Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><a href="https://www.smartkarma.com/entities/shoko-co-ltd" target="_blank" data-smartkarma-citation="entities:1167:1" rel="noopener">Shoko Co Ltd (8090 JP)</a> is a trading company which deals in fertilizers and chemicals and is the consolidated subsidiary of <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko K.K. (4004 JP)</a>. Shoko is undergoing a transformation/restructuring as part of its Swing-by Mid-Term Management Plan (is any Japanese company ever NOT going through some kind of transformative effort?).</p>
<p>This is an LBO of sorts, done with the agreement of Showa Denko, which after its purchase of the Hitachi Chemicals business almost a year ago has better things to do.</p>
<p>It is being taken over by a PE project fund, and Showa Denko is keeping 15% and involving itself with a shareholder agreement and involvement on choosing directors going forward. </p>
<p>The deal requires only 51.8% of shares out, of which Showa Denko provides 29%. It needs 22% of the other 56% outstanding. It basically all has to come from domestic passive, some small measure of crossholders, and retail. Foreigners own almost nothing. </p>
<p>But this, like many other deals, is being done at the wrong price. The TOB price is at a tiny premium, and the effective Adjusted EV/EBITDA multiple (EV adjusted for securities holdings and net receivables) is too low.</p>
<p>More below the fold. </p>

Shoko Co Ltd (8090 JP) is a trading company which deals in fertilizers and chemicals and is the consolidated subsidiary of Showa Denko K.K. (4004 JP). Shoko is undergoing a transformation/restructuring as part of its Swing-by Mid-Term Management Plan (is any Japanese company ever NOT going through some kind of transformative effort?).
This is an LBO of sorts, done with the agreement of Showa Denko, which after its purchase of the Hitachi Chemicals business almost a year ago has better things to do.
It is being taken over by a PE project fund, and Showa Denko is keeping 15% and involving itself with a shareholder agreement and involvement on choosing directors going forward. 
The deal requires only 51.8% of shares out, of which Showa Denko provides 29%. It needs 22% of the other 56% outstanding. It basically all has to come from domestic passive, some small measure of crossholders, and retail. Foreigners own almost nothing. 
But this, like many other deals, is being done at the wrong price. The TOB price is at a tiny premium, and the effective Adjusted EV/EBITDA multiple (EV adjusted for securities holdings and net receivables) is too low.
More below the fold. 

Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.

'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 style="text-align: center;"><strong>• NET GAIN • </strong></div><div><div class="content-caption">
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/590/original/2021-02-19_07-20-52.png?1613686864" class="editor-image img-responsive" data-smartkarma-image-id="189590"></figure><p></p></section> Source for all charts &amp; tables: Japan Analytics</div></div><div>
<p><strong>NET GAIN</strong> - Forecast Aggregate Net Income for the universe of  Japanese listed companies ended the quarter 23.8%  higher than three months ago - an increase of  ¥5.2 trillion. As a result, the market's forward earnings multiple has declined to 28 times following a 10% increase in total market value (ex REITs). The increase in forecast operating income is a more modest 10.2% reflecting the degree of previously-projected COVID-related extraordinary losses.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/591/original/2021-02-19_07-29-59.png?1613687413" class="editor-image img-responsive" data-smartkarma-image-id="189591"></figure></section><p><strong>TRAILING TWELVE MONTHS (TTM)</strong> - Trailing revenues and operating profits are still falling by 9.9% and 26.3%, respectively; however, operating income rose by 4.1% quarter-on-quarter as margins improved by 30 basis points. Despite a reasonable effort at cost-cutting, aggregate operating margins are still  228 bps below their mid-2018 peak, and it will take at least another eight quarters for that gap to be closed.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/595/original/2021-02-19_07-38-34.png?1613687927" class="editor-image img-responsive" data-smartkarma-image-id="189595"></figure></section><p><strong>FORECASTS</strong> - The majority of companies are forecasting for the year ending next month. Despite no change in the aggregate revenue forecast, the outlook for operating income increased by ¥3.7 trillion during the quarter resulting in a 50 bps operating margin uplift. </p>
</div><section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/596/original/2021-02-19_07-40-09.png?1613688021" class="editor-image img-responsive" data-smartkarma-image-id="189596"></figure><hr></section><p><strong>POSITIVE MOMENTUM</strong> - Both our forward-looking Results Score and Results &amp; Revision Score have returned to the positive after less than one year. Whether this merits a new thirty-year high in TOPIX is, however, a moot point. We would note that the Cabinet Office Leading Indicator of Business Conditions for December turned down for the first time since April 2020.   </p></section><div></div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/597/original/2021-02-19_08-02-24.png?1613689355" class="editor-image img-responsive" data-smartkarma-image-id="189597"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/694/original/2021-02-19_16-02-06.png?1613718138" class="editor-image img-responsive" data-smartkarma-image-id="189694"></figure><hr></section><p><strong>SECTOR BREAKDOWN</strong> - The leading sectors in terms of one-month change in Results &amp; Revision Score are <strong>Other Commercial Products</strong>, <strong>Autos</strong>,<strong> Other Consumer Products</strong>, <strong>Metals</strong>, and <strong>Building Materials.</strong> The RRS 'losers' are <strong>Utilities</strong>, <strong>Internet Content &amp; Services</strong>, <strong>Food, Beverages &amp; Tobacco,</strong><strong>Retail</strong>, and <strong>Healthcare</strong>.  </p>
</div><div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/700/original/2021-02-19_16-05-32.png?1613718344" class="editor-image img-responsive" data-smartkarma-image-id="189700"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/701/original/2021-02-19_16-06-12.png?1613718383" class="editor-image img-responsive" data-smartkarma-image-id="189701"></figure></section><hr>
</div><section></section><div><div>
<p>In the <strong>DETAIL</strong> section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes.</p>
<hr>
<p></p>
</div></div>

• NET GAIN • 
 Source for all charts &amp; tables: Japan Analytics
NET GAIN - Forecast Aggregate Net Income for the universe of  Japanese listed companies ended the quarter 23.8%  higher than three months ago - an increase of  ¥5.2 trillion. As a result, the market's forward earnings multiple has declined to 28 times following a 10% increase in total market value (ex REITs). The increase in forecast operating income is a more modest 10.2% reflecting the degree of previously-projected COVID-related extraordinary losses.
TRAILING TWELVE MONTHS (TTM) - Trailing revenues and operating profits are still falling by 9.9% and 26.3%, respectively; however, operating income rose by 4.1% quarter-on-quarter as margins improved by 30 basis points. Despite a reasonable effort at cost-cutting, aggregate operating margins are still  228 bps below their mid-2018 peak, and it will take at least another eight quarters for that gap to be closed.
FORECASTS - The majority of companies are forecasting for the year ending next month. Despite no change in the aggregate revenue forecast, the outlook for operating income increased by ¥3.7 trillion during the quarter resulting in a 50 bps operating margin uplift. 
POSITIVE MOMENTUM - Both our forward-looking Results Score and Results &amp; Revision Score have returned to the positive after less than one year. Whether this merits a new thirty-year high in TOPIX is, however, a moot point. We would note that the Cabinet Office Leading Indicator of Business Conditions for December turned down for the first time since April 2020.   
SECTOR BREAKDOWN - The leading sectors in terms of one-month change in Results &amp; Revision Score are Other Commercial Products, Autos, Other Consumer Products, Metals, and Building Materials. The RRS 'losers' are Utilities, Internet Content &amp; Services, Food, Beverages &amp; Tobacco,Retail, and Healthcare.  



In the DETAIL section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes.




🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

<p>In our final update for this 'season', two more large-cap 'stragglers' reported yesterday, while two more had irregular downward revisions. Our 'best' and 'worst' pairing is <a href="https://www.smartkarma.com/entities/showa-denko-k-k" target="_blank" data-smartkarma-citation="entities:1496:1" rel="noopener">Showa Denko (4004 JP)</a> and <a href="https://www.smartkarma.com/entities/japan-airport-terminal-co" target="_blank" data-smartkarma-citation="entities:18034:1" rel="noopener">Japan Airport Terminal (9706 JP)</a>.     </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/365/original/2021-02-18_06-28-36.png?1613597329" class="editor-image img-responsive" data-smartkarma-image-id="189365"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/366/original/2021-02-18_06-29-35.png?1613597385" class="editor-image img-responsive" data-smartkarma-image-id="189366"></figure></section><div class="content-caption">   Source for all charts &amp; tables: Japan Analytics</div>

In our final update for this 'season', two more large-cap 'stragglers' reported yesterday, while two more had irregular downward revisions. Our 'best' and 'worst' pairing is Showa Denko (4004 JP) and Japan Airport Terminal (9706 JP).        Source for all charts &amp; tables: Japan Analytics

🇯🇵 JAPAN • Results & Revisions Update 02/​​​17 - Showa Denko & Japan Airport Terminal

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.</p>

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to trend higher and are devoid of bearish inflections. Additionally, the US dollar (DXY) is likely headed lower, something we view as a positive risk-on signal for global equities. As a result, we remain bullish and we continue to recommend adding exposure on pullbacks.

Japan Breaking Out; EM Remains Leadership

President

Thomas Coughlin

Coughlin Associates

<p>HDD capacity shipments exceeded 1 ZB for the first time in 2020.  Continued growth of nearline colder storage will drive HDD shipping capacity to about 3 times that amount by 2026.  Q4 2020 was up due to renewed nearline HDD strength and increased demand for other applications.</p>

HDD capacity shipments exceeded 1 ZB for the first time in 2020.  Continued growth of nearline colder storage will drive HDD shipping capacity to about 3 times that amount by 2026.  Q4 2020 was up due to renewed nearline HDD strength and increased demand for other applications.

HDD Capacity Shipments Exceeded 1ZB in 2020, 3ZB by 2026

Japan

Resonac Holdings Corporation manufactures and distributes chemical products. The Company produces synthetic resins, petrochemical products, inorganics, and other related products. Resonac Holdings also produces ceramics, metals, carbon, electronic materials, and other products.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Resonac Holdings (4004 JP)

Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.

Showa Denko is selling its fertiliser/trading co subsidiary Shoko (8090) to a PE fund. The fund is buying it cheap. REALLY cheap. And a small...

Travis Lundy

🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

NET GAIN - Forecast Aggregate Net Income for the universe of Japanese listed companies ended the quarter 23.8% higher than three months ago - an...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions Update 02/17 - Showa Denko & Japan Airport Terminal

In our final update for this 'season', two more large-cap 'stragglers' reported yesterday, while two more had irregular downward revisions.

Campbell Gunn

Japan Breaking Out; EM Remains Leadership

Major global indexes continue to trend higher and are devoid of bearish inflections. As a result, we remain bullish and we continue to recommend...

Vermilion Research

HDD Capacity Shipments Exceeded 1ZB in 2020, 3ZB by 2026

HDD capacity shipments exceeded 1 ZB for the first time in 2020. Continued growth of nearline colder storage will drive HDD shipping capacity to...

Thomas Coughlin

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Shoko (8090 JP) Tender Offer - Showa Denko Sells Too Cheap. Looks Bumpity.

Showa Denko is selling its fertiliser/trading co subsidiary Shoko (8090) to a PE fund. The fund is buying it cheap. REALLY cheap. And a small...

Travis Lundy

🇯🇵 JAPAN • IT’S A WRAP - Winter 2020 Results & Revisions Review

NET GAIN - Forecast Aggregate Net Income for the universe of Japanese listed companies ended the quarter 23.8% higher than three months ago - an...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions Update 02/​​​17 - Showa Denko & Japan Airport Terminal

In our final update for this 'season', two more large-cap 'stragglers' reported yesterday, while two more had irregular downward revisions.

Campbell Gunn

Japan Breaking Out; EM Remains Leadership

Major global indexes continue to trend higher and are devoid of bearish inflections. As a result, we remain bullish and we continue to recommend...

Vermilion Research

HDD Capacity Shipments Exceeded 1ZB in 2020, 3ZB by 2026

HDD capacity shipments exceeded 1 ZB for the first time in 2020. Continued growth of nearline colder storage will drive HDD shipping capacity to...

Thomas Coughlin

🇯🇵 JAPAN • Results & Revisions Update 02/17 - Showa Denko & Japan Airport Terminal