Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In December, it was reported that <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> was considering an enormous buyback of its own shares from <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP)</a> so that JPI can get JPH under 50% ownership.
I wrote about it VERY bullishly in <a href="https://www.smartkarma.com/insights/huge-japan-post-insurance-buyback-mooted-decks-cleared-time-to-buy" target="_blank" data-smartkarma-citation="insights:46429" rel="noopener">Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy</a>.
A couple of days later on the 25th of December, <a href="https://www.bloomberg.co.jp/news/articles/2020-12-24/QLVAS5T0AFB901" target="_blank" rel="noopener">news emerged</a> that the JPI Board of Directors had decided to postpone the consideration/decision of buying back shares from "by year end" to a later date because of the market reaction to the news leak. 
The key here is that apparently, if the stake held by Japan Post Holdings drops below 50%, new product launches move from an "Approval System" to an "Advance Notification System" under the complex rules which govern the Japan Post Insurance product offering suite, the Japan Post Holding post-privatisation management by regulators, and the insurance business in general. 
The shares, which had popped 10% on the original news, fell back somewhat. Those who contacted me about this situation know that I have continued to be bullish. The shares are up 6.2% from the close of that first day's news.
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/181/430/original/Screenshot+2021-01-08+at+10.00.35+AM.png?1610071249" class="editor-image img-responsive" data-smartkarma-image-id="181430"></figure>

</section>
I think it was a mistake for JPI to not decide to buy back the shares as of their 23 December board meeting. 
There are other dynamics at play.

In December, it was reported that Japan Post Insurance (7181 JP) was considering an enormous buyback of its own shares from Japan Post Holdings (6178 JP) so that JPI can get JPH under 50% ownership.
I wrote about it VERY bullishly in Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy.
A couple of days later on the 25th of December, news emerged that the JPI Board of Directors had decided to postpone the consideration/decision of buying back shares from "by year end" to a later date because of the market reaction to the news leak. 
The key here is that apparently, if the stake held by Japan Post Holdings drops below 50%, new product launches move from an "Approval System" to an "Advance Notification System" under the complex rules which govern the Japan Post Insurance product offering suite, the Japan Post Holding post-privatisation management by regulators, and the insurance business in general. 
The shares, which had popped 10% on the original news, fell back somewhat. Those who contacted me about this situation know that I have continued to be bullish. The shares are up 6.2% from the close of that first day's news.




I think it was a mistake for JPI to not decide to buy back the shares as of their 23 December board meeting. 
There are other dynamics at play.

Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher

That's it. It has started. The story and long-term look-through reason why it was not a bad idea to buy the last offering from <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> when <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP)</a> in April 2019 has now come into the clear. Clearly, the METHOD of the buyback in April 2019 combined with the Really Quite Awful And Very Bad Investor Placement by Daiwa in that offering combined to deliver a shocking placing aftermath, but the willingness of Japan post Insurance to issue subordinated debt at a low interest rate to raise cash to buy back stock and the CEO's comment that they had capacity to do much more was a good reason to expect the news which has just come out. <h3>What News?  JPI Is On the Road to Emancipation</h3>Various media reports (I got the news first from <a href="https://www.bloomberg.com/news/articles/2020-12-16/japan-post-insurer-plans-2-9-billion-buyback-to-cut-owner-stake" target="_blank" rel="noopener">Bloomberg</a> and JPI had an official <a href="https://pdf.irpocket.com/C7181/j9N9/MJ5Y/o2qZ.pdf" target="_blank" rel="noopener">comment</a> suggesting that the information did not come from them) suggested that Japan Post Insurance would have a board meeting this month to approve raising subordinated debt (to the tune of ¥100bn) and would buy back as much as ¥300bn of shares from its parent Japan Post Holdings, which currently owns 64.8% of shares out, with the goal of getting the JPH ownership level of Japan Post Insurance down below 50%. 50% is the magic level. That's the cause for excitement. From here, it gets a little complicated but the news leak suggests there is a fair bit of fire behind this smoke.

That's it. It has started. The story and long-term look-through reason why it was not a bad idea to buy the last offering from Japan Post Insurance (7181 JP) when Japan Post Holdings (6178 JP) in April 2019 has now come into the clear. Clearly, the METHOD of the buyback in April 2019 combined with the Really Quite Awful And Very Bad Investor Placement by Daiwa in that offering combined to deliver a shocking placing aftermath, but the willingness of Japan post Insurance to issue subordinated debt at a low interest rate to raise cash to buy back stock and the CEO's comment that they had capacity to do much more was a good reason to expect the news which has just come out. What News?  JPI Is On the Road to EmancipationVarious media reports (I got the news first from Bloomberg and JPI had an official comment suggesting that the information did not come from them) suggested that Japan Post Insurance would have a board meeting this month to approve raising subordinated debt (to the tune of ¥100bn) and would buy back as much as ¥300bn of shares from its parent Japan Post Holdings, which currently owns 64.8% of shares out, with the goal of getting the JPH ownership level of Japan Post Insurance down below 50%. 50% is the magic level. That's the cause for excitement. From here, it gets a little complicated but the news leak suggests there is a fair bit of fire behind this smoke.

Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy

Quantitative Analysis

Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled <a href="https://www.ft.com/content/a97cf336-518d-45dd-8092-ec0363c18725" target="_blank" rel="noopener">Takeaways from 30 years of Covering the Japanese Market</a> in the Financial Times on 26 November (Thanksgiving) which is well worth a read.He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. <section class="figure"><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/956/original/Screenshot%202020-11-29%20at%203.07.23%20PM.png?1606633655" class="editor-image img-responsive" data-smartkarma-image-id="174956"></figure></section>This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.</section>Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. 
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/969/original/Screenshot%202020-11-29%20at%203.40.57%20PM.png?1606635676" class="editor-image img-responsive" data-smartkarma-image-id="174969"></figure></section>It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.
There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. 
Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. 
Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.
Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.
This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.
The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.
Read on for the nitty gritty (as usual, we start with Conclusions First).</section>

Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled Takeaways from 30 years of Covering the Japanese Market in the Financial Times on 26 November (Thanksgiving) which is well worth a read.He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. 
It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.
There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. 
Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. 
Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.
Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.
This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.
The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.
Read on for the nitty gritty (as usual, we start with Conclusions First).

JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/singapore-post-ltd" target="_blank" data-smartkarma-citation="entities:150:1" rel="noopener">Singapore Post (SPOST SP)</a> has transitioned from a conventional postal delivery service to an e-commerce delivery service provider and currently, the revenue contribution from e-commerce almost offset the declining legacy business. It should happen either this Christmas holiday season or in Q1 2021. The declining conveyance cost that ate up margin in 1H 2020 will provide an additional income booster that investors can look forward to. 
Singpost trades at the lowest EV/EBITDA multiples to its peers and a 0.98x PBR. Q4 has traditionally been a strong season and now that it has transitioned into an e-commerce delivery platform, the time is NOW to start building a position in Singpost.

Singapore Post (SPOST SP) has transitioned from a conventional postal delivery service to an e-commerce delivery service provider and currently, the revenue contribution from e-commerce almost offset the declining legacy business. It should happen either this Christmas holiday season or in Q1 2021. The declining conveyance cost that ate up margin in 1H 2020 will provide an additional income booster that investors can look forward to. 
Singpost trades at the lowest EV/EBITDA multiples to its peers and a 0.98x PBR. Q4 has traditionally been a strong season and now that it has transitioned into an e-commerce delivery platform, the time is NOW to start building a position in Singpost. 

Singpost (SPOST): Riding the E-Commerce Awakening in ASEAN

Mega buyouts for cash are rare. Mega buyouts for cash in Japan are even rarer. On 29 september, some 16 hours after the Nikkei published articles suggesting <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> would buy out minorities in <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a>, the deal was announced. It is, as deals, go, a very big deal. It is, as deals go, generous in price, with a very low threshold for success, and an extraordinarily good quality buyer. It doesn't get much easier than this. Since the announcement, the stock has traded $6.5bn in volume, with the last six days basically trading ¥3875-3877 with the last four days seeing most volume on the bid side at ¥3876.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/164/851/original/Screenshot%202020-10-13%20at%207.27.49%20AM.png?1602545297" class="editor-image img-responsive" data-smartkarma-image-id="164851"></figure></section>This sounds like small potatoes but if one pays 5bp commission, buying today at ¥3876 nets you 5.16% annualised. Lever that up a bit and you get a decent return, and in you can get some size on.This is about the easiest pure balance sheet arb trade one is going to find if you are an arbitrageur, but there are much more interesting trades afoot. I expect that out of the US$40bn of stock in the float, some $12-15bn is going to change hands then tender those shares, another $5-10bn will tender their shares, and then another $15+bn of shares will not tender and will instead be squeezed out. This number is surprisingly large and it means some very interesting flows will occur. Much more below the fold. <hr>Previous insights in the series are:<ul>
<li><a href="https://www.smartkarma.com/insights/ntt-docomo-shocker-nikkei-says-parent-ntt-to-buy-out-docomo-minorities" target="_blank" data-smartkarma-citation="insights:43676" rel="noopener">NTT Docomo SHOCKER - Nikkei Says Parent NTT To Buy Out Docomo Minorities</a></li>
<li>
<a href="https://www.smartkarma.com/insights/ntt-deal-for-docomo-not-going-gentle-definitely-raging-against-the-dying-of-the-light" target="_blank" data-smartkarma-citation="insights:43686" rel="noopener">NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light</a> </li>
</ul>

Mega buyouts for cash are rare. Mega buyouts for cash in Japan are even rarer. On 29 september, some 16 hours after the Nikkei published articles suggesting NTT (Nippon Telegraph &amp; Telephone) (9432 JP) would buy out minorities in NTT Docomo Inc (9437 JP), the deal was announced. It is, as deals, go, a very big deal. It is, as deals go, generous in price, with a very low threshold for success, and an extraordinarily good quality buyer. It doesn't get much easier than this. Since the announcement, the stock has traded $6.5bn in volume, with the last six days basically trading ¥3875-3877 with the last four days seeing most volume on the bid side at ¥3876.This sounds like small potatoes but if one pays 5bp commission, buying today at ¥3876 nets you 5.16% annualised. Lever that up a bit and you get a decent return, and in you can get some size on.This is about the easiest pure balance sheet arb trade one is going to find if you are an arbitrageur, but there are much more interesting trades afoot. I expect that out of the US$40bn of stock in the float, some $12-15bn is going to change hands then tender those shares, another $5-10bn will tender their shares, and then another $15+bn of shares will not tender and will instead be squeezed out. This number is surprisingly large and it means some very interesting flows will occur. Much more below the fold. Previous insights in the series are:
NTT Docomo SHOCKER - Nikkei Says Parent NTT To Buy Out Docomo Minorities

NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light 


NTT Docomo: The Three Arbs and the Great Re-Allocation Trade

Japan

Japan Post Holdings Co. Ltd. operates post stations, banks, and insurance business. The Company offers letters and goods transportation services, stamp sales, deposits, loans, and insurance products.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Japan Post Holdings (6178 JP)

Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher

Japan Post Insurance still has Three Reasons To Buy. One of them will "realize" today after the close. I would want to be long at today's price....

Travis Lundy

Huge Japan Post Insurance Buyback Mooted - Decks Cleared. Time To Buy

The possibility of a big buyback by Japan Post Insurance to get Japan Post Hldgs sub-50% is a Really Good Thing. It means EPS growth, top line...

Travis Lundy

JAPAN FLOW: Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

The Japanese market has unusual flow cyclicality. Foreigners take price. They have been net sellers. They buy when USD-denom TOPIX outperforms....

Travis Lundy

Singpost (SPOST): Riding the E-Commerce Awakening in ASEAN

SPOST trades at the lowest EV/EBITDA multiples to its peers and below book value. Q4 has traditionally a strong season and now that it has become...

Henry Soediarko

NTT Docomo: The Three Arbs and the Great Re-Allocation Trade

Really big deals create really big arb opportunities. The details are worth looking at. They also create really big "exhaust". Here that means...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)