Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In the 2020FQ2 earnings call for <a href="https://www.smartkarma.com/entities/mcdonald-s-corp" target="_blank" data-smartkarma-citation="entities:1425:1" rel="noopener">Mcdonald's Corp (MCD US)</a> held in late July, CFO Kevin Ozan brought up the subject of <a href="https://www.smartkarma.com/entities/mcdonald-s-holdings-co-japan" target="_blank" data-smartkarma-citation="entities:985:1" rel="noopener">Mcdonald's Holdings Co Japan (2702 JP)</a> a bit over 22 minutes into the call. <div><blockquote>Consistent with enhancing financial flexibility and our franchising strategy, we're planning to divest a portion of our stake in McDonald's Japan. As a result of the strong performance of the McDonald's Japan business over the past few years and our confidence in the local management team, we believe it's the right time to gradually reduce our ownership stake in the market. This will take some time because of the low trading volume of McDonald's Japan shares. As a reminder, we currently own about 49% of the business, and we will retain at least 35% ownership. This decision provides us with additional financial flexibility to execute our capital allocation strategy while also demonstrating our commitment to our Japanese business.</blockquote></div><div>
The conclusion was that MCD would sell 14% of McD Japan in the market. But 14% was 18.6mm shares, which on an ex-ante basis was 56 days worth of average daily volume over the previous three years and over a year's worth of volume if trading at 20% of volume every single day.
It was a near 30% increase in the float and not quite US$1bn in value.
On 20 August, MCD <a href="https://disclosure.edinet-fsa.go.jp/E01EW/download?uji.verb=W0EZA104CXP001003Action&amp;uji.bean=ee.bean.parent.EECommonSearchBean&amp;PID=W1E63011&amp;SESSIONKEY=1597918899762&amp;lgKbn=2&amp;pkbn=0&amp;skbn=1&amp;dskb=&amp;askb=&amp;dflg=0&amp;iflg=&amp;preId=1&amp;mul=2702&amp;lpr=on&amp;cal=1&amp;era=R&amp;yer=&amp;mon=&amp;pfs=4&amp;row=100&amp;idx=0&amp;str=&amp;kbn=1&amp;flg=&amp;syoruiKanriNo=&amp;s=S100JKOI" target="_blank" rel="noopener">announced</a> that it had sold a bit over 3% of McD J, selling 4.2mm shares at ¥5340/share on 19 August 2020. On 20 November 2020, they <a href="https://disclosure.edinet-fsa.go.jp/E01EW/download?uji.verb=W0EZA104CXP001003Action&amp;uji.bean=ee.bean.parent.EECommonSearchBean&amp;PID=W1E63011&amp;SESSIONKEY=1614669632749&amp;lgKbn=2&amp;pkbn=0&amp;skbn=1&amp;dskb=&amp;askb=&amp;dflg=0&amp;iflg=&amp;preId=1&amp;mul=2702&amp;lpr=on&amp;cal=1&amp;era=R&amp;yer=&amp;mon=&amp;pfs=4&amp;row=100&amp;idx=0&amp;str=&amp;kbn=1&amp;flg=&amp;syoruiKanriNo=&amp;s=S100K899" target="_blank" rel="noopener">announced</a> they had sold another 4,000,000 shares at ¥5370/share on 19 November.
Yesterday, another tranche of 4,000,000 shares was transacted at ¥5280/share. It is likely McDs US selling down more. That would leave McDs with 40.82%, which is more done than not.
And it leaves the setup to be quite favorable to an application to move from JASDAQ to TSE1. 
This was originally discussed in <a href="https://www.smartkarma.com/insights/a-modest-mcdonald-s-japan-proposal" target="_blank" data-smartkarma-citation="insights:42401" rel="noopener">A Modest (McDonald's Japan) Proposal</a> last August and by <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> in <a href="https://www.smartkarma.com/insights/2021-high-conviction-mcdonald-s-japan-a-topix-inclusion-big-bet" target="_blank" data-smartkarma-citation="insights:46153" rel="noopener">2021 High Conviction: McDonald's Japan -  A TOPIX Inclusion BIG Bet</a> in December 2020.
Now we discuss the timing pattern of how this might work.
</div>

In the 2020FQ2 earnings call for Mcdonald's Corp (MCD US) held in late July, CFO Kevin Ozan brought up the subject of Mcdonald's Holdings Co Japan (2702 JP) a bit over 22 minutes into the call. Consistent with enhancing financial flexibility and our franchising strategy, we're planning to divest a portion of our stake in McDonald's Japan. As a result of the strong performance of the McDonald's Japan business over the past few years and our confidence in the local management team, we believe it's the right time to gradually reduce our ownership stake in the market. This will take some time because of the low trading volume of McDonald's Japan shares. As a reminder, we currently own about 49% of the business, and we will retain at least 35% ownership. This decision provides us with additional financial flexibility to execute our capital allocation strategy while also demonstrating our commitment to our Japanese business.
The conclusion was that MCD would sell 14% of McD Japan in the market. But 14% was 18.6mm shares, which on an ex-ante basis was 56 days worth of average daily volume over the previous three years and over a year's worth of volume if trading at 20% of volume every single day.
It was a near 30% increase in the float and not quite US$1bn in value.
On 20 August, MCD announced that it had sold a bit over 3% of McD J, selling 4.2mm shares at ¥5340/share on 19 August 2020. On 20 November 2020, they announced they had sold another 4,000,000 shares at ¥5370/share on 19 November.
Yesterday, another tranche of 4,000,000 shares was transacted at ¥5280/share. It is likely McDs US selling down more. That would leave McDs with 40.82%, which is more done than not.
And it leaves the setup to be quite favorable to an application to move from JASDAQ to TSE1. 
This was originally discussed in A Modest (McDonald's Japan) Proposal last August and by Janaghan Jeyakumar, CFA in 2021 High Conviction: McDonald's Japan -  A TOPIX Inclusion BIG Bet in December 2020.
Now we discuss the timing pattern of how this might work.


McD's Japan:  Earnings? Check. Parent Selldown OK? Check. Japanese CEO? Check TSE Prime? Unknown

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

During the month of February 2021, one of the most anticipated TOPIX Inclusion candidates, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> completed its TOPIX Inclusion Event. We also saw four new names announce their TSE1 moves during this month, among which was <a href="https://www.smartkarma.com/entities/faithnetwork-co-ltd" target="_blank" data-smartkarma-citation="entities:29132:1" rel="noopener">FaithNetwork Co Ltd (3489 JP)</a> the third stock out of the four pre-event bets highlighted in <a href="https://www.smartkarma.com/insights/topix-inclusion-trade-summary-sep-2020" target="_blank" data-smartkarma-citation="insights:43700" rel="noopener">TOPIX Inclusion Trade Summary: Sep 2020</a>. During this month, we also introduced new pre-event picks to be added to our list in <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-3-0" target="_blank" data-smartkarma-citation="insights:48306" rel="noopener">TOPIX Inclusions: Who Is READY? 3.0</a>. In this insight, I have provided performance updates for 4 "Live" event stocks which are expected to have Inclusion Events at the end of March/April 2021 and 17 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021.

During the month of February 2021, one of the most anticipated TOPIX Inclusion candidates, Toshiba Corp (6502 JP) completed its TOPIX Inclusion Event. We also saw four new names announce their TSE1 moves during this month, among which was FaithNetwork Co Ltd (3489 JP) the third stock out of the four pre-event bets highlighted in TOPIX Inclusion Trade Summary: Sep 2020. During this month, we also introduced new pre-event picks to be added to our list in TOPIX Inclusions: Who Is READY? 3.0. In this insight, I have provided performance updates for 4 "Live" event stocks which are expected to have Inclusion Events at the end of March/April 2021 and 17 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. 

<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.  </div><div>
Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets. Smartkarma readers familiar with the work of Quiddity Advisors will be able to recall the attractive rewards <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a>, <a href="https://www.smartkarma.com/entities/gremz-inc" target="_blank" data-smartkarma-citation="entities:1858:1" rel="noopener">Gremz Inc (3150 JP)</a>, and <a href="https://www.smartkarma.com/entities/sansan-inc" target="_blank" data-smartkarma-citation="entities:28112:1" rel="noopener">Sansan Inc (4443 JP)</a> were able to deliver in their pre-event phases. 
This insight is a continuation of our work in identifying such pre-event candidates.
More below the fold  
</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. Smartkarma readers familiar with the work of Quiddity Advisors will be able to recall the attractive rewards Shinnihonseiyaku Co Ltd (4931 JP), Gremz Inc (3150 JP), and Sansan Inc (4443 JP) were able to deliver in their pre-event phases. 
This insight is a continuation of our work in identifying such pre-event candidates.
More below the fold  


In the month of January 2021, one of the most anticipated TOPIX Inclusion candidates, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> announced its move to TSE1 triggering what could potentially be one of the largest TOPIX Inclusion events in recent memory. The stock could see its TOPIX Inclusion take place at the end of February, along with <a href="https://www.smartkarma.com/entities/sansan-inc" target="_blank" data-smartkarma-citation="entities:28112:1" rel="noopener">Sansan Inc (4443 JP)</a> - another larger-than-usual candidate - and two other super-high-impact names <a href="https://www.smartkarma.com/entities/bull-dog-sauce-co-ltd" target="_blank" data-smartkarma-citation="entities:16235:1" rel="noopener">Bull Dog Sauce (2804 JP)</a> and <a href="https://www.smartkarma.com/entities/alps-logistics-co-ltd" target="_blank" data-smartkarma-citation="entities:3935:1" rel="noopener">Alps Logistics (9055 JP)</a>. There is plenty to look forward to. In this insight, I have provided performance updates for 6 "Live" event stocks (including the names mentioned above) which are expected to have Inclusion Events at the end of February 2021 and 14 "Post" event stocks that completed their Inclusion Events at the end of December 2020 and January 2021 (on 28 January 2021).Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future.

In the month of January 2021, one of the most anticipated TOPIX Inclusion candidates, Toshiba Corp (6502 JP) announced its move to TSE1 triggering what could potentially be one of the largest TOPIX Inclusion events in recent memory. The stock could see its TOPIX Inclusion take place at the end of February, along with Sansan Inc (4443 JP) - another larger-than-usual candidate - and two other super-high-impact names Bull Dog Sauce (2804 JP) and Alps Logistics (9055 JP). There is plenty to look forward to. In this insight, I have provided performance updates for 6 "Live" event stocks (including the names mentioned above) which are expected to have Inclusion Events at the end of February 2021 and 14 "Post" event stocks that completed their Inclusion Events at the end of December 2020 and January 2021 (on 28 January 2021).Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 

With the Section Transfer Requirements to move to TSE1 becoming more stringent, some small-cap candidates have been rushing to enter TSE1 so that they can avoid having to face the new regulations under which they may struggle to qualify. This trend has resulted in a "flurry" of TOPIX Inclusion Trades in the month of December 2020 as <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> predicted in <a href="https://www.smartkarma.com/insights/the-tse-s-listing-criteria-revisions-part-i" target="_blank" data-smartkarma-citation="insights:43150" rel="noopener">The TSE's Listing Criteria Revisions - Part I</a>.
<blockquote>
For index inclusion and event traders taking advantage of a large number of interesting trades, the number will suddenly go waaaay down. This means <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> likely has a flurry of interesting trade ideas to read about in the next few months, but after about March next year, things will drop off in a hurry.
</blockquote>
In this insight, I have provided performance updates for 11 "Live" event stocks which are expected to have Inclusion Events at the end of January 2021 and 6 "Post" event stocks that completed their Inclusion Events at the end of November 2020 and December 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.

With the Section Transfer Requirements to move to TSE1 becoming more stringent, some small-cap candidates have been rushing to enter TSE1 so that they can avoid having to face the new regulations under which they may struggle to qualify. This trend has resulted in a "flurry" of TOPIX Inclusion Trades in the month of December 2020 as Travis Lundy predicted in The TSE's Listing Criteria Revisions - Part I.

For index inclusion and event traders taking advantage of a large number of interesting trades, the number will suddenly go waaaay down. This means Janaghan Jeyakumar, CFA likely has a flurry of interesting trade ideas to read about in the next few months, but after about March next year, things will drop off in a hurry.

In this insight, I have provided performance updates for 11 "Live" event stocks which are expected to have Inclusion Events at the end of January 2021 and 6 "Post" event stocks that completed their Inclusion Events at the end of November 2020 and December 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. 

Japan

McDonald's Holdings Company (Japan), Ltd. operates a hamburger fast food restaurant chain throughout Japan.  The Company operates its own stores and franchise stores.

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Mcdonald's Japan (2702 JP)

McD's Japan: Earnings? Check. Parent Selldown OK? Check. Japanese CEO? Check TSE Prime? Unknown

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TOPIX Inclusion Trade Summary: Feb 2021

TOPIX Inclusion summary for Feb 2021 including performance of Feb inclusions, and March-April inclusions from announcement. Change to recommended...

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TOPIX Inclusions: Who Is READY? 3.0

We update which stocks in MOTHERS/JASDAQ/TSE2 are eligible, ready, or could be ready to move to TSE1 (TOPIX inclusion). The last list at end-Nov...

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TOPIX Inclusion Trade Summary: Jan 2021

TOPIX Inclusion Monthly Summary for December inclusions and how they did in January (badly), how January inclusions did vs TOPIX (on average well)...

Janaghan Jeyakumar, CFA

TOPIX Inclusion Trade Summary: Dec 2020

TOPIX Inclusions for the month of December - past, current, and looking ahead to January. There is still a flurry of pre-Nov1 application names...

Janaghan Jeyakumar, CFA

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