Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Welsh poet Dylan Thomas is famous for one poem in particular - one called "Do not go gentle into that good night." It is a great poem, and I can always spare a brief moment to <a href="https://poets.org/poem/do-not-go-gentle-good-night" target="_blank" rel="noopener">re-read it</a>. It starts...Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light.This deal, and the accompanying <a href="https://www.nttdocomo.co.jp/english/info/media_center/pr/2020/pdf/english_news_release_200929_02.pdf" target="_blank" rel="noopener">documentation</a> (and Nikkei article <a href="https://asia.nikkei.com/Business/Business-deals/NTT-to-take-over-wireless-unit-Docomo-for-38bn" target="_blank" rel="noopener">updates</a>) tell you NTT is not going gentle.An unkind interpretation might use a later stanza to point out that "grave men, near death, who see with blinding sight, Blind eyes could blaze like meteors and be gay" may produce a last gasp cascade of brilliance, but here the strategic rationale notes, and accompanying management actions are putting the world on notice.We're not going gentle.<hr>This morning, exactly eight hours after the Nikkei published articles in <a href="https://www.nikkei.com/article/DGXMZO64352350Y0A920C2MM8000/" target="_blank" rel="noopener">Japanese</a> and <a href="https://asia.nikkei.com/Business/Business-deals/NTT-to-take-over-wireless-unit-Docomo-for-38bn" target="_blank" rel="noopener">English</a> that <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> would soon launch a Tender Offer to buy out the minority shareholders of its mobile telephony subsidiary and largest mobile phone operator in Japan by subscriber count <a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1" rel="noopener">NTT Docomo Inc (9437 JP)</a>, NTT made a short release to the exchange saying that nothing had yet been decided regarding the subject "NTT to make DoCoMo a wholly-owned subsidiary" but that NTT would hold a board meeting that day to discuss the matter and if an announcement were warranted, there would be one."Nothing has been decided" in Japan Corporate-Speak specifically meant that the board had not resolved the matter at a board meeting. Sure enough, after the close, and after a day when the shares were pegged at limit-up all day long and the gray market traded ¥3450-3500 during that time, after the close NTT and NTT Docomo announced that NTT would conduct a Tender Offer to buy out minorities at ¥3900/share, which is a 40.5% premium to the undisturbed price.Given the ownership circumstances and the trading prices of other telecom stocks out there, this is a Very High Price Indeed.Interestingly, there is more than a hint of frustration shown by NTT in the Management Policy After the Tender Offer section of the document (so far only available in the DoCoMo Opinion <a href="https://www.nttdocomo.co.jp/english/info/media_center/pr/2020/pdf/english_news_release_200929_02.pdf" target="_blank" rel="noopener">document</a>) and in the separate document outlining several management changes to be made 1 December (i.e. 1 week after settlement of the Tender Offer). That includes the NTT DoCoMo CEO Yoshizawa who will resign his board seat, and his roles as CEO and President. That is a wow. He will be replaced by Motoyuki Ii. There will be one more Representative Director added, and two more EVPs elevated to fill the vacuum (both internal). There is considerable explanation about their plans in that doc. For anyone curious about what happens to NTT next, it is well worth a read. They plan on going big in B2B2X with integrated mobile solutions, targeting corporates and local governments. It appears they are going to do more to make dbarai (DoCoMo's cashless payment solution) scaled bigger. Done right, this could both substantially lower costs and could make a much higher throughput system. Consumer mobile effectively takes a back seat. There is more strategic information here than one normally gets. One would normally look at <a href="https://www.smartkarma.com/entities/ntt-data-corp" target="_blank" data-smartkarma-citation="entities:11232:1" rel="noopener">NTT Data Corp (9613 JP)</a> but I think it is a bit early for that. NTT Data may benefit from dev work, but this is an NTT-DoCoMo deal to start. It may be too early to judge exactly whether NTT will adequately monetize the extra generosity it is showing in buying out DoCoMo at ¥3900/share, but it appears they will not go gently into that good night.As always, more below the fold.

Welsh poet Dylan Thomas is famous for one poem in particular - one called "Do not go gentle into that good night." It is a great poem, and I can always spare a brief moment to re-read it. It starts...Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light.This deal, and the accompanying documentation (and Nikkei article updates) tell you NTT is not going gentle.An unkind interpretation might use a later stanza to point out that "grave men, near death, who see with blinding sight, Blind eyes could blaze like meteors and be gay" may produce a last gasp cascade of brilliance, but here the strategic rationale notes, and accompanying management actions are putting the world on notice.We're not going gentle.This morning, exactly eight hours after the Nikkei published articles in Japanese and English that NTT (Nippon Telegraph &amp; Telephone) (9432 JP) would soon launch a Tender Offer to buy out the minority shareholders of its mobile telephony subsidiary and largest mobile phone operator in Japan by subscriber count NTT Docomo Inc (9437 JP), NTT made a short release to the exchange saying that nothing had yet been decided regarding the subject "NTT to make DoCoMo a wholly-owned subsidiary" but that NTT would hold a board meeting that day to discuss the matter and if an announcement were warranted, there would be one."Nothing has been decided" in Japan Corporate-Speak specifically meant that the board had not resolved the matter at a board meeting. Sure enough, after the close, and after a day when the shares were pegged at limit-up all day long and the gray market traded ¥3450-3500 during that time, after the close NTT and NTT Docomo announced that NTT would conduct a Tender Offer to buy out minorities at ¥3900/share, which is a 40.5% premium to the undisturbed price.Given the ownership circumstances and the trading prices of other telecom stocks out there, this is a Very High Price Indeed.Interestingly, there is more than a hint of frustration shown by NTT in the Management Policy After the Tender Offer section of the document (so far only available in the DoCoMo Opinion document) and in the separate document outlining several management changes to be made 1 December (i.e. 1 week after settlement of the Tender Offer). That includes the NTT DoCoMo CEO Yoshizawa who will resign his board seat, and his roles as CEO and President. That is a wow. He will be replaced by Motoyuki Ii. There will be one more Representative Director added, and two more EVPs elevated to fill the vacuum (both internal). There is considerable explanation about their plans in that doc. For anyone curious about what happens to NTT next, it is well worth a read. They plan on going big in B2B2X with integrated mobile solutions, targeting corporates and local governments. It appears they are going to do more to make dbarai (DoCoMo's cashless payment solution) scaled bigger. Done right, this could both substantially lower costs and could make a much higher throughput system. Consumer mobile effectively takes a back seat. There is more strategic information here than one normally gets. One would normally look at NTT Data Corp (9613 JP) but I think it is a bit early for that. NTT Data may benefit from dev work, but this is an NTT-DoCoMo deal to start. It may be too early to judge exactly whether NTT will adequately monetize the extra generosity it is showing in buying out DoCoMo at ¥3900/share, but it appears they will not go gently into that good night.As always, more below the fold. 

NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

NTT (Nippon Telegraph & Telephone) / Event-Driven

The explanation supporting NTT’s buyout of Docomo (in Japanese but translated below) is interesting and we believe it supports our initial thoughts on this development. What we didn’t expect was a ¥3,900 tender price.

The explanation supporting NTT’s buyout of Docomo (in Japanese but translated below) is interesting and we believe it supports our initial thoughts on this development. What we didn’t expect was a ¥3,900 tender price.

NTT – NTT Is Going Big and Our Suspicions Are Aroused Further

The Nikkei article regarding NTT buying out Docomo comes out of the blue and seems to have blindsided almost everybody. This is the first really big move following Suga’s ascendance to the Prime Ministership and in our opinion, it signals that things are going to get increasingly tough for Softbank Corp and probably for KDDI. We discuss our reasoning below.

The Nikkei article regarding NTT buying out Docomo comes out of the blue and seems to have blindsided almost everybody. This is the first really big move following Suga’s ascendance to the Prime Ministership and in our opinion, it signals that things are going to get increasingly tough for Softbank Corp and probably for KDDI. We discuss our reasoning below.

NTT – Initial Thoughts Reading Through the Lines of the Shock News

Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

NTT has confirmed it is considering a bid for the 34% of DoCoMo it does not own in a deal that could be worth ¥3.9 trillion ($37bn).  Press reports cite recent regulatory pressure as a driver but a deal like this is not put together overnight and we think this is secondary to its intention to push more aggressively on 5G and IoT. NTT is paying above the odds, but the strategic rationale makes more sense than investing in ICT/cloud companies outside Japan.  DoCoMo shareholders obviously win here as the expected price is likely to be the highest in 20 years.  Concerns that DoCoMo will have flexibility to price more aggressively will be a drag on KDDI, Softbank and Rakuten although we think those worries are overdone.  Of that group, Softbank (9434) has the strongest support from returns to shareholders with a 7% dividend yield whilst KDDI currently yields 4%.

NTT has confirmed it is considering a bid for the 34% of DoCoMo it does not own in a deal that could be worth ¥3.9 trillion ($37bn).  Press reports cite recent regulatory pressure as a driver but a deal like this is not put together overnight and we think this is secondary to its intention to push more aggressively on 5G and IoT. NTT is paying above the odds, but the strategic rationale makes more sense than investing in ICT/cloud companies outside Japan.  DoCoMo shareholders obviously win here as the expected price is likely to be the highest in 20 years.  Concerns that DoCoMo will have flexibility to price more aggressively will be a drag on KDDI, Softbank and Rakuten although we think those worries are overdone.  Of that group, Softbank (9434) has the strongest support from returns to shareholders with a 7% dividend yield whilst KDDI currently yields 4%. 

Japan Telecom Sector: NTT’s Privatization of DoCoMo Could Be a Long-Term Win

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Quantitative Analysis

<div>
• RELATIVE PRICE SCORE •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/735/original/2020-09-23_11-03-49.png?1600826665" class="editor-image img-responsive" data-smartkarma-image-id="160735"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<a href="https://www.dropbox.com/s/6h3m1giwbtzcupg/2020-09-23_11-03-49.png?dl=0" target="_blank" rel="noopener">PEAK OUTLIER</a> - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/736/original/2020-09-23_11-11-07.png?1600827080" class="editor-image img-responsive" data-smartkarma-image-id="160736"></figure>
</div>SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP))</a>  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/741/original/2020-09-23_11-39-24.png?1600828791" class="editor-image img-responsive" data-smartkarma-image-id="160741"></figure>In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.<div class="content-highlight">RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.</div>


• RELATIVE PRICE SCORE •
Source for all charts &amp; tables: Japan Analytics
PEAK OUTLIER - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  

SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( Japan Post (6178 JP))  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

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)

NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light

This morning, exactly eight hours after the Nikk

Travis Lundy

NTT – NTT Is Going Big and Our Suspicions Are Aroused Further

The explanation supporting NTT’s buyout of Docomo (in Japanese but translated below) is interesting and we believe it supports our initial thoughts...

Mio Kato

NTT – Initial Thoughts Reading Through the Lines of the Shock News

The Nikkei article regarding NTT buying out Docomo comes out of the blue and seems to have blindsided almost everybody. This is the first really...

Mio Kato

Japan Telecom Sector: NTT’s Privatization of DoCoMo Could Be a Long-Term Win

NTT has confirmed it is considering a bid for the 34% of DoCoMo it does not own in a deal that could be worth ¥3.9 trillion ($37bn). Press reports...

Kirk Boodry

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

• RELATIVE PRICE SCORE • RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX...

Campbell Gunn

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