Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Last week, Bain Capital Japan and Japan Industrial Partners and Japan Industrial Solutions (the "Bain Consortium") announced it would launch a Tender Offer to buy out <a href="https://www.smartkarma.com/entities/hitachi-metals-ltd" target="_blank" data-smartkarma-citation="entities:8561:1" rel="noopener">Hitachi Metals (5486 JP)</a> minority shareholders at ¥2181/share when all approvals had been received. Future dividends were cancelled. </p><p>The first part of this series was in <a href="https://www.smartkarma.com/insights/bain-bids-up-big-for-hitachi-metals-5486-now-we-wait" target="_blank" data-smartkarma-citation="insights:50820" rel="noopener">Bain Bids Up BIG For Hitachi Metals (5486) - Now We Wait</a>. The Tender Offer is expected to start in November. That gives current holders 8+ months to wait for their cash. </p><p>Below we look at what waiting means.</p>

Last week, Bain Capital Japan and Japan Industrial Partners and Japan Industrial Solutions (the "Bain Consortium") announced it would launch a Tender Offer to buy out Hitachi Metals (5486 JP) minority shareholders at ¥2181/share when all approvals had been received. Future dividends were cancelled. The first part of this series was in Bain Bids Up BIG For Hitachi Metals (5486) - Now We Wait. The Tender Offer is expected to start in November. That gives current holders 8+ months to wait for their cash. Below we look at what waiting means.

Hitachi Metals - Should I Stay or Should I Go Now?

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<p>Since our Original on <a href="https://www.smartkarma.com/insights/asia-buyback-forecasting-which-companies-are-likely-to-raise-cut-buybacks" target="_blank" data-smartkarma-citation="insights:47196" rel="noopener">Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?</a>, published on Jan 31 2021, this is our first quarterly update. Below we provide updated results from our models based on latest reported fiscal year-end financials. We also discuss companies where there is notable change in our conviction level based on updated data.</p>
<p>At the webinar in March, there was also a request for conducting price movement analysis corresponding to our buyback raise/cut outlook for our back-test results. This analysis is now available. Our results show a decent outperformance/underperformance corresponding to buyback raise/cut prediction, suggesting that users of our models will benefit from guiding their investment decisions based on our buyback raise/cut outlook.</p>

Since our Original on Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?, published on Jan 31 2021, this is our first quarterly update. Below we provide updated results from our models based on latest reported fiscal year-end financials. We also discuss companies where there is notable change in our conviction level based on updated data.
At the webinar in March, there was also a request for conducting price movement analysis corresponding to our buyback raise/cut outlook for our back-test results. This analysis is now available. Our results show a decent outperformance/underperformance corresponding to buyback raise/cut prediction, suggesting that users of our models will benefit from guiding their investment decisions based on our buyback raise/cut outlook.

Asia Buyback Forecasting | Quarterly Update 1.0

<p>That famous phrase is not internally contradictory. It announces the death of the late monarch, and announces the ascension of the new monarch to replace him. </p><p>A flurry of articles late last night Japan time - some of them referenced in a few discussion points posted to the most recent insight <a href="https://www.smartkarma.com/insights/gaming-out-a-cvc-bid-for-toshiba-the-right-noises-the-wrong-price-and-toast" target="_blank" data-smartkarma-citation="insights:50229" rel="noopener">Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast</a> and others said that Kurumatani-san was going to be dismissed, or resign, at an extraordinary board meeting to be held on the 14th of April. </p><p>The various articles were more or less revealing depending on how much the masthead represents Japan as Japan Inc would have itself represented. Articles from institutions with a more neutral/critical eye were more forthcoming about the turmoil under the surface. </p><p>The phrases from the former were on the order of "it became inevitable that Kurumatani-san would have to resign." The FT <a href="https://www.ft.com/content/65a3b3b0-c68e-4312-a29b-d0b90d8cf011?accessToken=zwAAAXjMEoyYkc9lo7Owxo5DEtOim9C5DYzwEQ.MEYCIQC4LeQUZlpxHrSPbzJTDZ61ShI44C3oiJbgokufB8UoBwIhANeoOL0qqwn55uqeZ8S1dfICiwDimLC64-ywWZ507TTe&amp;sharetype=gift?token=5fa2425a-19d9-4c96-b0f6-a2318b638d3b" target="_blank" rel="noopener">suggested</a> one board member would put forth a motion to dismiss him after the CVC approach last week threw senior management into "civil war."</p><p>Later versions suggested Kurumatani-san would himself resign at the beginning of a meeting, which would forestall an effort to boot him (The King is Dead). Toshiba's exchange release this morning in response to press coverage all but confirms it.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/200/472/original/Screenshot+2021-04-14+at+9.22.08+AM.png?1618363354" class="editor-image img-responsive" data-smartkarma-image-id="200472"></figure><p></p></section><p>If Kurumatani-san is going to fall on his sword because of the CVC conflict (and the idea that by getting CVC to bid to distract from the other things going on, he was somehow entrenching himself in ways not befitting Toshiba adherence to the spirit of the Corporate Governance Code), one would expect Fujimori-san may resign as well. </p><p>All the stories suggest the current Chairman and former CEO Tsunakawa-san would take the reins (Long Live the King!) but despite Tsunakawa-san being on friendlier terms with some of the activists, the Board needs to find someone else. I expect there would be shareholder pressure to have that person come from without, but Toshiba is a sensitive asset and there could be considerable pressure to have that person come from within, or <em>if</em> from without, from within the Keidanren. I think investors need to prepare themselves for the possibility that the replacement for Tsunakawa-san may not be the CEO Toshiba needs either, but that may be jumping the gun.</p><p>The result is not dissimilar to what <a href="https://www.smartkarma.com/profiles/mio-kato" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato</a> and I had suggested was inevitable, but the speed of the unwind may catch people by surprise. I expect that the news reports of the internal survey conducted by the Nomination Committee which showed a majority of senior executives distrusted Kurumatani-san will be viewed as the tipping point...</p><p>But investors should note that the results of that survey were known in March, conveyed to Kurumatani-san at end-March, and the Board knew it at end-March - before the CVC bid. The results of that survey were not enough to ask for his head at the time unless the CVC bid was well-and-truly concocted by CVC and Kurumatani-san himself as a way to maintain power. If that is the case, CVC needs to get out in front of it, by being very public in refuting that, and continuing with a bid, even if they bid to lose. </p><p>This whole situation, as I suggested last week, is getting <em>interestinger</em>. </p><p>And we have toast. Officially, before I even finished this piece, Toshiba is out with a <a href="https://www.toshiba.co.jp/about/ir/en/news/20210414_2.pdf" target="_blank" rel="noopener">press release</a> saying Kurumatani-san is out and Tsunakawa-san is in. It's pretty spare, but there is a news conference after the close.</p><p>NOW we look at what comes next. With KKR and Brookfield potential bids, and more details about CVC intentions overnight, it's worth looking at structure. So there's more below the fold.</p>

That famous phrase is not internally contradictory. It announces the death of the late monarch, and announces the ascension of the new monarch to replace him. A flurry of articles late last night Japan time - some of them referenced in a few discussion points posted to the most recent insight Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast and others said that Kurumatani-san was going to be dismissed, or resign, at an extraordinary board meeting to be held on the 14th of April. The various articles were more or less revealing depending on how much the masthead represents Japan as Japan Inc would have itself represented. Articles from institutions with a more neutral/critical eye were more forthcoming about the turmoil under the surface. The phrases from the former were on the order of "it became inevitable that Kurumatani-san would have to resign." The FT suggested one board member would put forth a motion to dismiss him after the CVC approach last week threw senior management into "civil war."Later versions suggested Kurumatani-san would himself resign at the beginning of a meeting, which would forestall an effort to boot him (The King is Dead). Toshiba's exchange release this morning in response to press coverage all but confirms it.If Kurumatani-san is going to fall on his sword because of the CVC conflict (and the idea that by getting CVC to bid to distract from the other things going on, he was somehow entrenching himself in ways not befitting Toshiba adherence to the spirit of the Corporate Governance Code), one would expect Fujimori-san may resign as well. All the stories suggest the current Chairman and former CEO Tsunakawa-san would take the reins (Long Live the King!) but despite Tsunakawa-san being on friendlier terms with some of the activists, the Board needs to find someone else. I expect there would be shareholder pressure to have that person come from without, but Toshiba is a sensitive asset and there could be considerable pressure to have that person come from within, or if from without, from within the Keidanren. I think investors need to prepare themselves for the possibility that the replacement for Tsunakawa-san may not be the CEO Toshiba needs either, but that may be jumping the gun.The result is not dissimilar to what Mio Kato and I had suggested was inevitable, but the speed of the unwind may catch people by surprise. I expect that the news reports of the internal survey conducted by the Nomination Committee which showed a majority of senior executives distrusted Kurumatani-san will be viewed as the tipping point...But investors should note that the results of that survey were known in March, conveyed to Kurumatani-san at end-March, and the Board knew it at end-March - before the CVC bid. The results of that survey were not enough to ask for his head at the time unless the CVC bid was well-and-truly concocted by CVC and Kurumatani-san himself as a way to maintain power. If that is the case, CVC needs to get out in front of it, by being very public in refuting that, and continuing with a bid, even if they bid to lose. This whole situation, as I suggested last week, is getting interestinger. And we have toast. Officially, before I even finished this piece, Toshiba is out with a press release saying Kurumatani-san is out and Tsunakawa-san is in. It's pretty spare, but there is a news conference after the close.NOW we look at what comes next. With KKR and Brookfield potential bids, and more details about CVC intentions overnight, it's worth looking at structure. So there's more below the fold.

Toshiba - The King Is Dead, Long Live the King

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a>, <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> and <a href="https://www.smartkarma.com/entities/lenovo-group-ltd" target="_blank" data-smartkarma-citation="entities:13359:1" rel="noopener">Lenovo (992 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a> and <a href="https://www.smartkarma.com/entities/galaxy-entertainment-group-limited" target="_blank" data-smartkarma-citation="entities:806:1" rel="noopener">Galaxy Entertainment Group (27 HK)</a>. Shorts increased on Financials, Information Technology and Real Estate, while decreasing on Communication Services, Consumer Discretionary and Health Care.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/pan-pacific-international-holdings-corporation" target="_blank" data-smartkarma-citation="entities:13475:1" rel="noopener">Pan Pacific International Holdings (7532 JP)</a>, <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a>, <a href="https://www.smartkarma.com/entities/resona-holdings-inc" target="_blank" data-smartkarma-citation="entities:6841:1" rel="noopener">Resona Holdings (8308 JP)</a> and <a href="https://www.smartkarma.com/entities/toyo-tire-corporation" target="_blank" data-smartkarma-citation="entities:15064:1" rel="noopener">Toyo Tire Corporation (5105 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/casio-computer-co-ltd" target="_blank" data-smartkarma-citation="entities:18338:1" rel="noopener">Casio Computer (6952 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> and <a href="https://www.smartkarma.com/entities/monex-group-inc" target="_blank" data-smartkarma-citation="entities:14211:1" rel="noopener">Monex Group Inc (8698 JP)</a>. Sectorally, shorts increased marginally in Consumer Discretionary, Financials and Materials, and decreased in Industrials.</p></div><div><p>In Korea, short increased on <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a>, <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> and <a href="https://www.smartkarma.com/entities/hanmi-pharm-co-ltd" target="_blank" data-smartkarma-citation="entities:12476:1" rel="noopener">Hanmi Pharm (128940 KS)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a>, <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and <a href="https://www.smartkarma.com/entities/hana-tour-service-inc" target="_blank" data-smartkarma-citation="entities:4852:1" rel="noopener">Hana Tour Service (039130 KS)</a>. </p></div><div><p>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/pegatron-corp" target="_blank" data-smartkarma-citation="entities:12852:1" rel="noopener">Pegatron Corp (4938 TT)</a>, <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 TT)</a>, <a href="https://www.smartkarma.com/entities/largan-precision-co-ltd" target="_blank" data-smartkarma-citation="entities:9126:1" rel="noopener">Largan Precision (3008 TT)</a> and <a href="https://www.smartkarma.com/entities/united-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:6450:1" rel="noopener">United Microelectronics Corp (2303 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/unimicron-technology-corp" target="_blank" data-smartkarma-citation="entities:18778:1" rel="noopener">Unimicron Technology (3037 TT)</a>, <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/alchip-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20219:1" rel="noopener">Alchip Technologies (3661 TT)</a> and <a href="https://www.smartkarma.com/entities/winbond-electronics-corp" target="_blank" data-smartkarma-citation="entities:9177:1" rel="noopener">Winbond Electronics (2344 TT)</a>.</p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Kuaishou Technology (1024 HK), BYD (1211 HK), China Merchants Bank H (3968 HK) and Lenovo (992 HK) while there was short covering on Tencent Holdings (700 HK), NetEase (9999 HK), Meituan (3690 HK), AIA Group Ltd (1299 HK) and Galaxy Entertainment Group (27 HK). Shorts increased on Financials, Information Technology and Real Estate, while decreasing on Communication Services, Consumer Discretionary and Health Care.In Japan, stocks that saw the most shorts were Pan Pacific International Holdings (7532 JP), Sharp Corp (6753 JP), Resona Holdings (8308 JP) and Toyo Tire Corporation (5105 JP) while shorts decreased on Itochu Corp (8001 JP), Casio Computer (6952 JP), Toshiba Corp (6502 JP) and Monex Group Inc (8698 JP). Sectorally, shorts increased marginally in Consumer Discretionary, Financials and Materials, and decreased in Industrials.In Korea, short increased on Hyundai Motor Co (005380 KS), Celltrion Inc (068270 KS) and Hanmi Pharm (128940 KS) while shorts decreased on Samsung Electronics (005930 KS), SK Hynix (000660 KS), Naver Corp (035420 KS) and Hana Tour Service (039130 KS). Stocks in Taiwan that saw the highest increase in shorts were Pegatron Corp (4938 TT), Yageo Corporation (2327 TT), Largan Precision (3008 TT) and United Microelectronics Corp (2303 TT) while shorts were covered on Unimicron Technology (3037 TT), TSMC (2330 TT), Alchip Technologies (3661 TT) and Winbond Electronics (2344 TT).

Asia Short Interest: Kuaishou, BYD, Galaxy, Sharp, Resona, Toshiba, Celltrion, Naver, Pegatron, TSMC

<p>The <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> TOPIX Inclusion has a day and a bit to run until the event. </p>
<p>There has been some excess volume since the announcement, but less than the actual inclusion event buying to be done.</p>
<section class="figure">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/190/490/original/Screenshot+2021-02-24+at+8.47.57+AM.png?1614127693" class="editor-image img-responsive" data-smartkarma-image-id="190490"></figure>
</section>
<p></p>
<p>There are reasons why the event itself may have different patterns than some expect.</p>

The Toshiba Corp (6502 JP) TOPIX Inclusion has a day and a bit to run until the event. 
There has been some excess volume since the announcement, but less than the actual inclusion event buying to be done.




There are reasons why the event itself may have different patterns than some expect.

Toshiba TOPIX Inclusion - Weak Excess Volume So Far

United States

Sharp Corporation manufactures consumer and industrial electronics. The Company's products include audio-visual and communication equipment such as LCD TVs and mobile phones, home appliances, and electronic components including solar cells and integrated circuits. Sharp operates its business worldwide.

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Sharp Corp/Japan (SHCAF US)

Hitachi Metals - Should I Stay or Should I Go Now?

Hitachi Metals - The Rate of Return is decent for an unlevered arb in JPY, but not great for a long-only investment. This bodes well for a changing...

Travis Lundy

Asia Buyback Forecasting | Quarterly Update 1.0

This is our first quarterly update since our Original on Buyback Forecasting. We provide updated results based on latest year-end financials.

Ankit Agrawal, CFA

Toshiba - The King Is Dead, Long Live the King

Kurumatani-san is out. Tsunakawa-san is likely interim CEO. Activists still have a governance beef. PE Fund interest will lead to more board...

Travis Lundy

Asia Short Interest: Kuaishou, BYD, Galaxy, Sharp, Resona, Toshiba, Celltrion, Naver, Pegatron, TSMC

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas

Toshiba TOPIX Inclusion - Weak Excess Volume So Far

Toshiba goes into TOPIX on 25 Feb 2021 (and there is a top-up TOPIX reweight of 14mm shares likely end-April). Excess volume has been light and...

Travis Lundy

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