Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

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<div>JPX-Nikkei 400 is composed of common stocks whose main market is the TSE1, TSE2, JASDAQ, and Mothers sections (which will become the Prime Market, Standard Market, or Growth Market next April) of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents selected based on several factors including market capitalization, trading value, operating profits, and ROE.</div>
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<p>A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review is conducted using the final business day of June as the base date. </p>
<p>Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event and others. The rebalance of 2021 took place yesterday. It was discussed in <a href="https://www.smartkarma.com/insights/the-2021-jpx-nikkei-400-rebalance-another-year-another-mess-bigger-but-smaller" target="_blank" data-smartkarma-citation="insights:55716" rel="noopener">The 2021 JPX Nikkei 400 Rebalance. Another Year, Another Mess - Bigger, But Smaller</a> - there were lots of large names deleted because of covid-related writedowns and losses, and in typical JPX Nikkei 400 construction fashion, I expect most of them will be back in the index three years from now after they have rebounded. </p>
<p>Below is a look at the lists of potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022. </p>
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JPX-Nikkei 400 is composed of common stocks whose main market is the TSE1, TSE2, JASDAQ, and Mothers sections (which will become the Prime Market, Standard Market, or Growth Market next April) of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents selected based on several factors including market capitalization, trading value, operating profits, and ROE.


A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review is conducted using the final business day of June as the base date. 
Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event and others. The rebalance of 2021 took place yesterday. It was discussed in The 2021 JPX Nikkei 400 Rebalance. Another Year, Another Mess - Bigger, But Smaller - there were lots of large names deleted because of covid-related writedowns and losses, and in typical JPX Nikkei 400 construction fashion, I expect most of them will be back in the index three years from now after they have rebounded. 
Below is a look at the lists of potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022. 


JPX-Nikkei 400 Rebalance 2022: Leader Board End-Aug 2021

Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p>Rakuten Q2 21 results were mixed with better revenue as core businesses did well but steeper losses as mobile spending grew. The company has not changed broad guidance that peak losses will come in FY21 but roaming costs appear to be a larger issue than we thought with an impact on both margins and the timing of new user acquisition. That makes slippage in network deployment targets slightly more problematic although there should also be some offset from good results in eCommerce which grew YoY despite lapping the very strong lockdown quarter.</p>

Rakuten Q2 21 results were mixed with better revenue as core businesses did well but steeper losses as mobile spending grew. The company has not changed broad guidance that peak losses will come in FY21 but roaming costs appear to be a larger issue than we thought with an impact on both margins and the timing of new user acquisition. That makes slippage in network deployment targets slightly more problematic although there should also be some offset from good results in eCommerce which grew YoY despite lapping the very strong lockdown quarter.

Rakuten (Neutral) - Q2 21 Results Reaction: Roaming Costs Have Become a Big Deal

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

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<p>Coupang, one of the largest e-commerce players in Korea, was listed on 11th Mar 2021 when it raised around US$4.5bn via selling a mix of primary and secondary shares in its US IPO.</p>
<p>In this note, we'll talk about the upcoming lock-up expiry.</p>
<p>We've covered various aspects of the deal in our earlier insights: </p>
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<a href="https://www.smartkarma.com/insights/coupang-pre-ipo-the-positives-fast-growth-sticky-customers" target="_blank" rel="noopener">Coupang Pre-IPO - The Positives - Fast Growth, Sticky Customers</a>, </li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-the-negatives-horrendous-data-disclosures-including-no-mention-of-ott-launch" target="_blank" rel="noopener">Coupang Pre-IPO - The Negatives - Horrendous Data Disclosures, Including No Mention of OTT Launch</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-fair-bit-of-competition-but-it-s-doing-better-than-most-local-peers" target="_blank" rel="noopener">Coupang Pre-IPO - Fair Bit of Competition but It’s Doing Better than Most Local Peers</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-pre-ipo-earnings-forecast-and-valuation" target="_blank" rel="noopener">Coupang Pre-IPO - Earnings Forecast and Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-momentum-play-unequal-lock-up-index-inclusion" target="_blank" rel="noopener">Coupang IPO - Momentum Play, Unequal Lock-Up, Index Inclusion</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-quick-note-peers-move-down-range-moves-up-ripe-for-trading" target="_blank" rel="noopener">Coupang IPO - Quick Note - Peers Move Down, Range Moves Up. Ripe for Trading.</a></li>
<li><a href="https://www.smartkarma.com/insights/coupang-ipo-trading-most-hit-near-term-peak-on-the-first-day-key-trading-lock-up-dates" target="_blank" rel="noopener">Coupang IPO Trading - Most Hit near Term Peak on the First Day - Key Trading/​Lock-Up Dates</a></li>
</ul></div>


Coupang, one of the largest e-commerce players in Korea, was listed on 11th Mar 2021 when it raised around US$4.5bn via selling a mix of primary and secondary shares in its US IPO.
In this note, we'll talk about the upcoming lock-up expiry.
We've covered various aspects of the deal in our earlier insights: 


Coupang Pre-IPO - The Positives - Fast Growth, Sticky Customers, 
Coupang Pre-IPO - The Negatives - Horrendous Data Disclosures, Including No Mention of OTT Launch
Coupang Pre-IPO - Fair Bit of Competition but It’s Doing Better than Most Local Peers
Coupang Pre-IPO - Earnings Forecast and Valuation
Coupang IPO - Momentum Play, Unequal Lock-Up, Index Inclusion
Coupang IPO - Quick Note - Peers Move Down, Range Moves Up. Ripe for Trading.
Coupang IPO Trading - Most Hit near Term Peak on the First Day - Key Trading/​Lock-Up Dates


Coupang Lock-Up Expiry - Failed to Meet Multiple Lock-Up Exits; Now Hitting the US$7bn Expiry

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

NTT (Nippon Telegraph & Telephone) / Event-Driven

<p>With its Q1 earnings release on Friday 6 August, NTT also announced a buyback. This is the <em>seventh</em> large buyback in five years. </p><p>The buyback programs for on-market buyback announced from 2016-2019 were ¥150bn in size, uniformly. Since then, the two on-market buybacks have been ¥250bn. </p><p>One might have expected this one to be ¥150-200bn but at ¥250bn it is likely at the high end of expectations for three reasons.</p><ol>
<li>In order to buy back ¥300bn next time from the government, it needs to buy back ¥250bn from the market this time. </li>
<li>This larger buyback represents continued effort at offsetting the dilution from the ¥200bn share sale to Toyota in March 2020, and </li>
<li>This larger buyback represents NTT using the additional earnings power of NTT Docomo. NTT used to buy back shares from the market and from NTT, then NTT would take that cash and capital and buy back its own shares. Now NTT Docomo doesn't have to spend any money on buybacks from minority shareholders. All of its cash can go to the parent NTT. NTT therefore has more to spend on buybacks. Given several of the recent NTT Docomo buybacks were on the order of ¥300bn, the one-third of that amount which did not accrue to NTT now does. So now it accrues to NTT shareholders. </li>
</ol><p>I expect a buyback size of ¥250-300bn to be the new standard.</p><p>Of course, this lets us take a look at NTT vs its competitors KDDI and Softbank Corp yet again, and compare the impact on the market of the various buyback programs in place.</p><p>More below the fold.</p>

With its Q1 earnings release on Friday 6 August, NTT also announced a buyback. This is the seventh large buyback in five years. The buyback programs for on-market buyback announced from 2016-2019 were ¥150bn in size, uniformly. Since then, the two on-market buybacks have been ¥250bn. One might have expected this one to be ¥150-200bn but at ¥250bn it is likely at the high end of expectations for three reasons.
In order to buy back ¥300bn next time from the government, it needs to buy back ¥250bn from the market this time. 
This larger buyback represents continued effort at offsetting the dilution from the ¥200bn share sale to Toyota in March 2020, and 
This larger buyback represents NTT using the additional earnings power of NTT Docomo. NTT used to buy back shares from the market and from NTT, then NTT would take that cash and capital and buy back its own shares. Now NTT Docomo doesn't have to spend any money on buybacks from minority shareholders. All of its cash can go to the parent NTT. NTT therefore has more to spend on buybacks. Given several of the recent NTT Docomo buybacks were on the order of ¥300bn, the one-third of that amount which did not accrue to NTT now does. So now it accrues to NTT shareholders. 
I expect a buyback size of ¥250-300bn to be the new standard.Of course, this lets us take a look at NTT vs its competitors KDDI and Softbank Corp yet again, and compare the impact on the market of the various buyback programs in place.More below the fold.

NTT Buybacks Continue - Bigger, Better, Faster, Stronger

<p>Financial results are largely in-line with expectations although the previously announced Z Holdings beat and higher handset sales flatter the top line.  As we saw with KDDI last week, we are seeing tangible signs of an increase in competitive intensity as aggressive pricing plans move through the market but user churn and ARPU pressure is largely as expected. Softbank appears to be weathering the storm better than KDDI so far with DoCoMo set to report Friday. With results in-line with expectations, we remain at Buy</p>

Financial results are largely in-line with expectations although the previously announced Z Holdings beat and higher handset sales flatter the top line.  As we saw with KDDI last week, we are seeing tangible signs of an increase in competitive intensity as aggressive pricing plans move through the market but user churn and ARPU pressure is largely as expected. Softbank appears to be weathering the storm better than KDDI so far with DoCoMo set to report Friday. With results in-line with expectations, we remain at Buy

Softbank Corp (Buy) - Q1 21 Results Reaction: Revenue Beat but Largely In-Line Elsewhere

Japan

Softbank Corporation provides mobile phone telecommunication and networking services. The Company offers mobile communication opening, short messaging function opening, video function opening, and other services. Softbank also provides mobile phones.

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Softbank Corp (9434 JP)

JPX-Nikkei 400 Rebalance 2022: Leader Board End-Aug 2021

The next annual rebalance for the JPX-Nikkei 400 Index will be in August 2022. With roughly a year to go, we take an early look at the leader...

Janaghan Jeyakumar, CFA

Rakuten (Neutral) - Q2 21 Results Reaction: Roaming Costs Have Become a Big Deal

Rakuten posted solid eCommerce/Fintech results but these are overshadowed by mobile operating losses. The good news is peak losses should fall in...

Kirk Boodry

Coupang Lock-Up Expiry - Failed to Meet Multiple Lock-Up Exits; Now Hitting the US$7bn Expiry

Coupang was listed on 11th Mar 2021 when it raised around US$4.5bn via selling a mix of primary and secondary shares in its US IPO. In this note,...

Sumeet Singh

NTT Buybacks Continue - Bigger, Better, Faster, Stronger

NTT Announces good earnings and a big buyback. Buybacks are normal but this buyback is the new normal, delivering NTT Docomo's earnings to NTT...

Travis Lundy

Softbank Corp (Buy) - Q1 21 Results Reaction: Revenue Beat but Largely In-Line Elsewhere

Financial results are largely in-line with expectations although the previously announced Z Holdings beat and higher handset sales flatter the top...

Kirk Boodry

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