Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Kerry Logistics, Sanken Electric, Vocus Comms, Toa Oil, ThaiBev, Sharp

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

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Quantitative Analysis

<div>
<p>In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.</p>
</div>
<div>
<div>
<div class="content-highlight">
<p><strong>What's Original?</strong></p>
<ul style="list-style-type: disc;">
<li>We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.</li>
<li>Our back test results are very encouraging with &gt;85% hit rate for our Buyback Raise model and &gt;94% hit rate for our Buyback Cut model.</li>
<li>For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the "Long-term Revenue CAGR" parameter. </li>
</ul>
</div>
</div>
</div>
<div>
<h3>Insight Flow</h3>
</div>
<div>
<ul style="list-style-type: disc;">
<li>Live Dashboard</li>
<li> Methodology
<ul style="list-style-type: circle;">
<li>Buyback Raise Model</li>
<li>Buyback Cut Model</li>
</ul>
</li>
<li>Universe</li>
<li>Back Test Results
<ul style="list-style-type: circle;">
<li>Buyback Raise Model</li>
<li>Buyback Cut Model</li>
</ul>
</li>
<li>Model Results
<ul style="list-style-type: circle;">
<li>Summary Statistics</li>
<li>Companies with High Probability of Buyback Raise</li>
<li>Companies with High Probability of Buyback Cut</li>
</ul>
</li>
<li>Buyback Timing</li>
<li>Model Risks &amp; Limitations</li>
<li>Conclusion</li>
</ul>
</div>


In this Smartkarma Original, we bring to you a quantitative approach for identifying Asian companies that are likely to raise/cut buyback. Applying this approach to a universe of 920+ companies listed across Asia helped us identify 40+ and 50+ companies that have a high likelihood of raising and cutting buybacks, respectively, over the next five years.




What's Original?

We have two separate models, one for forecasting Buyback Raise and the other for Buyback Cut.
Our back test results are very encouraging with &gt;85% hit rate for our Buyback Raise model and &gt;94% hit rate for our Buyback Cut model.
For our Buyback Raise model, we differentiate from other quantitative buyback models by incorporating competing uses of cash like inorganic acquisitions through “Goodwill as % of Total Assets” parameter. Based on our analysis, we have also determined that, contrary to usual perception, any dividend payout is not a competing use of cash vs buyback but a healthy sign of capital return discipline and have incorporated it accordingly in our model. We also use long-term ROE vs growth trends to filter companies where the cash levels maybe low but the capability to do buyback with time can grow significantly. At the same time, we ensure to weed off very high growth companies that may have high re-investment needs through our carefully selected threshold for the "Long-term Revenue CAGR" parameter. 





Insight Flow



Live Dashboard
 Methodology

Buyback Raise Model
Buyback Cut Model


Universe
Back Test Results

Buyback Raise Model
Buyback Cut Model


Model Results

Summary Statistics
Companies with High Probability of Buyback Raise
Companies with High Probability of Buyback Cut


Buyback Timing
Model Risks &amp; Limitations
Conclusion



Asia Buyback Forecasting | Which Companies Are Likely to Raise/Cut Buybacks?

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/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/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <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/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/smoore-international" target="_blank" data-smartkarma-citation="entities:28241:1" rel="noopener">Smoore International (6969 HK)</a>, <a href="https://www.smartkarma.com/entities/gcl-poly-energy-holdings-limited" target="_blank" data-smartkarma-citation="entities:3708:1" rel="noopener">Gcl Poly Energy Holdings Limited (3800 HK)</a>, <a href="https://www.smartkarma.com/entities/innovent-biologics-inc" target="_blank" data-smartkarma-citation="entities:27452:1" rel="noopener">Innovent Biologics Inc (1801 HK)</a>, <a href="https://www.smartkarma.com/entities/sunny-optical-tech" target="_blank" data-smartkarma-citation="entities:13363:1" rel="noopener">Sunny Optical (2382 HK)</a> and <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>. Shorts increased on Consumer Discretionary, Communication Services, Financials, Consumer Staples and Industrials, while decreasing on Information Technology, Real Estate and Health Care.</p></div><div><p>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/olympus-corp" target="_blank" data-smartkarma-citation="entities:356:1" rel="noopener">Olympus Corp (7733 JP)</a>, <a href="https://www.smartkarma.com/entities/dai-ichi-life-insurance" target="_blank" data-smartkarma-citation="entities:1109:1" rel="noopener">Dai Ichi Life Insurance (8750 JP)</a>, <a href="https://www.smartkarma.com/entities/nomura-holdings-inc" target="_blank" data-smartkarma-citation="entities:742:1" rel="noopener">Nomura Holdings (8604 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/anritsu-corp" target="_blank" data-smartkarma-citation="entities:3700:1" rel="noopener">Anritsu Corp (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec Corp (6920 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> and <a href="https://www.smartkarma.com/entities/square-enix-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15003:1" rel="noopener">Square Enix Holdings (9684 JP)</a>. Sectorally, shorts increased on Financials, Industrials and Health Care, while decreasing on Information Technology and Consumer Discretionary.</p></div><div><p>In Korea, there were short positions put on in <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a>, <a href="https://www.smartkarma.com/entities/gs-engineering-construct" target="_blank" data-smartkarma-citation="entities:15916:1" rel="noopener">GS Engineering &amp; Construction (006360 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-mobis-co-ltd" target="_blank" data-smartkarma-citation="entities:6089:1" rel="noopener">Hyundai Mobis (012330 KS)</a> while shorts were covered in <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-biologics-co-ltd" target="_blank" data-smartkarma-citation="entities:22932:1" rel="noopener">Samsung Biologics Co., (207940 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/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>. </p></div><div>
<p>Stocks in Taiwan that saw the highest increase in shorts were <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>, <a href="https://www.smartkarma.com/entities/innolux-corp" target="_blank" data-smartkarma-citation="entities:4509:1" rel="noopener">Innolux Corp (3481 TT)</a>, <a href="https://www.smartkarma.com/entities/e-sun-financial-holding-co" target="_blank" data-smartkarma-citation="entities:719:1" rel="noopener">E.Sun Financial Holding Co (2884 TT)</a> and <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> while shorts were covered on <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a>, <a href="https://www.smartkarma.com/entities/acer-inc" target="_blank" data-smartkarma-citation="entities:15726:1" rel="noopener">Acer Inc (2353 TT)</a>, <a href="https://www.smartkarma.com/entities/pegatron-corp" target="_blank" data-smartkarma-citation="entities:12852:1" rel="noopener">Pegatron Corp (4938 TT)</a> and <a href="https://www.smartkarma.com/entities/ase-technology-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:27270:1" rel="noopener">ASE Technology Holding Co Ltd (3711 TT)</a>.</p>
<p>Following the <a href="https://www.smartkarma.com/entities/gamestop-corp-class-a" target="_blank" data-smartkarma-citation="entities:13790:1" rel="noopener">GameStop Corp Class A (GME US)</a> saga, we have added tables in each market with the largest stocks in terms of days of ADV to cover.</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 BYD (1211 HK), Meituan (3690 HK), Tencent Holdings (700 HK), Alibaba Group (9988 HK) and HKEX (388 HK) while there was short covering on Smoore International (6969 HK), Gcl Poly Energy Holdings Limited (3800 HK), Innovent Biologics Inc (1801 HK), Sunny Optical (2382 HK) and Xiaomi Corp (1810 HK). Shorts increased on Consumer Discretionary, Communication Services, Financials, Consumer Staples and Industrials, while decreasing on Information Technology, Real Estate and Health Care.In Japan, stocks that saw the most shorts were Olympus Corp (7733 JP), Dai Ichi Life Insurance (8750 JP), Nomura Holdings (8604 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) while shorts decreased on Anritsu Corp (6754 JP), Lasertec Corp (6920 JP), Sharp Corp (6753 JP) and Square Enix Holdings (9684 JP). Sectorally, shorts increased on Financials, Industrials and Health Care, while decreasing on Information Technology and Consumer Discretionary.In Korea, there were short positions put on in LG Display (034220 KS), GS Engineering &amp; Construction (006360 KS), LG Chem Ltd (051910 KS) and Hyundai Mobis (012330 KS) while shorts were covered in Netmarble Corporation (251270 KS), Samsung Biologics Co., (207940 KS), Celltrion Inc (068270 KS) and Kakao Corp (035720 KS). 
Stocks in Taiwan that saw the highest increase in shorts were United Microelectronics Corp (2303 TT), Innolux Corp (3481 TT), E.Sun Financial Holding Co (2884 TT) and TSMC (2330 TT) while shorts were covered on Evergreen Marine Corp (2603 TT), Acer Inc (2353 TT), Pegatron Corp (4938 TT) and ASE Technology Holding Co Ltd (3711 TT).
Following the GameStop Corp Class A (GME US) saga, we have added tables in each market with the largest stocks in terms of days of ADV to cover.


Asia Short Interest: BYD, Smoore, GCL Poly, Olympus, Nomura, Anritsu, Netmarble, UMC, Innolux, Acer

Travis Lundy

<p>In February 2017, when the accounting and loss scandal surrounding <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> was just taking shape, I published <a href="https://www.smartkarma.com/insights/toshiba-possible-demotion-to-tse2-the-mechanics-impact" target="_blank" data-smartkarma-citation="insights:8838" rel="noopener">Toshiba: Possible Demotion to TSE2? The Mechanics &amp; Impact</a> based on the fact that the loss envisaged would take Toshiba's shareholder equity below zero at the photo some 40 days later. That meant demotion to the TSE2, but it wasn't on people's minds yet so was not worth shorting until people got less excited about a bounce (when the real facts about the losses and its implications became clearer. THEN it would be worth a short, because the dip-buyers would have bought the dip, then the passive funds would have to sell, and new dip buyers would have to show up. So in June we got the news, as expected, and covered in <a href="https://www.smartkarma.com/insights/toshiba-demotion-from-tse1-to-tse2-topix-exclusion-jul31-close" target="_blank" data-smartkarma-citation="insights:11664" rel="noopener">Toshiba Demotion from TSE1 to TSE2; TOPIX Exclusion Jul31 Close</a>, and the stock fell.  </p><p>Later that year, after the company successfully fought to retain its listing in late summer, it made an equity placement of ¥600bn in late November 2017 with promises of eventual shareholder return after it had sold its Toshiba Memory business. They avoided delisting through this capital raise, but hopes for an early return to TOPIX as had been the case with <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a> (which only spent a year in purgatory), were dashed when investors figured out (covered in <a href="https://www.smartkarma.com/insights/toshiba-and-topix-it-s-gonna-be-a-long-wait" target="_blank" data-smartkarma-citation="insights:16853" rel="noopener">TOSHIBA and TOPIX - It's Gonna Be a Long Wait.</a>) that TSE Listing Regulations had clauses which meant companies which had received Opinion Withheld on their accounting statements were ineligible for TSE1 listing until five years afterwards. Noises surfaced later that spring and summer so I wrote <a href="https://www.smartkarma.com/insights/toshiba-a-possible-route-to-early-tse1-topix-inclusion" target="_blank" data-smartkarma-citation="insights:21544" rel="noopener">Toshiba:  A Possible Route to Early TSE1/TOPIX Inclusion?</a> discussing <em>possible</em> loopholes which could allow an earlier return than spring 2022. My conclusion then was <em>"It is tougher than it looks, but there are other reasons one should own."</em></p><p>Fast forward a couple of years past a revival plan, ¥700bn of buybacks, and buy-ins of subsidiaries, in November 2019 the TSE decided, as it was starting its cash equity market structure review <em>designed to raise standards for blue chips to gain more international goodwill on governance, </em>to lower the standards of TSE1 promotion to those of TSE2. That was changed to allow the TSE to admit Toshiba back to TOPIX early, discussed in <a href="https://www.smartkarma.com/insights/nikkei-tse-rule-change-to-allow-toshiba-an-early-return-to-topix" target="_blank" data-smartkarma-citation="insights:34839" rel="noopener">[Nikkei] TSE Rule Change to Allow Toshiba An Early Return to TOPIX</a>.</p><p>Toshiba announced five months later in April 2020 it had applied for a return to TSE1, discussed in <a href="https://www.smartkarma.com/insights/toshiba-return-to-topix-timing-and-size" target="_blank" data-smartkarma-citation="insights:38189" rel="noopener">Toshiba Return to TOPIX? Timing and Size</a> and after 4+ months had passed I looked at the ongoing issues of inclusion in <a href="https://www.smartkarma.com/insights/toshiba-topix-inclusion-jack-be-nimble-jack-be-quick" target="_blank" data-smartkarma-citation="insights:42235" rel="noopener">Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick...</a> (I was not bullish then price-wise, though after the price fell I became positive again).  <em>Regular Smartkarma readers who want to see the whole series on Toshiba going back four years can look <a href="https://www.smartkarma.com/profiles/travis-lundy/insights?fulltext=Toshiba" target="_blank" rel="noopener">here</a>.</em></p><h3>The NEW News</h3><p>The NEW News is that on Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (<a href="https://www.jpx.co.jp/english/markets/indices/topix/tvdivq00000030ne-att/e_cal_3_topix.pdf" target="_blank" rel="noopener">25 Dec 2020 version</a>), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery <a href="http://www.toshiba.co.jp/about/ir/en/news/20210122_1.pdf" target="_blank" rel="noopener">announcement</a> full of words about the seriousness of its governance and compliance.</p><p>Long-suffering activists may rejoice. This creates liquidity for a <em>partial</em> exit.</p><p>The shares are up roughly 20% since the TOPIX Deletion on 31 July 2017. The shares are up about 10% from the placement in late November 2017 raising capital. This hasn't been the best of trades, but my relatively constant refrain has been to feed the ducks when they are quacking (my most recent insight on Toshiba was <a href="https://www.smartkarma.com/insights/toshiba-is-a-range-trade-still" target="_blank" data-smartkarma-citation="insights:43366" rel="noopener">Toshiba Is A Range Trade. Still.</a> four+ months ago and on that day, shares closed at ¥2,959. Today they closed at ¥2,963. </p><p>But a TOPIX Inclusion of this size is a rare species, and one of this anticipation is practically mythological. So we're going to talk about it.</p><p>I have a personal favourite mythological creature from Japanese folklore (originally, I believe, derived from Chinese traditions). It's called a Baku (<a href="https://ja.wikipedia.org/wiki/%E7%8D%8F" target="_blank" data-ved="2ahUKEwji-KzBqq_uAhUSGKYKHa2oBuUQFjAAegQIAhAC" rel="noopener"></a>獏) and it looks a bit like a cross between a lion and an elephant, and visitors to temples have undoubtedly seen them before.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/086/original/baku+asada-ji+Matsusaka+City+Soga+Shohaku.jpg?1611312861" class="editor-image img-responsive" data-smartkarma-image-id="184086"></figure><div class="content-caption">Baku, Door Painting by Soga Shohaku, Asada-ji (Matsusaka City)</div></section><p>This creature is perhaps an apt metaphor for the TOPIX Inclusion as far as activists and event traders are concerned.</p><p>Those who want to know why should read on...</p>

In February 2017, when the accounting and loss scandal surrounding Toshiba Corp (6502 JP) was just taking shape, I published Toshiba: Possible Demotion to TSE2? The Mechanics &amp; Impact based on the fact that the loss envisaged would take Toshiba's shareholder equity below zero at the photo some 40 days later. That meant demotion to the TSE2, but it wasn't on people's minds yet so was not worth shorting until people got less excited about a bounce (when the real facts about the losses and its implications became clearer. THEN it would be worth a short, because the dip-buyers would have bought the dip, then the passive funds would have to sell, and new dip buyers would have to show up. So in June we got the news, as expected, and covered in Toshiba Demotion from TSE1 to TSE2; TOPIX Exclusion Jul31 Close, and the stock fell.  Later that year, after the company successfully fought to retain its listing in late summer, it made an equity placement of ¥600bn in late November 2017 with promises of eventual shareholder return after it had sold its Toshiba Memory business. They avoided delisting through this capital raise, but hopes for an early return to TOPIX as had been the case with Sharp Corp (6753 JP) (which only spent a year in purgatory), were dashed when investors figured out (covered in TOSHIBA and TOPIX - It's Gonna Be a Long Wait.) that TSE Listing Regulations had clauses which meant companies which had received Opinion Withheld on their accounting statements were ineligible for TSE1 listing until five years afterwards. Noises surfaced later that spring and summer so I wrote Toshiba:  A Possible Route to Early TSE1/TOPIX Inclusion? discussing possible loopholes which could allow an earlier return than spring 2022. My conclusion then was "It is tougher than it looks, but there are other reasons one should own."Fast forward a couple of years past a revival plan, ¥700bn of buybacks, and buy-ins of subsidiaries, in November 2019 the TSE decided, as it was starting its cash equity market structure review designed to raise standards for blue chips to gain more international goodwill on governance, to lower the standards of TSE1 promotion to those of TSE2. That was changed to allow the TSE to admit Toshiba back to TOPIX early, discussed in [Nikkei] TSE Rule Change to Allow Toshiba An Early Return to TOPIX.Toshiba announced five months later in April 2020 it had applied for a return to TSE1, discussed in Toshiba Return to TOPIX? Timing and Size and after 4+ months had passed I looked at the ongoing issues of inclusion in Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick... (I was not bullish then price-wise, though after the price fell I became positive again).  Regular Smartkarma readers who want to see the whole series on Toshiba going back four years can look here.The NEW NewsThe NEW News is that on Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (25 Dec 2020 version), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery announcement full of words about the seriousness of its governance and compliance.Long-suffering activists may rejoice. This creates liquidity for a partial exit.The shares are up roughly 20% since the TOPIX Deletion on 31 July 2017. The shares are up about 10% from the placement in late November 2017 raising capital. This hasn't been the best of trades, but my relatively constant refrain has been to feed the ducks when they are quacking (my most recent insight on Toshiba was Toshiba Is A Range Trade. Still. four+ months ago and on that day, shares closed at ¥2,959. Today they closed at ¥2,963. But a TOPIX Inclusion of this size is a rare species, and one of this anticipation is practically mythological. So we're going to talk about it.I have a personal favourite mythological creature from Japanese folklore (originally, I believe, derived from Chinese traditions). It's called a Baku (獏) and it looks a bit like a cross between a lion and an elephant, and visitors to temples have undoubtedly seen them before.Baku, Door Painting by Soga Shohaku, Asada-ji (Matsusaka City)This creature is perhaps an apt metaphor for the TOPIX Inclusion as far as activists and event traders are concerned.Those who want to know why should read on...

Toshiba Finally Gets Into TOPIX but Beware the Baku  (It's Complicated)

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

<p>The disposition of <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>'s ownership in <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> has been a widely discussed topic in the past several years. However, in July 2020, <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> confirmed in its 2020 FQ2 earnings call that they were planning to sell part of their stake. </p>
<div>
<blockquote>
<p>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.</p>
</blockquote>
<p>According to Capital IQ - and the last filing on the parent currently holds around 43.8% which means <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> has sold around 6.1% of the planned total of ~14%. </p>
<p>To get to 35% from the current level, they would have to sell another ~11mn shares (~8.2% of total shares) and there is more than one way they could go about that. </p>
<p>That is where things get interesting. </p>
<p><em>More below the fold. </em></p>
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The disposition of McDonald's Corp (MCD US)'s ownership in McDonald's Holdings Co Japan (2702 JP) has been a widely discussed topic in the past several years. However, in July 2020, Mcdonald's Corp (MCD US) confirmed in its 2020 FQ2 earnings call that they were planning to sell part of their stake. 


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.

According to Capital IQ - and the last filing on the parent currently holds around 43.8% which means Mcdonald's Corp (MCD US) has sold around 6.1% of the planned total of ~14%. 
To get to 35% from the current level, they would have to sell another ~11mn shares (~8.2% of total shares) and there is more than one way they could go about that. 
That is where things get interesting. 
More below the fold. 


2021 High Conviction: McDonald's Japan -  A TOPIX Inclusion BIG Bet

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)

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2021 High Conviction: McDonald's Japan - A TOPIX Inclusion BIG Bet

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