'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/362/original/File%202020-04-04%208%2045%2047.jpeg?1585957595" class="editor-image img-responsive" data-smartkarma-image-id="126362"></figure><div class="content-caption">Source • stopcovid19.jp</div>OVERSHOOT - This Insight will be longer than usual with more above the paywall 'fold' as Friday saw several significant developments in Japan's response to COVID-19. The English-language word 'overshoot' is used widely in Japan to refer to the situation in which more than 100% of available intensive care hospital beds are in use. Although the occupancy rate for Japan is still only 48%, Kyoto and Kanagawa Prefectures are already in 'overshoot', and Tokyo is again close to being so even after increasing capacity by 50% this week. As can be seen above, the country has sufficient ventilator capacity to deal with ten times the current cases (28,197); the shortage is in hospital beds for infectious diseases (4,089). The Tokyo Metropolitan Government (TMG) is now aiming to secure over 4,000 beds for severe COVID-19 cases, including 3,300 with oxygen. Of the 635 patients currently hospitalised in the capital, 80% do not need intensive care. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/377/original/IMG_1102.jpg?1585958777" class="editor-image img-responsive" data-smartkarma-image-id="126377"></figure><div class="content-caption">Source • NHK</div>REGIME CHANGE - As we have noted in an earlier <a href="https://www.smartkarma.com/insights/japan-market-update-hit-the-boj-bid-and-wait-for-the-absolute-value-opportunity" target="_blank" data-smartkarma-citation="insights:37670" rel="noopener">Insight</a>, Japan has been slow to increase testing for COVID-19 as there was a Health Ministry guideline that all positive cases were to be hospitalised however mild the symptoms. Large-scale testing would result in the healthcare system being overwhelmed by a large number of relatively-mild cases. Also, the social convention of avoiding 'meiwaku' or trouble to others has resulted in many of those with symptoms avoiding seeking confirmation. The Ministry is also resisting the designation of deaths from pneumonia as related to COVID-19 and is refusing to release data on the number of pneumonia deaths which are rumoured to be 'significantly higher' than in previous years in Tokyo. Whether by design or neglect, Japan lulled itself into a false sense of 'corona-superiority' which has delayed many of the responses that other developed countries have been taking. In the face of increased pressure from the medical profession, the bureaucrats have now relented and, at least in Tokyo, less-severe cases will be able to stay at home or will be billeted in hotels. The rule that patients could only be released from the hospital after two negative tests is also to be 'relaxed'. The rule that new cases must be reported to the Ministry by fax still, however, remains in place.HOTELS &amp; HOMES - Given the size of most homes in the capital, isolation in homes with multiple residents will be hazardous, The TMG is, therefore, moving quickly to requisition or acquire the necessary hotel space.  The infamously-xenophobic APA Hotel chain has been quick to offer their services to lightly-symptomatic patients and is offering a 50% discount to health care workers.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/380/original/2020-04-04_10-51-38.png?1585965120" class="editor-image img-responsive" data-smartkarma-image-id="126380"></figure><div class="content-caption">Source outbreak.info</div>ASIAN OUTLIER - Japan is now the outlier in Asia in seeing an increasing rate of daily new cases (353 on April 3rd),  including a six-month-old baby against whom medical staff did not think to take any precautions forcing 44 staff into two weeks of self-isolation. Using a simple measure proposed by Messrs <a href="https://medium.com/@ekohlberg_47501/a-simple-score-to-tell-if-we-are-beating-the-virus-49e74b707e35" target="_blank" rel="noopener">Kohlberg, Neyman, and Tepper</a>, Japan's R Score is 2.09. With both Singapore and Hong Kong introducing stricter social constraints over the last two days, Japan's Swedish-style response is facing increasing domestic criticism. Several LDP politicians and supporters have distanced themselves from PM Abe's two-masks policy. Although far from disinterested parties, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>'s @hmikitani and <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>'s @masason have both taken to Twitter to urge for the declaration of a state of emergency. The former has however been slow to prevent price-gouging for masks sold on the Rakuten platform. Even the influential Keidanren business federation has now accepted that a state of emergency is 'acceptable' on condition that 'vital services' are not too severely disrupted.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/396/original/File%202020-04-03%2019%2016%2000.jpeg?1585974026" class="editor-image img-responsive" data-smartkarma-image-id="126396"></figure><div class="content-caption">Source • NHK</div>TOKYO AT THE TIPPING POINT - Even the normally-quiescent NHK fired up their graphic team for last night's '7 NEWS'  to illustrate that Tokyo is 18 days away from an exponential explosion unless there is an 80% reduction in social activities. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/386/original/File%202020-04-04%200%2030%2052.jpeg?1585968614" class="editor-image img-responsive" data-smartkarma-image-id="126386"></figure><div class="content-caption">Source • NHK</div>GOVERNOR KOIKE - Although firmly stating that a full lockdown of Tokyo is legally 'impossible', Gov. Koike is gently prodding the national government towards stricter measures and continues to warn businesses to make the necessary preparations as only grocery stores, bank and medical facilities would remain open. She has requested residents to stay at home this weekend and is recommending avoiding the three "C's" - Crowded, Confined spaces where Conversations take place until further notice. Taking a leaf from Governor Cuomo's book, she is now giving daily updates on YouTube, including one in English. Having harboured ambitions for higher office in the past, the contrast she is drawing with the apparently-hapless Prime Minister is being made abundantly clear. Many LDP officials, however, remain wary of her 'un-Japanese' opportunism and her authoritarian and unpredictable nature. As in the United States, personal and political rivalries are obstructing to sensible policy-making.   <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/387/original/2020-04-04_12-01-17.png?1585969302" class="editor-image img-responsive" data-smartkarma-image-id="126387"></figure><div class="content-caption">Source • Google</div>PARTIAL LOCKDOWN - Many restaurant chains including <a href="https://www.smartkarma.com/entities/torikizoku-co-ltd" target="_blank" data-smartkarma-citation="entities:17718:1" rel="noopener">Torikizoku (3193 JP)</a>, <a href="https://www.smartkarma.com/entities/kushikatsu-tanaka-co" target="_blank" data-smartkarma-citation="entities:26733:1" rel="noopener">Kushikatsu Tanaka (3547 JP)</a>  and <a href="https://www.smartkarma.com/entities/hub-co-ltd" target="_blank" data-smartkarma-citation="entities:11892:1" rel="noopener">Hub (3030 JP)</a> and karaoke and entertainment facilities such as <a href="https://www.smartkarma.com/entities/daiichikosho-co-ltd" target="_blank" data-smartkarma-citation="entities:8629:1" rel="noopener">Daiichikosho (7458 JP)</a>, <a href="https://www.smartkarma.com/entities/koshidaka-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14191:1" rel="noopener">Koshidaka (2157 JP)</a> and <a href="https://www.smartkarma.com/entities/round-one-corp" target="_blank" data-smartkarma-citation="entities:7057:1" rel="noopener">Round One (4680 JP)</a> have announced the closure of their facilities for several weeks and join the department stores and cinemas that closed last and will be so again this weekend. Even the Spring Sumo tournament has been delayed for at least two weeks. As confirmed by Google's excellent Community Mobility Reports above, Tokyo is gradually heeding the call. The March Services PMI for Japan suggests a year-on-year contraction of 8%. The onus will now pass to the national government to mitigate the losses.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/397/original/2020-04-04_13-51-59.png?1585975942" class="editor-image img-responsive" data-smartkarma-image-id="126397"></figure><div class="content-caption">Source • US Embassy, Tokyo</div>'GET-OUT-OF-EDO-BABY-GO' - The US Embassy in Japan is recommending that any US citizens who are not prepared to stay in Japan for several months or who are concerned about not being able to receive appropriate medical care should leave immediately. Those who do will, however, not be allowed to return for an as-yet-unspecified period.  Even Japanese nationals are now required to spend fourteen days in quarantine. All residence visas that expire before the end of June be extended by three months. From April 3rd and until further notice, non-Japanese of any residence status, including permanent and spouses of Japanese nationals, are to be denied re-entry if they leave Japan. Welcome to the lock-in without a lockdown!RELIEF MEASURES - A potpourri of relief measures and new policies are doing the rounds in government circles including some or all of the following:- <ul>
<li>
¥300,000 - A one-time non-taxable payment will be made to qualified households that are suffering financially from a loss of income. About 10 million households are expected to qualify. It has already been necessary to make clear that the adult entertainment industry will not be eligible for public funds. ¥300,000 is equivalent to the annual amount spent on a pet dog in Japan.</li>
<li>
PREFERENCE SHARES - Large firms such as airlines, shippers and auto manufacturers may be eligible for rescue packages in the form of preference shares issued to the Development Bank of Japan of up to ¥400 billion each. The allocation of such funds will be a subject of much political jostling, while smaller businesses that lack the right connections may not be deemed eligible. We would now be wary of being aggressively 'short' these sectors.</li>
<li>
FIVE-YEAR INTEREST-FREE LOANS - While a welcome measure for some SMEs, this measure may not be sufficient for those already-indebted businesses with large numbers of regular employees operating out of rented accommodation, of which Japan's legion of wholesalers is a prime example.</li>
<li>
TAX MORATORIA - The government is to grant a moratorium on tax payments by companies that have seen their monthly revenues fall by more than 20% from the previous year due to COVID-19.</li>
<li>
WRITE-DOWNS - The Japanese ASB and the FSA have announced that companies will be allowed greater leniency regarding asset writedowns for idle plants and stores</li>
<li>
SUBSIDIES - The government will fully-subsidise the increase in production of <a href="https://www.smartkarma.com/entities/fujifilm-holdings-corp" target="_blank" data-smartkarma-citation="entities:16353:1" rel="noopener">Fujifilm (4901 JP)</a>'s Avigan drug and ventilators from a variety of manufacturers. Avigan will be offered for free to other countries.</li>
<li>
DE-GLOBALISATION - <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> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a> are in talks with the Ministry of Economy, Trade and Industry to move some or all of their supply chains our of China. <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a> is seemingly no longer considered relevant in this regard. Japanese corporates will also begin a process of unwinding unprofitable overseas operations to support their domestic activities, a move that will help keep the Yen relatively stable over the medium term.</li>
</ul>While large Japanse corporations are relatively well-placed to weather this storm, the Japanese government is fiscally constrained and grossly indebted relative to GDP. Given the now-inflationary global outlook, we would expect the Bank of Japan to be the least generous of the central banks in response to COVID-19, which will also be supportive of the Yen.In the DETAIL section below, we shall review our targets for our Results and Revisions Scores, and the market overall, look at our updated trailing aggregate actual profits and multiples and review Fridays' Results and Revisions. Finally, we shall suggest that Japan is well-placed for the emergent post-COVID economic world order and conclude that we would be buyers of Japanse equities into the second wave of the COVID-19 downturn.

Source • stopcovid19.jpOVERSHOOT - This Insight will be longer than usual with more above the paywall 'fold' as Friday saw several significant developments in Japan's response to COVID-19. The English-language word 'overshoot' is used widely in Japan to refer to the situation in which more than 100% of available intensive care hospital beds are in use. Although the occupancy rate for Japan is still only 48%, Kyoto and Kanagawa Prefectures are already in 'overshoot', and Tokyo is again close to being so even after increasing capacity by 50% this week. As can be seen above, the country has sufficient ventilator capacity to deal with ten times the current cases (28,197); the shortage is in hospital beds for infectious diseases (4,089). The Tokyo Metropolitan Government (TMG) is now aiming to secure over 4,000 beds for severe COVID-19 cases, including 3,300 with oxygen. Of the 635 patients currently hospitalised in the capital, 80% do not need intensive care. Source • NHKREGIME CHANGE - As we have noted in an earlier Insight, Japan has been slow to increase testing for COVID-19 as there was a Health Ministry guideline that all positive cases were to be hospitalised however mild the symptoms. Large-scale testing would result in the healthcare system being overwhelmed by a large number of relatively-mild cases. Also, the social convention of avoiding 'meiwaku' or trouble to others has resulted in many of those with symptoms avoiding seeking confirmation. The Ministry is also resisting the designation of deaths from pneumonia as related to COVID-19 and is refusing to release data on the number of pneumonia deaths which are rumoured to be 'significantly higher' than in previous years in Tokyo. Whether by design or neglect, Japan lulled itself into a false sense of 'corona-superiority' which has delayed many of the responses that other developed countries have been taking. In the face of increased pressure from the medical profession, the bureaucrats have now relented and, at least in Tokyo, less-severe cases will be able to stay at home or will be billeted in hotels. The rule that patients could only be released from the hospital after two negative tests is also to be 'relaxed'. The rule that new cases must be reported to the Ministry by fax still, however, remains in place.HOTELS &amp; HOMES - Given the size of most homes in the capital, isolation in homes with multiple residents will be hazardous, The TMG is, therefore, moving quickly to requisition or acquire the necessary hotel space.  The infamously-xenophobic APA Hotel chain has been quick to offer their services to lightly-symptomatic patients and is offering a 50% discount to health care workers.Source outbreak.infoASIAN OUTLIER - Japan is now the outlier in Asia in seeing an increasing rate of daily new cases (353 on April 3rd),  including a six-month-old baby against whom medical staff did not think to take any precautions forcing 44 staff into two weeks of self-isolation. Using a simple measure proposed by Messrs Kohlberg, Neyman, and Tepper, Japan's R Score is 2.09. With both Singapore and Hong Kong introducing stricter social constraints over the last two days, Japan's Swedish-style response is facing increasing domestic criticism. Several LDP politicians and supporters have distanced themselves from PM Abe's two-masks policy. Although far from disinterested parties, Rakuten (4755 JP)'s @hmikitani and Softbank Group (9984 JP)'s @masason have both taken to Twitter to urge for the declaration of a state of emergency. The former has however been slow to prevent price-gouging for masks sold on the Rakuten platform. Even the influential Keidanren business federation has now accepted that a state of emergency is 'acceptable' on condition that 'vital services' are not too severely disrupted.Source • NHKTOKYO AT THE TIPPING POINT - Even the normally-quiescent NHK fired up their graphic team for last night's '7 NEWS'  to illustrate that Tokyo is 18 days away from an exponential explosion unless there is an 80% reduction in social activities. Source • NHKGOVERNOR KOIKE - Although firmly stating that a full lockdown of Tokyo is legally 'impossible', Gov. Koike is gently prodding the national government towards stricter measures and continues to warn businesses to make the necessary preparations as only grocery stores, bank and medical facilities would remain open. She has requested residents to stay at home this weekend and is recommending avoiding the three "C's" - Crowded, Confined spaces where Conversations take place until further notice. Taking a leaf from Governor Cuomo's book, she is now giving daily updates on YouTube, including one in English. Having harboured ambitions for higher office in the past, the contrast she is drawing with the apparently-hapless Prime Minister is being made abundantly clear. Many LDP officials, however, remain wary of her 'un-Japanese' opportunism and her authoritarian and unpredictable nature. As in the United States, personal and political rivalries are obstructing to sensible policy-making.   Source • GooglePARTIAL LOCKDOWN - Many restaurant chains including Torikizoku (3193 JP), Kushikatsu Tanaka (3547 JP)  and Hub (3030 JP) and karaoke and entertainment facilities such as Daiichikosho (7458 JP), Koshidaka (2157 JP) and Round One (4680 JP) have announced the closure of their facilities for several weeks and join the department stores and cinemas that closed last and will be so again this weekend. Even the Spring Sumo tournament has been delayed for at least two weeks. As confirmed by Google's excellent Community Mobility Reports above, Tokyo is gradually heeding the call. The March Services PMI for Japan suggests a year-on-year contraction of 8%. The onus will now pass to the national government to mitigate the losses.Source • US Embassy, Tokyo'GET-OUT-OF-EDO-BABY-GO' - The US Embassy in Japan is recommending that any US citizens who are not prepared to stay in Japan for several months or who are concerned about not being able to receive appropriate medical care should leave immediately. Those who do will, however, not be allowed to return for an as-yet-unspecified period.  Even Japanese nationals are now required to spend fourteen days in quarantine. All residence visas that expire before the end of June be extended by three months. From April 3rd and until further notice, non-Japanese of any residence status, including permanent and spouses of Japanese nationals, are to be denied re-entry if they leave Japan. Welcome to the lock-in without a lockdown!RELIEF MEASURES - A potpourri of relief measures and new policies are doing the rounds in government circles including some or all of the following:- 

¥300,000 - A one-time non-taxable payment will be made to qualified households that are suffering financially from a loss of income. About 10 million households are expected to qualify. It has already been necessary to make clear that the adult entertainment industry will not be eligible for public funds. ¥300,000 is equivalent to the annual amount spent on a pet dog in Japan.

PREFERENCE SHARES - Large firms such as airlines, shippers and auto manufacturers may be eligible for rescue packages in the form of preference shares issued to the Development Bank of Japan of up to ¥400 billion each. The allocation of such funds will be a subject of much political jostling, while smaller businesses that lack the right connections may not be deemed eligible. We would now be wary of being aggressively 'short' these sectors.

FIVE-YEAR INTEREST-FREE LOANS - While a welcome measure for some SMEs, this measure may not be sufficient for those already-indebted businesses with large numbers of regular employees operating out of rented accommodation, of which Japan's legion of wholesalers is a prime example.

TAX MORATORIA - The government is to grant a moratorium on tax payments by companies that have seen their monthly revenues fall by more than 20% from the previous year due to COVID-19.

WRITE-DOWNS - The Japanese ASB and the FSA have announced that companies will be allowed greater leniency regarding asset writedowns for idle plants and stores

SUBSIDIES - The government will fully-subsidise the increase in production of Fujifilm (4901 JP)'s Avigan drug and ventilators from a variety of manufacturers. Avigan will be offered for free to other countries.

DE-GLOBALISATION - Toyota Motor (7203 JP) and Honda Motor (7267 JP) are in talks with the Ministry of Economy, Trade and Industry to move some or all of their supply chains our of China. Nissan Motor (7201 JP) is seemingly no longer considered relevant in this regard. Japanese corporates will also begin a process of unwinding unprofitable overseas operations to support their domestic activities, a move that will help keep the Yen relatively stable over the medium term.
While large Japanse corporations are relatively well-placed to weather this storm, the Japanese government is fiscally constrained and grossly indebted relative to GDP. Given the now-inflationary global outlook, we would expect the Bank of Japan to be the least generous of the central banks in response to COVID-19, which will also be supportive of the Yen.In the DETAIL section below, we shall review our targets for our Results and Revisions Scores, and the market overall, look at our updated trailing aggregate actual profits and multiples and review Fridays' Results and Revisions. Finally, we shall suggest that Japan is well-placed for the emergent post-COVID economic world order and conclude that we would be buyers of Japanse equities into the second wave of the COVID-19 downturn.

🇯🇵 JAPAN MARKET UPDATE 5th April 2020 • Overshoot

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Below is the full list of Japan/Korea related reports published last week on Smartkarma.DateInsight providerInsight titleJapan27-JanPeter BeuttellKeisei Electric Railway (J9009): Higher Targets Following Price and Relative Break-Outs27-JanYu MitsuhashiSector Briefing: Packaged Food in Japan - Part 127-JanTravis LundyKansai Mirai:  Still The Most Interesting Arb In The World29-JanSC CapitalJapan Display--IPhone X Weakness May Be a Godsend29-JanTravis LundyGoing into TOPIX - Don’t Get Skewered29-JanSC CapitalSharp (6753)--Q3 OP Reported to Be 12% Above Consensus29-JanMorningstar DistributionSupported by Its Home-Care and Human Healthcare Businesses, Kao Stands to Deliver High ROICs.29-JanMorningstar DistributionA Stable Japan Business and Integration of Overseas Subsidiaries Will Raise Hoshizaki’s Margin29-JanMio Kato, CFAFanuc: A Look at Valuation Post Strong 3Q29-JanMio Kato, CFAHCM: Consensus OP JPY67bn, Guidance Raised to JPY77bn, JPY100bn Possible29-JanTravis LundyThe Saga of Squeezalicious: The Endgame Is Nigh?29-JanMio Kato, CFAMetrocirc Production Issues Open Buying Opportunity30-JanAqila AliKeihin’s Swift Recovery Driven by Expansion in Motorcycle FI System Production and Focus on EVs30-JanMio Kato, CFAWould a Maxim Acquisition Be Digestable?30-JanScott FosterHitachi High-Technologies (8036 JP): Weak 3Q, FY Guidance Unchanged30-JanMio Kato, CFA3Q Should Be In-Line, 4Q Should Beat but We Believe There Is a Few % Downside Risk Tomorrow30-JanNuzran SahibANA New Flight Schedule Adds International Freight Capacity.30-JanScott FosterTokyo Electron (8035 JP): Management Optimistic at 3Q Results Meeting31-JanTravis LundyB-Lot (3452 JP) TOPIX Inclusion Event31-JanSupun WalpolaNissan Motors Looks Expensive Ahead of Q3 Results31-JanSC CapitalMeiji Holdings--Healthy Food Ops Have Heavy Drug Problems31-JanMio Kato, CFAMaintained Guidance on Strong 3Q Conservative, 30+% Beat Vs. Consensus on the Cards31-JanNuzran SahibJAL’s Tactical Route Plans Boost Revenue Yet Intense Rivalry Compress Margins31-JanSC CapitalJapan Tobacco (2914)--The Most Awaited 2018 Guidance in Japan31-JanTravis LundyAstellas (4503 JP) Buyback - How It Stacks Up Against Past Buybacks1-FebDavid BlennerhassettStubWorld - Set-Up &amp; Unwind Extremes: Hang Lung, Tsugami1-FebNicholasTannerDream Incubator (4310) Great Figures !1-FebSharmila WhelanJapan - Consumer Lags2-FebMio Kato, CFAAfter 50% Rise From Bottom Can Kobe Steel Rise Another 50%?2-FebMio Kato, CFANikkei Announcement of Hirai Shift to Chairman, Yoshida Promotion to CEO Moves Sony up 2%Korea27-JanYu MitsuhashiSector Capsule: Internet Retailing in South Korea27-JanDouglas KimEmart &amp; Shinsegae’s Plan to Spin Off And Merge Their Online E-Commerce Businesses29-JanSanghyun ParkSamsung Heavy Rights Offering - Details &amp; Subscription Right Price Estimations29-JanSanghyun ParkCafe24 IPO Bookbuilding Results - Summary &amp; Implications30-JanNew Street Research InsightsKorean Telecoms: Pressures Easing but Regulatory /Competition Risks Remain. Prefer SKT30-JanDouglas KimKorean Pref Shares: Closing the Gap [1]30-JanSanghyun ParkImpact Analysis of Celltrion’s KOSPI Move on KOSPI 200 and KOSDAQ 15031-JanSanghyun ParkKRX 300 Official Announcement Summary31-JanSanghyun ParkSamsung Electronics Stock Split Event Assessment31-JanDouglas KimKorea Stock Market Monthly Recap #21 (January 2018)Time to pay proper attention to Korean pref sharesI personally think this insight by Douglas Kim should be the insight of the week that you do not want to miss. Basically, this provides a very thoughtful and unique analysis of Korean preferred shares which have long been overlooked. Douglas explains how a well-chosen basket of Korean prefs are an attractive investment right now and whether we can really expect them to outperform the market over the next six months. This is his first publication of Korean preferred shares and he plans to provide updates on this theme on a quarterly basis! This first quarterly report highlights the four major factors of why investing in the Korean prefs makes sense right now. They are as follows:Improving corporate governanceImproving liquidity and healthy stock market The gap between pref and common shares is wide Dividend yields Now the important question is how much the common-pref spread can narrow in the coming years.In the past decade, the gap in the Korean preferred to common shares have declined from about 60% to 40%. Douglas argues that there is a growing probability that this gap will decline further in the coming years, driven by improving corporate governance, greater number of funds that are dedicated to investing in Korean preferred shares, higher dividend payments/yields of Korean listed companies, and improving market efficiency of global investors that are trying to capture extra alpha. He believes that in the coming decade, this gap between Korean common and preferred shares will decline further to about 20-30%, which would be in line with the rate of improvement in the narrowing of the discount of the pref-common shares in the past decade.(From Douglas insight)The most interesting arb in the world?Smartkarma's arb pundit Travis Lundy provide another thought-provoking insight on this highly interesting arb event in Japan.Travis' previous insights on the Kansai Mirai arb event16 Oct 2017Kansai Mirai: The Most Interesting Arb In The World11 Jan 2018Kansai Mirai: Interestingly InterestingerSince his previous writing on this, the "Surrounding 20 Banks (the closest 20 regional banks in terms of post-deal proforma market cap) has given up some ground, the basket of Minato Bank Ltd/The (8543 JP) and Kansai Urban Banking Corp (8545 JP) ("KUB") has slightly outperformed the Surrounding 20 Basket (1.8% since the close of January 11th), and the Tender-adjusted KMFG/Surrounding 20 Basket Ratio has gained, then fallen back to be unchanged. Now Travis says there are quite interesting arbitrage and long/short opportunities. All of them are low-liquidity so are suitable for those who can trade blocks of illiquid stocks, or for those with smaller portfolios and persistence.(From Travis insight)So, his conclusions are as follows:Long Minato or long a basket of Minato and KUB vs the Surrounding 20 Banks gives you a long-short trade which is nearly as attractive as it has been in 18 months.Doing so on a tender-adjusted basis is even more attractive.Doing the tender arb trade by itself is attractive for Minato in particular, but one must remember that it is highly likely the fill ratio is in the high 20% range. Going long Minato and short KUB and paying out the lender election has an interesting spread right now, and an even more interesting spread if the lender does not recall. This trade has more profit as the stocks fall, and less as the stocks rise, but should be good for about 12% annualized as of Friday's close.I would look to do a combination trade of all of them.iPhone X Weakness May Be a Godsend for JDIThis insight by SC Capital is my personal favorite one. Very interesting but still makes a great deal of sense. Very interestingly and ironically, Apple iPhone X's struggle in the market may turn out to be a great boon to those OLED laggards such as Japan Display Inc. (JDI). What's the story here? Apparently, Apple's iPhone X is becoming a major flop. As a result, the speculation is growing that Apple may opt for more advanced (and cheaper) LCD screens from JDI in its 2018 models. That is, Apple may ditch its "complete OLED switchover" plans for more advanced (and cheaper) LCD technology from JDI.These are some of the key points that SC Capital raised in this insight:Taiwan's Economic Daily News last month reported that iPhone production would be cut in 3Q18 due to weak sales, while JL Warren recently wrote that iPhone X production was cut by 30% to only 14m for 1Q18.And last Friday, in a bombshell report, a broker (of western pedigree) called for the 2018 mix of the iPhone X to be only 50% of Apple's total iPhone sales--which is way below the consensus of 70% to 80%.This is a boon for JDI, as lower iPhone X sales mean a higher percentage of LCD-type iPhones, where JDI is the main supplier.JDI had told us that they had a chance of winning more Apple orders in 2018 due to their new "Full-Active" (FA) display technology. The quality is almost as good as OLEDs, but roughly half the price.It now feels like better-than-expected earnings due to higher than forecast sales to Apple could be another upside factor to consider.Korea's newest e-commerce giant!E Mart Inc (139480 KS) and Shinsegae Co Ltd (004170 KS) made a major announcement last week that they would spin off and then merge their online e-commerce businesses to create a new entity. More importantly, as part of this NEWCO, it will receive a capital injection of at least US$940mil (₩1tril) from major private equity firms including Affinity Equity Partners and BRV Capital Management. By 2023, Shinsegae wants to boost its annual online sales five times to nearly ₩10tril.According to Douglas,This is a strategically wise move. There are a lot of synergies that Emart and Shinsegae could achieve by combining their online e-commerce businesses into one operation in terms of higher bargaining power with suppliers, logistics, inventory management, and overall greater economies of scale.Despite these positives, the major unknown is the fact that Affinity and BRV have just signed the MOU and have yet to sign formal contracts. Most importantly, we still do not exactly know what the ownership stakes of the NEWCO will be among Affinity Equity Partners, BRV Capital Management, Shinsegae, and Emart. However, despite these uncertainties, the market took this announcement as a major positive.Again according to Douglas,His best guess is that Shinsegae and Emart will probably retain a majority stake (perhaps around 51-60%) while Affinity and BRV retain around 40-49%. If this is the case, then the NEWCO would be valued at at least ₩2tril (private equity valuation), if we assume that Affinity and BRV inject about 1 trillion won for a 49% stake. If we assume Affinity and BRV invest ₩1tril for a 40% stake, the NEWCO would be valued at ₩2.5tril. A 60% stake of this NEWCO (Shinsegae and Emart's stakes) would then be worth ₩1.5tril. * The combined online businesses of Emart and Shinsegae have grown from sales of ₩1.28tril in 2015, to ₩1.69tril in 2016, and ₩2.05tril in 2017. Emart and Shinsegae online malls each generated about ₩1.0tril in sales in 2017.SSG.COM sales trend　2014201520162017Sales (Total) (Won bn)1,080.61,283.51,694.62,050.4YoY Growth18.8%32.0%21.0%a) Emart online mall520.6662.5838.61,050.4YoY Growth27.3%26.6%25.3%a) Shinsegae online mall560.0621.0856.01,000.0YoY Growth10.9%37.8%16.8%SSG.COM online mall contents includes: Shinsegaemall, Shinsegae Dept Store, Emart Mall, Traders, Boots, Shinsegae TV Shopping, SI Villiage, and Howdy.Source: Companies dataOnline mall sales of Emart and Shinsegae as % of their total sales comparison2014201520162017EEmart Total Sales (Won bn)13,153.613,640.014,777.915,988.1Online Mall/Total Sales (%)4.0%4.9%5.7%6.6%2014201520162017EShinsegae Total Sales (Won bn)2,492.32,564.02,947.53,920.0Online Mall/Total Sales (%)22.5%24.2%29.0%25.5%Source: Companies dataKeihin’s Swift RecoveryAqila Ali put out a highly detailed fundamental research insight on Japan's Keihin Corp (7251 JP). She argues that Keihin will reach full-year revised revenue target of ¥336bil with the revenue recovery since FY03/17 following period of unfavourable currency fluctuations.Basically, Keihin's recent recovery is driven mainly by the following two factors:Development of fuel injection (FI) system for motorcyclesLate-2017 launch of power control units (PCUs) used in hybrid and electric vehicles (Honda ACURA MDX SH-AWD, Honda CR-V, and Honda Clarity Electric) FY03/16FY03/17FY03/18EFY03/19EFY03/20E 1H2HTotal1H2HTotal1H2HETotalTotalTotalRevenue (¥ bil)171.2170.3341.5156.4169.1325.5168.1170.5338.6358.1374.8YoY Growth %8.6%-0.6%2.6%-8.6%-0.7%-4.7%7.5%0.8%4.0%5.6%4.7%Source: Company disclosures, LightStream Research estimatesThese are some of the key points that she wants to highlight in this insight:Steady growth in Automobile Product segment likely, supported by planned product shift towards electric power control systemsEnhanced production capacity of Intelligent Power Modules (IPMs), a core component of PCUs for hybrid and electric vehiclesEyeing China as a potential market for sales expansion of electric car-related products via ‘E-drive System’Motorcycle segment expected to witness strong recovery following decision to establish world’s largest FI system supply structure in IndiaOPM may be slightly hit in FY03/18 and the following year due to the company’s planned expansion of production capacity of IPMsKeihin seems fairly valued trading at a FY 1 PE of 12.6x slightly above the company’s historic median of 11.4x, but in line with the peer median of 12.2x.However, there is a high probability that the company’s planned expansions in its FI supply system structure will succeed, resulting in further upside in the share priceSamsung Electronics stock split eventSamE announced a 50:1 stock split. Basically, if you have one SamE share, then you will get 50 shares for each of your one SamE share. As of Jan 30, SamE has a total of 146,459,074 shares outstanding (128,386,494 common and 18,072,580 pref). After this stock split, there will be a total of 7,322,953,700 SamE shares (6,419,324,700 common and 903,629,000 pref).SamE's 50 to 1 stock split summaryPre splitFace value₩5,000Common shares128,386,494Pref shares18,072,580Total146,459,074Post splitFace value₩100Common shares6,419,324,700Pref shares903,629,000Total7,322,953,700Source: DARTThe big day is Mar 23. The EGM for this stock split will be held on Mar 23. SamE shares will then be suspended for trade from Apr 25 to May 15. They will be re-listed on May 16.Upcoming eventsBoard resolutionJan 31EGMMar 23Existing share submission periodMar 26 - Apr 26Stock trade suspension periodApr 25 - May 15Stock re-listingMay 16Source: DARTThis stock split is supposed to be a positive factor on the price, but the market appears to be divided in opinion. Another noteworthy point is that this stock split was announced only 5 days before the final verdict of Lee's appeal trial will come out (Feb 5).

The Week That Was in NorthAsia@Smartkarma: Korean Pref, Kansai Mirai Arb, JDI Rise, & SE Stock Split

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Friday Jan 26, MOTHERS-listed and extremely fast-growing Osaka-style skewer/grill restaurant chain company <a href="https://www.smartkarma.com/entities/26733" target="_blank" data-smartkarma-citation="entities:26733:1">Kushikatsu Tanaka Co (3547 JP)</a><a href="http://contents.xj-storage.jp/xcontents/AS06609/6dcfe7e3/984e/4e21/b1a8/c5dc0cae41c7/140120180126456983.pdf" target="_blank">announced</a> (日本語 only) that it would conduct a tachiaigai bunbai for 456,400 shares on January 29th, at ¥3,899/share - a 3.01% discount to the ¥4,020 Friday close. Maximum purchase quantity per shareholder is 5,000 shares so this will lift shareholder count by 90, at least. The company, at last reported count, had 2,093 shareholders. The goal is clearly to get…

On Friday Jan 26, MOTHERS-listed and extremely fast-growing Osaka-style skewer/grill restaurant chain company Kushikatsu Tanaka Co (3547 JP)announced (日本語 only) that it would conduct a tachiaigai bunbai for 456,400 shares on January 29th, at ¥3,899/share - a 3.01% discount to the ¥4,020 Friday close. Maximum purchase quantity per shareholder is 5,000 shares so this will lift shareholder count by 90, at least. The company, at last reported count, had 2,093 shareholders. The goal is clearly to get…

Japan

Kushikatsu Tanaka Co. operates chain kushikatsu, Osaka-style skewer restaurants in the Kanto area.

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Kushikatsu Tanaka Co (3547 JP)

🇯🇵 JAPAN MARKET UPDATE 5th April 2020 • Overshoot

OVERSHOOT - This Insight will be longer than usual with more above the paywall 'fold' as Friday saw several significant developments in Japan's...

Campbell Gunn

The Week That Was in NorthAsia@Smartkarma: Korean Pref, Kansai Mirai Arb, JDI Rise, & SE Stock Split

Below is the full list of Japan/Korea related reports published last week on Smartkarma.Time to pay proper attention to Korean pref sharesI...

Sanghyun Park

Going into TOPIX - Don't Get Skewered

On Friday Jan 26, MOTHERS-listed and extremely fast-growing Osaka-style skewer/grill restaurant chain company Kushikatsu Tanaka Co (3547...

Travis Lundy

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