Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Equity Bottom-Up

(24 Jul 201: 10&nbsp;hrs after first piece published): &nbsp;Hold the presses!I missed a key piece of information in a glaring oversight on my part. I blame myself for rushing to complete a piece late last night based on previous research - updating for the price movement and buyback results for a piece which was mostly written a little while ago&nbsp;(I could not decide how to pitch the conclusion so left it on the table). The updated&nbsp;inbound tourism data and the fall in the stock price&nbsp;made it that much more attractive a fundamental idea, with a catalyst on the other side. And I just missed a really, really big piece of news in the interim.&nbsp;There was an announcement in Japanese (which I have no problem with had I seen it) on&nbsp;July 15th that MBK Partners was going to try to sell down its remaining stake in an uridashi offering.&nbsp;This changes the event and makes it very clear. A follow-up piece will be forthcoming. &nbsp;In the meantime...&nbsp;What DOESN'T CHANGE from the first piece:<ol><li>The Turnaround: The&nbsp;re-engineering of the company over time.</li><li>The Value: The analysis of sales &amp; earnings structure change over time, and the idea that the current company forecast for H2 and full-year is probably still light (see details of first piece for more).&nbsp;</li><li>The Company Sale:&nbsp;The company is for sale. :-)</li><li>The Inbound&nbsp;Tourism&nbsp;Story:&nbsp;That doesn't change despite my error.</li></ol>None of the above changes despite my error. What DOES change is that...<ul><li>My analysis that a market sell-down by MBK was unlikely. There is obviously an effort to get this out the door and I just missed that. I had expected a trade/strategic sale eventually because of the difficulties in selling the story on a wide basis to a new buying public. MS MUFJ and Daiwa apparently didn't share my concerns.</li><li>My main thesis behind the&nbsp;assertion a market sell-down was difficult was that... <ul><li>it is effectively like an IPO - no analyst coverage, few international investors have ever looked at it or indeed the space.</li><li>The company has no English-language documents or history.</li><li>It is too small as a market cap and too unknown a name to effectively pitch this to foreign investors.</li><li>&nbsp;Therefore it has to go to retail. My opinion was that... <ul><li>Retail investors who have made money in it already own it, and those who know its history may have lost a lot of money in it before.&nbsp;</li><li>Dividend clarity is still somewhat low.</li><li>While the brand name is ubiquitous, it is a specialty space - not so many people buy pearls even if they all know the&nbsp;name. There is no internet angle, no&nbsp;robotics, no game function. This is just a specialty luxury retailer. It is avoidable.</li><li>As an offering, it kind of looks like Calbee, SuntoryBev, Otsuka, or Skylark deal or something similar - a well-known brand but little institutional support, and&nbsp;LOTS of overhang. Most of those worked well after a while but there was not much Day2-Day30 joy.</li><li>The lack of history makes the story a limiting factor. The only thing you can sell is 'turnaround' and the very recent history. "The future is in pearls, my boy!" doesn't fly.</li></ul></li></ul></li><li>All of this makes it&nbsp;a very easy offering for people to avoid.&nbsp;</li></ul>One other thing which changes is forward liquidity. This is actually a BIG positive.<ul><li>If this deal gets placed, liquidity will go up. Float will go WAY up. TOPIX &nbsp;weighting will go WAY up. A decent portion of the deal would get bought by benchmarkers over the next year.</li><li>In addition, it would make an ideal JPX-Nikkei400 candidate with its board, rising earnings, and high ROE. And because of its float, it would have a relatively high weight in the index compared to its market cap.&nbsp;</li></ul>NEW AND REVISED CONCLUSIONS:<ul><li>There is an offering coming out - it is about to dump the whole company into the float. This will be sold to people who likely have never owned it before, and it will go predominantly to retail.&nbsp;</li><li>The greenshoe will cover the entire insto tranche or 12% of the retail tranche.</li><li>Analysis of the likelihood of retail flipping is ABSOLUTELY KEY. I don't have that analysis yet.</li><li>The stock is cheap on a current year basis.</li><li>There will be considerable buying&nbsp;from index funds&nbsp;over the next period to help take out some of the flipping supply.&nbsp;</li><li>The next company update on fundamentals won't be for a while, so short-term movement will be purely determined by flipper supply vs indexer demand.&nbsp;</li></ul>More forthcoming and more below the fold.&nbsp;

(24 Jul 201: 10&nbsp;hrs after first piece published): &nbsp;Hold the presses!I missed a key piece of information in a glaring oversight on my part. I blame myself for rushing to complete a piece late last night based on previous research - updating for the price movement and buyback results for a piece which was mostly written a little while ago&nbsp;(I could not decide how to pitch the conclusion so left it on the table). The updated&nbsp;inbound tourism data and the fall in the stock price&nbsp;made it that much more attractive a fundamental idea, with a catalyst on the other side. And I just missed a really, really big piece of news in the interim.&nbsp;There was an announcement in Japanese (which I have no problem with had I seen it) on&nbsp;July 15th that MBK Partners was going to try to sell down its remaining stake in an uridashi offering.&nbsp;This changes the event and makes it very clear. A follow-up piece will be forthcoming. &nbsp;In the meantime...&nbsp;What DOESN'T CHANGE from the first piece:The Turnaround: The&nbsp;re-engineering of the company over time.The Value: The analysis of sales &amp; earnings structure change over time, and the idea that the current company forecast for H2 and full-year is probably still light (see details of first piece for more).&nbsp;The Company Sale:&nbsp;The company is for sale. :-)The Inbound&nbsp;Tourism&nbsp;Story:&nbsp;That doesn't change despite my error.None of the above changes despite my error. What DOES change is that...My analysis that a market sell-down by MBK was unlikely. There is obviously an effort to get this out the door and I just missed that. I had expected a trade/strategic sale eventually because of the difficulties in selling the story on a wide basis to a new buying public. MS MUFJ and Daiwa apparently didn't share my concerns.My main thesis behind the&nbsp;assertion a market sell-down was difficult was that... it is effectively like an IPO - no analyst coverage, few international investors have ever looked at it or indeed the space.The company has no English-language documents or history.It is too small as a market cap and too unknown a name to effectively pitch this to foreign investors.&nbsp;Therefore it has to go to retail. My opinion was that... Retail investors who have made money in it already own it, and those who know its history may have lost a lot of money in it before.&nbsp;Dividend clarity is still somewhat low.While the brand name is ubiquitous, it is a specialty space - not so many people buy pearls even if they all know the&nbsp;name. There is no internet angle, no&nbsp;robotics, no game function. This is just a specialty luxury retailer. It is avoidable.As an offering, it kind of looks like Calbee, SuntoryBev, Otsuka, or Skylark deal or something similar - a well-known brand but little institutional support, and&nbsp;LOTS of overhang. Most of those worked well after a while but there was not much Day2-Day30 joy.The lack of history makes the story a limiting factor. The only thing you can sell is 'turnaround' and the very recent history. "The future is in pearls, my boy!" doesn't fly.All of this makes it&nbsp;a very easy offering for people to avoid.&nbsp;One other thing which changes is forward liquidity. This is actually a BIG positive.If this deal gets placed, liquidity will go up. Float will go WAY up. TOPIX &nbsp;weighting will go WAY up. A decent portion of the deal would get bought by benchmarkers over the next year.In addition, it would make an ideal JPX-Nikkei400 candidate with its board, rising earnings, and high ROE. And because of its float, it would have a relatively high weight in the index compared to its market cap.&nbsp;NEW AND REVISED CONCLUSIONS:There is an offering coming out - it is about to dump the whole company into the float. This will be sold to people who likely have never owned it before, and it will go predominantly to retail.&nbsp;The greenshoe will cover the entire insto tranche or 12% of the retail tranche.Analysis of the likelihood of retail flipping is ABSOLUTELY KEY. I don't have that analysis yet.The stock is cheap on a current year basis.There will be considerable buying&nbsp;from index funds&nbsp;over the next period to help take out some of the flipping supply.&nbsp;The next company update on fundamentals won't be for a while, so short-term movement will be purely determined by flipper supply vs indexer demand.&nbsp;More forthcoming and more below the fold.&nbsp;

TASAKI: [CORRECTION]: Glaring error in my analysis

Event-Driven

As their website says, TASAKI (7968) is Japan's only 'Maison' which has its own pearl farm. TASAKI has been in business for ~70 years, was listed in 1985, and is one of Japan's well-known jewellery store brands. The company has been selling pearls and diamonds in Ginza since forever it seems and is one of two ubiquitous pearl maisons in Japan.What had been a pretty sad story of net profits for many years turned into a bad story in 2008 on the operating side. In late 2008, the Tasaki family relinquished control, MBK Partners injected capital and new management, the company restructured very heavily for four years and has now started seeing those efforts pay off. Net profits in H1 this fiscal year were double what the company has earned on any full year in the last 20 years. There is a turnaround. Then it gets interesting.We have a <a href="http://www.smartkarma.com/lab/insights/970/sale%20process" target="_blank">sale process</a>, a sharp increase in annual <a href="http://www.tasaki.co.jp/corporate/ir/pdf/2015/whats189.pdf" target="_blank">forecasts</a>, a <a href="http://www.tasaki.co.jp/corporate/ir/pdf/2015/whats190.pdf" target="_blank">conversion</a> of MBK's prefs so that at one point this month MBK owned almost 80% of the common shares. An <a href="http://www.tasaki.co.jp/corporate/ir/pdf/2015/whats193.pdf" target="_blank">expression of intent</a> by MBK to sell its stake. We then have an aggressive and accelerated effort by the company to buy back its shares (it <a href="http://www.tasaki.co.jp/corporate/ir/pdf/2015/whats201.pdf" target="_blank">bought back</a> 24+% of shares outstanding last Friday).MBK now has a 72% stake (9.65mm shs out of the ~13.45mm shares extant ex-Treasury shares). There is no recent media news regarding a sale of the company. But the company has a forward PER (based on its own forecasts) of 13x while growing revenues 19% and income 112% this year. It will have an ROE over 20% this year.And TASAKI is in prime position (along with <a href="http://www.smartkarma.com/insights/seibu-holdings-tough-deal-to-swallow-long-term-there-s-hope" target="_blank">certain hotel chains</a>) to benefit from a significant and perhaps still under-estimated inbound China tourism &amp; spending story.If you look at smaller-cap catalyst-driven situations, TASAKI deserves your attention.More below the fold.

As their website says, TASAKI (7968) is Japan's only 'Maison' which has its own pearl farm. TASAKI has been in business for ~70 years, was listed in 1985, and is one of Japan's well-known jewellery store brands. The company has been selling pearls and diamonds in Ginza since forever it seems and is one of two ubiquitous pearl maisons in Japan.What had been a pretty sad story of net profits for many years turned into a bad story in 2008 on the operating side. In late 2008, the Tasaki family relinquished control, MBK Partners injected capital and new management, the company restructured very heavily for four years and has now started seeing those efforts pay off. Net profits in H1 this fiscal year were double what the company has earned on any full year in the last 20 years. There is a turnaround. Then it gets interesting.We have a sale process, a sharp increase in annual forecasts, a conversion of MBK's prefs so that at one point this month MBK owned almost 80% of the common shares. An expression of intent by MBK to sell its stake. We then have an aggressive and accelerated effort by the company to buy back its shares (it bought back 24+% of shares outstanding last Friday).MBK now has a 72% stake (9.65mm shs out of the ~13.45mm shares extant ex-Treasury shares). There is no recent media news regarding a sale of the company. But the company has a forward PER (based on its own forecasts) of 13x while growing revenues 19% and income 112% this year. It will have an ROE over 20% this year.And TASAKI is in prime position (along with certain hotel chains) to benefit from a significant and perhaps still under-estimated inbound China tourism &amp; spending story.If you look at smaller-cap catalyst-driven situations, TASAKI deserves your attention.More below the fold. 

TASAKI:  A turnaround-slash-company-sale-slash-huge-buyback-slash-China-inbound-tourism-story

Hong Kong

Chow Tai Fook Jewellery Group Limited retails jewelry.  The Company sells rings, necklaces, earrings, pendants, bracelets, and small statues.  Chow Tai Fook Jewellery operates retail stores in China, Hong Kong, Macau, Taiwan, Malaysia, and Singapore.

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Chow Tai Fook Jewellery (1929 HK)

TASAKI: [CORRECTION]: Glaring error in my analysis

(24 Jul 201: 10 hrs after first piece published): Hold the presses!I missed a key piece of information in a glaring oversight on my part. I blame...

Travis Lundy

TASAKI: A turnaround-slash-company-sale-slash-huge-buyback-slash-China-inbound-tourism-story

As their website says, TASAKI (7968) is Japan's only 'Maison' which has its own pearl farm. TASAKI has been in business for ~70 years, was listed...

Travis Lundy

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