank" data-smartkarma-citation="insights:41091" rel="noopener">TOPIX Inclusion Pre-Events: Who Is Ready?</a>. Please refer to that insight for more information on the approach used in the below analysis. Note that some assumptions used in the analysis have changed since then. </div>

There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets as we recently witnessed in the case of TOPIX Inclusion (4931 JP): Shinnihonseiyaku where the stock gained 90%+ in the ~5 months leading to the TSE1-reassignment announcement. However, in July 2020, TSE introduced more stringent new Section Transfer Requirements and TSE1 Listing Criteria adding a new layer of complexity to this prediction process, especially during the period of transition from the old rules to the new rules. In this insight, we take a look at how some of the potential TSE1 candidates will fare against these New Section Transfer Requirements and evaluate their attractiveness at the Pre-event phase. This insight is an update to TOPIX Inclusion Pre-Events: Who Is Ready?. Please refer to that insight for more information on the approach used in the below analysis. Note that some assumptions used in the analysis have changed since then. 

TOPIX Inclusions:  New Regulations! Who Is READY? 2.0

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

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

Following two extremely successful quarters, <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a> shares rallied more than 1,000% from its IPO price to reach a high of ¥16,510 per share before declining 40% to ¥9,920 after the 3Q20 results release on 16th November 2020.In its short history, Base Inc is known for showering investors with an overwhelming amount of information, mostly immaterial and unnecessary disclosure which could distract investors from reality. The unwarranted share price rally may have started this trend, as the company did its best to stay relevant and within sight of investors all times.

Following two extremely successful quarters, BASE Inc (4477 JP) shares rallied more than 1,000% from its IPO price to reach a high of ¥16,510 per share before declining 40% to ¥9,920 after the 3Q20 results release on 16th November 2020.In its short history, Base Inc is known for showering investors with an overwhelming amount of information, mostly immaterial and unnecessary disclosure which could distract investors from reality. The unwarranted share price rally may have started this trend, as the company did its best to stay relevant and within sight of investors all times.

Base Inc Bubble Is Still Far From Bursting

Japan Specialist

Mark Chadwick

<div><a href="https://www.smartkarma.com/entities/makuake-inc" target="_blank" data-smartkarma-citation="entities:29281:1" rel="noopener">Makuake Inc (4479 JP)</a>  is a unique online platform that helps companies to launch new products and services online. The seven-year-old company is a product of the Cyberagent incubation umbrella and debuted on Mothers in December 2019. The company's core business is the Makuake platform, which supports new product launches, brings them in front of buyers/supporters, before formal market release. The Makuake Incubator Studio (MIS) helps firms with strong R&amp;D to develop and commercialize products via their platform.  </div><div>This note looks at the recent Q4 results, while the following note discusses in more detail the Market, Moat and Management.: <a href="https://www.smartkarma.com/insights/small-cap-growth-makuake-4479-launching-innovative-ideas" target="_blank" data-smartkarma-citation="insights:43337" rel="noopener">Small Cap Growth: Makuake (4479) - Launching Innovative Ideas</a>  </div>

Makuake Inc (4479 JP)  is a unique online platform that helps companies to launch new products and services online. The seven-year-old company is a product of the Cyberagent incubation umbrella and debuted on Mothers in December 2019. The company's core business is the Makuake platform, which supports new product launches, brings them in front of buyers/supporters, before formal market release. The Makuake Incubator Studio (MIS) helps firms with strong R&amp;D to develop and commercialize products via their platform.  This note looks at the recent Q4 results, while the following note discusses in more detail the Market, Moat and Management.: Small Cap Growth: Makuake (4479) - Launching Innovative Ideas  

Small Cap Growth: Makuake (4479) - Innovative Ideas Drive Strong Q4 Sales

Event-Driven

We have been covering <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a> since its IPO in October 2019. Initially, BASE was valued in line with similar E-commerce platform multiples and the fast-growing payment processing business was ignored. However, the investor demand for COVID-resistant stocks drove the company’s valuation to unwarranted levels during the last six months.
In our last insight <a href="https://www.smartkarma.com/insights/base-inc-downside-risks-mount-as-ev-sales-peak" target="_blank" rel="noopener">BASE Inc: Downside Risks Mount As EV/​Sales Peak</a>, we suggested creating a short position when the share price peaked on 8th October. Since then, the share price has declined 21.5% to ¥12,500 per share.
On 16th October 2020, BASE Inc announced that it had invested in MOSH, a company involved in service E-Commerce.

We have been covering BASE Inc (4477 JP) since its IPO in October 2019. Initially, BASE was valued in line with similar E-commerce platform multiples and the fast-growing payment processing business was ignored. However, the investor demand for COVID-resistant stocks drove the company’s valuation to unwarranted levels during the last six months.
In our last insight BASE Inc: Downside Risks Mount As EV/​Sales Peak, we suggested creating a short position when the share price peaked on 8th October. Since then, the share price has declined 21.5% to ¥12,500 per share.
On 16th October 2020, BASE Inc announced that it had invested in MOSH, a company involved in service E-Commerce.

BASE Inc Moves to Service E-Commerce Via MOSH Acquisition

Japan

BASE, Inc. offers internet based services. The Company provides net shop creation, shopping application development, online payment development, and other services. BASE provides its services throughout Japan.

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BASE Inc (4477 JP)

TOPIX Inclusion Trade Summary: Nov 2020

November review of pre-events, live events, and post-events in the TOPIX Inclusion trade universe. There are a dozen pre-event recommendations...

Janaghan Jeyakumar, CFA

TOPIX Inclusions: New Regulations! Who Is READY? 2.0

The TSE has new Listing Rules and Criteria for TSE1 listing and promotion. That means new analysis on what pre-event trades. One TOP PICK to trade...

Janaghan Jeyakumar, CFA

Base Inc Bubble Is Still Far From Bursting

Following two extremely successful quarters, BASE Inc shares rallied more than 1,000% from its IPO price to reach a high of ¥16,510 per share...

Oshadhi Kumarasiri

Small Cap Growth: Makuake (4479) - Innovative Ideas Drive Strong Q4 Sales

Makuake has a unique business model that helps entrepreneurs and companies to launch and commercialise products and services on line. It is scaling...

Mark Chadwick

BASE Inc Moves to Service E-Commerce Via MOSH Acquisition

In our last insight, we suggested creating a short position when the share price peaked on 8th October. Since then, the share price has declined by...

Oshadhi Kumarasiri

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