Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. </p>
<p>There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a> on Friday, one of the big names to the buy side is indeed <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>.</p>
<p>For more on the rebalance, read on.</p>
<p><em>[A spreadsheet of all names and impacts is attached at the bottom of the insight]</em></p>

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

The Delayed TOPIX FFW Rebalance: $32bn To Trade

'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)

<div><p style="text-align: center;"><strong>• BEST &amp; WORST • </strong></p></div><div>
<p>We resume our results &amp; revision updates after a Christmas break as the February/May/ August/November year-end cohort of companies kick off disclosure. Friday's best and worst pair are retailers <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori (9843 JP)</a> and <a href="https://www.smartkarma.com/entities/takashimaya-co-ltd" target="_blank" data-smartkarma-citation="entities:370:1" rel="noopener">Takashimaya (8233 JP) </a>although we would note that earnings momentum is fading for the former and bottoming out for the latter. With Nitori mean-reverting from being Overbought in August, Takashimaya has outperformed Nitori by 8% over the last three months. As the impact of COVID wanes by the Sroing, we expect this performance 'gap' to close further in 2021.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/180/167/original/2020-12-28_06-14-04.png?1609103740" class="editor-image img-responsive" data-smartkarma-image-id="180167"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/180/168/original/2020-12-28_06-16-21.png?1609103792" class="editor-image img-responsive" data-smartkarma-image-id="180168"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/180/169/original/2020-12-28_06-22-11.png?1609104143" class="editor-image img-responsive" data-smartkarma-image-id="180169"></figure></section><p></p>
</div>

• BEST &amp; WORST • 
We resume our results &amp; revision updates after a Christmas break as the February/May/ August/November year-end cohort of companies kick off disclosure. Friday's best and worst pair are retailers Nitori (9843 JP) and Takashimaya (8233 JP) although we would note that earnings momentum is fading for the former and bottoming out for the latter. With Nitori mean-reverting from being Overbought in August, Takashimaya has outperformed Nitori by 8% over the last three months. As the impact of COVID wanes by the Sroing, we expect this performance 'gap' to close further in 2021.



🇯🇵 JAPAN • Results & Revisions 12/​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​25 - Nitori & Takashimaya

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<p>It is almost a year since <a href="https://www.smartkarma.com/entities/yamada-denki-co-ltd" target="_blank" data-smartkarma-citation="entities:641:1" rel="noopener">Yamada Denki (9831 JP)</a> stepped in to save <a href="https://www.smartkarma.com/entities/otsuka-kagu-ltd" target="_blank" data-smartkarma-citation="entities:5139:1" rel="noopener">Otsuka Kagu Ltd (8186 JP)</a> from a choice of bankruptcy or acquisition by a major furniture rival. Yamada has made some improvement, but things have not gone nearly as well as hoped.</p><p>As a result, Kumiko Otsuka will step down as CEO this month, ending the founding family’s direct involvement with the chain, and Yamada will probably delist the company and make it a wholly owned subsidiary.</p><p>Then the real work begins as Otsuka will need an entirely new competitive position if it is to survive but should help Yamada take on <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> in the core furniture market.</p>

It is almost a year since Yamada Denki (9831 JP) stepped in to save Otsuka Kagu Ltd (8186 JP) from a choice of bankruptcy or acquisition by a major furniture rival. Yamada has made some improvement, but things have not gone nearly as well as hoped.As a result, Kumiko Otsuka will step down as CEO this month, ending the founding family’s direct involvement with the chain, and Yamada will probably delist the company and make it a wholly owned subsidiary.Then the real work begins as Otsuka will need an entirely new competitive position if it is to survive but should help Yamada take on Nitori Holdings (9843 JP) in the core furniture market.

Otsuka Kagu to Be Absorbed by Yamada Denki as Family CEO Departs

<p>Overnight it became clear in a Nikkei <a href="https://asia.nikkei.com/Business/Business-deals/Japan-s-Nitori-wins-over-Shimachu-with-2bn-takeover-bid" target="_blank" rel="noopener">article</a> that <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a> was going to succumb to the charms of bidder <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> and accept its proposal of a takeover at ¥5500. Shimachu had heretofore officially supported a bid by <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">DCM Holdings (3050 JP)</a> at ¥4200/share, but acceptance of Nitori means that its bid will not be officially "hostile."</p><p>After the close, Shimachu and Nitori defined that support in a set of documents and the comment in the media from Shimachu was that DCM had not responded. </p><p>DCM's Tender Offer (discussed in <a href="https://www.smartkarma.com/insights/dcm-does-a-full-takeover-of-shimachu-looks-like-a-strong-price-look-again" target="_blank" data-smartkarma-citation="insights:43806" rel="noopener">DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.</a>) ends on 16 November, the same day Nitori's starts. </p><p>DCM can still respond by a) extending the time period at the same price, b) raising the price and creating an automatic extension, or c) doing nothing. At the very least, I expect DCM to extend by 10 business days because doing so would extend their own Tender Offer past the JFTC Phase 1 response deadline to the Nitori application (Nitori will launch without having received official approval). </p><p>More below.</p><hr><p><em>The list of insights in this series (on this particular event) are as below:</em></p><table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 724.8px;"><h3>Previous Insights on the DCM (3050) and Nitori (9843) Approaches to Shimachu (8184)</h3></td></tr>
<tr>
<td style="width: 88.8px;"><strong>Date</strong></td>
<td style="width: 615.2px;"><strong>Insight Title</strong></td>
</tr>
<tr>
<td style="width: 88.8px;">21 Sep 2020</td>
<td style="width: 615.2px;">
<a href="https://www.smartkarma.com/insights/dcm-partial-offer-for-shimachu-coming" target="_blank" data-smartkarma-citation="insights:43444" rel="noopener">DCM Partial Offer for Shimachu Coming?</a> </td>
</tr>
<tr>
<td style="width: 88.8px;">4 Oct 2020</td>
<td style="width: 615.2px;">
<a href="https://www.smartkarma.com/insights/dcm-does-a-full-takeover-of-shimachu-looks-like-a-strong-price-look-again" target="_blank" data-smartkarma-citation="insights:43806" rel="noopener">DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.</a> </td>
</tr>
<tr>
<td style="width: 88.8px;">21 Oct 2020</td>
<td style="width: 615.2px;">
<a href="https://www.smartkarma.com/insights/nitori-to-make-a-rival-bid-for-shimachu-more-fun-to-go" target="_blank" data-smartkarma-citation="insights:44353" rel="noopener">Nitori To Make a Rival Bid for Shimachu? More Fun To Go</a> </td>
</tr>
<tr>
<td style="width: 88.8px;">28 Oct 2020</td>
<td style="width: 615.2px;">
<a href="https://www.smartkarma.com/insights/gaming-out-a-nitori-bid-for-shimachu" target="_blank" data-smartkarma-citation="insights:44636" rel="noopener">Gaming Out a Nitori Bid for Shimachu</a> </td>
</tr>
<tr>
<td style="width: 88.8px;">29 Oct 2020</td>
<td style="width: 615.2px;">
<a href="https://www.smartkarma.com/insights/nitori-bids-up-for-shimachu-now-things-slow-down" target="_blank" data-smartkarma-citation="insights:44679" rel="noopener">Nitori Bids UP For Shimachu - Now Things Slow Down</a> </td>
</tr>
</tbody></table>

Overnight it became clear in a Nikkei article that Shimachu Co Ltd (8184 JP) was going to succumb to the charms of bidder Nitori Holdings (9843 JP) and accept its proposal of a takeover at ¥5500. Shimachu had heretofore officially supported a bid by DCM Holdings (3050 JP) at ¥4200/share, but acceptance of Nitori means that its bid will not be officially "hostile."After the close, Shimachu and Nitori defined that support in a set of documents and the comment in the media from Shimachu was that DCM had not responded. DCM's Tender Offer (discussed in DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.) ends on 16 November, the same day Nitori's starts. DCM can still respond by a) extending the time period at the same price, b) raising the price and creating an automatic extension, or c) doing nothing. At the very least, I expect DCM to extend by 10 business days because doing so would extend their own Tender Offer past the JFTC Phase 1 response deadline to the Nitori application (Nitori will launch without having received official approval). More below.The list of insights in this series (on this particular event) are as below:
Previous Insights on the DCM (3050) and Nitori (9843) Approaches to Shimachu (8184)

Date
Insight Title


21 Sep 2020

DCM Partial Offer for Shimachu Coming? 


4 Oct 2020

DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again. 


21 Oct 2020

Nitori To Make a Rival Bid for Shimachu? More Fun To Go 


28 Oct 2020

Gaming Out a Nitori Bid for Shimachu 


29 Oct 2020

Nitori Bids UP For Shimachu - Now Things Slow Down 



Nitori's Bid for Shimachu Goes Friendly as Shimachu Dumps DCM

<p>That <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> has had an interest in <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a> hasn't been secret, per se, since the Nikkei article on the 20th. That it has had a <em>deep</em> rather than passing interest has been seen in the tone and depth of the media articles which have followed this expression of interest. In <a href="https://www.smartkarma.com/insights/nitori-to-make-a-rival-bid-for-shimachu-more-fun-to-go" target="_blank" data-smartkarma-citation="insights:44353" rel="noopener">Nitori To Make a Rival Bid for Shimachu? More Fun To Go</a> I suggested their presence made for more fun and today we got more fun.   </p><p>Today Nitori showed that it has a strong interest as it bid well through the mid-point of the DCF valuation range from its financial advisor, and just a few percent shy of its top end. </p><p>The bid at ¥5500/share is now announced, and as long as the conditions remain un-breached, Nitori intends to launch a Tender Offer when the defeating conditions are met, without regard to whether Shimachu recommends the deal or not. Functionally, this means an "OK" from the JFTC and lack of serious intervention by Shimachu. The Offer is expected to launch, assuming conditions permit, by "mid November" (which I would take to mean latter half.</p><p>This was a buy at ¥3500-3600 in late Sep when it was "just" a potential partial offer. It became a buy when it was at terms at ¥4200 and was too cheap. Now Nitori has come in and bid ¥5500/share it starts looking like we are closer to a fuller price. Not completely full mind you, but fuller. </p><p>Tactics and response start to come into play. Will DCM respond? Will Shimachu's Independent Committee take the Nitori bid seriously? Will Shimachu reject?</p><p>There are a bunch of moving parts here and while I tried to offer a preview in <a href="https://www.smartkarma.com/insights/gaming-out-a-nitori-bid-for-shimachu" target="_blank" data-smartkarma-citation="insights:44636" rel="noopener">Gaming Out a Nitori Bid for Shimachu</a> this bid actually probably falls between the cracks so I take yet another look. </p><p>More below the fold. </p><hr><table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 133.636px;"><h2>Insights so far in the series</h2></td></tr>
<tr>
<td style="width: 133.636px;"><strong>Date</strong></td>
<td style="width: 569.091px;"><strong>Title</strong></td>
</tr>
<tr>
<td style="width: 133.636px;">21 Sep 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/dcm-partial-offer-for-shimachu-coming" target="_blank" data-smartkarma-citation="insights:43444" rel="noopener">DCM Partial Offer for Shimachu Coming?</a> </td>
</tr>
<tr>
<td style="width: 133.636px;">4 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/dcm-does-a-full-takeover-of-shimachu-looks-like-a-strong-price-look-again" target="_blank" data-smartkarma-citation="insights:43806" rel="noopener">DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.</a> </td>
</tr>
<tr>
<td style="width: 133.636px;">21 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/nitori-to-make-a-rival-bid-for-shimachu-more-fun-to-go" target="_blank" data-smartkarma-citation="insights:44353" rel="noopener">Nitori To Make a Rival Bid for Shimachu? More Fun To Go</a> </td>
</tr>
<tr>
<td style="width: 133.636px;">28 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/gaming-out-a-nitori-bid-for-shimachu" target="_blank" data-smartkarma-citation="insights:44636" rel="noopener">Gaming Out a Nitori Bid for Shimachu</a> </td>
</tr>
<tr><td colspan="2"></td></tr>
<tr><td colspan="2" style="width: 133.636px;"><em><strong>Additional recommended reading, by <a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </strong></em></td></tr>
<tr>
<td style="width: 133.636px;">4 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/a-new-era-of-home-centre-consolidation-starts-as-dcm-buys-shimachu" target="_blank" data-smartkarma-citation="insights:43851" rel="noopener">A New Era of Home Centre Consolidation Starts as DCM Buys Shimachu</a> </td>
</tr>
</tbody></table>

That Nitori Holdings (9843 JP) has had an interest in Shimachu Co Ltd (8184 JP) hasn't been secret, per se, since the Nikkei article on the 20th. That it has had a deep rather than passing interest has been seen in the tone and depth of the media articles which have followed this expression of interest. In Nitori To Make a Rival Bid for Shimachu? More Fun To Go I suggested their presence made for more fun and today we got more fun.   Today Nitori showed that it has a strong interest as it bid well through the mid-point of the DCF valuation range from its financial advisor, and just a few percent shy of its top end. The bid at ¥5500/share is now announced, and as long as the conditions remain un-breached, Nitori intends to launch a Tender Offer when the defeating conditions are met, without regard to whether Shimachu recommends the deal or not. Functionally, this means an "OK" from the JFTC and lack of serious intervention by Shimachu. The Offer is expected to launch, assuming conditions permit, by "mid November" (which I would take to mean latter half.This was a buy at ¥3500-3600 in late Sep when it was "just" a potential partial offer. It became a buy when it was at terms at ¥4200 and was too cheap. Now Nitori has come in and bid ¥5500/share it starts looking like we are closer to a fuller price. Not completely full mind you, but fuller. Tactics and response start to come into play. Will DCM respond? Will Shimachu's Independent Committee take the Nitori bid seriously? Will Shimachu reject?There are a bunch of moving parts here and while I tried to offer a preview in Gaming Out a Nitori Bid for Shimachu this bid actually probably falls between the cracks so I take yet another look. More below the fold. 
Insights so far in the series

Date
Title


21 Sep 2020

DCM Partial Offer for Shimachu Coming? 


4 Oct 2020

DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again. 


21 Oct 2020

Nitori To Make a Rival Bid for Shimachu? More Fun To Go 


28 Oct 2020

Gaming Out a Nitori Bid for Shimachu 


Additional recommended reading, by Michael Causton 

4 Oct 2020

A New Era of Home Centre Consolidation Starts as DCM Buys Shimachu 



Nitori Bids UP For Shimachu - Now Things Slow Down

Japan

SHIMACHU CO., LTD. operates a furniture store chain and a home center chain based in Saitama Prefecture and the Tokyo metropolitan area.  The Company sells assembly required or Do-It-Yourself goods, household utensils, gardening tools, sporting goods, and leisure items.

Price Gauge
52-week Range	0.00 - 0.00
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Shimachu Co Ltd (8184 JP)

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 12/25 - Nitori & Takashimaya

We resume our results & revision updates after a Christmas break. Friday's best and worst pair are retailers Nitori (9843 JP) and Takashimaya...

Campbell Gunn

Otsuka Kagu to Be Absorbed by Yamada Denki as Family CEO Departs

It makes sense that Yamada Denki is taking control of furniture retailer. Yamada is building a rival to Nitori and Otsuka will help with that. The...

Michael Causton

Nitori's Bid for Shimachu Goes Friendly as Shimachu Dumps DCM

Nitori and Shimachu signed a deal to make Nitori's JPY 5500/share friendly. The Tender Offer starts 16 Nov the same day as DCM's JPY 4200/share bid...

Travis Lundy

Nitori Bids UP For Shimachu - Now Things Slow Down

Nitori is out their bid, higher than the market was speculating. Now we wait. Shimachu's SC will get the dossier, there will be a beauty contest,...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 12/​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​25 - Nitori & Takashimaya

We resume our results & revision updates after a Christmas break. Friday's best and worst pair are retailers Nitori (9843 JP) and Takashimaya...

Campbell Gunn

Otsuka Kagu to Be Absorbed by Yamada Denki as Family CEO Departs

It makes sense that Yamada Denki is taking control of furniture retailer. Yamada is building a rival to Nitori and Otsuka will help with that. The...

Michael Causton

Nitori's Bid for Shimachu Goes Friendly as Shimachu Dumps DCM

Nitori and Shimachu signed a deal to make Nitori's JPY 5500/share friendly. The Tender Offer starts 16 Nov the same day as DCM's JPY 4200/share bid...

Travis Lundy

Nitori Bids UP For Shimachu - Now Things Slow Down

Nitori is out their bid, higher than the market was speculating. Now we wait. Shimachu's SC will get the dossier, there will be a beauty contest,...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 12/25 - Nitori & Takashimaya