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.

Equity Bottom-Up

Square Enix disappointed with OP of ¥7.1bn undershooting consensus’ ¥11.4bn and FY guidance of ¥40bn also coming in below the ¥54.9bn of consensus. Results were weak in the HD Games segment in particular but conditions for MMOs and smart device games were strong and should help the company come within a hair’s breadth of FY consensus regardless of its conservative guidance.

Square Enix disappointed with OP of ¥7.1bn undershooting consensus’ ¥11.4bn and FY guidance of ¥40bn also coming in below the ¥54.9bn of consensus. Results were weak in the HD Games segment in particular but conditions for MMOs and smart device games were strong and should help the company come within a hair’s breadth of FY consensus regardless of its conservative guidance.

Square Enix – Losses in HD Games Disappointing

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

A brief thinkpiece about where <a href="https://www.smartkarma.com/entities/nexon-co-ltd" target="_blank" data-smartkarma-citation="entities:16032:1" rel="noopener">Nexon (3659 JP)</a> sits vs its peers and history. Conclusions are that NEXON is not dramatically expensive to its peers on a Forward EV/EBIT multiple basis. You would need another 5+% into the close to be comfortable with a clean short-term trade given the change in Real World FloatOriginal insight is <a href="https://www.smartkarma.com/insights/familymart-delisting-and-its-nikkei-225-replacement-is-nexon-3659" target="_blank" data-smartkarma-citation="insights:44429" rel="noopener">Familymart Delisting and Its Nikkei 225 Replacement Is Nexon (3659)</a>.More below the fold.

A brief thinkpiece about where Nexon (3659 JP) sits vs its peers and history. Conclusions are that NEXON is not dramatically expensive to its peers on a Forward EV/EBIT multiple basis. You would need another 5+% into the close to be comfortable with a clean short-term trade given the change in Real World FloatOriginal insight is Familymart Delisting and Its Nikkei 225 Replacement Is Nexon (3659).More below the fold.  

Is It Safe to Short NEXON into the Inclusion?

Japan Specialist

Mark Chadwick

<a href="https://www.smartkarma.com/entities/link-u-inc" target="_blank" data-smartkarma-citation="entities:29204:1" rel="noopener">Link-U (4446 JP)</a>  is a young, fast-growing technology company in an attractive sector. Indications are that the company has a strong moat around costs and switching, both of which can combine to get clients on the platform and keep them there. Management is focused on growth and is focused on certain niche areas withing their sphere of competence and skill. The shift to the TSE 1st section in July 2020 should increase visibility as the company moves to build out its infrastructure, expand its engineering talent, and grow its business lines under a management team that is properly aligned with the company’s performance.

Link-U (4446 JP)  is a young, fast-growing technology company in an attractive sector. Indications are that the company has a strong moat around costs and switching, both of which can combine to get clients on the platform and keep them there. Management is focused on growth and is focused on certain niche areas withing their sphere of competence and skill. The shift to the TSE 1st section in July 2020 should increase visibility as the company moves to build out its infrastructure, expand its engineering talent, and grow its business lines under a management team that is properly aligned with the company’s performance. 

Small Cap Growth: Link-U (4446) – Undercutting AWS

Today after the close, and a few days earlier than expected, the Nikkei's “Index Business Office" which administers the Nikkei 225 Average and the other indices announced the Annual Review of the Nikkei 225 Average has resulted in one deletion, and one replacement. 
The stock getting deleted is <a href="https://www.smartkarma.com/entities/nippon-kayaku-co-ltd" target="_blank" data-smartkarma-citation="entities:6971:1" rel="noopener">Nippon Kayaku (4272 JP)</a> and the stock being added is <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a>. Softbank Corp is getting added with a Deemed Par Value of 50 yen per share as of the close of 30 September. 
There will be a few other technical changes at the end of September to do with a few stock splits and reverse stock splits but they will have no effect on the index. 
I have been surprised by the lack of aggressive shorting on Nippon Kayaku as it was the odds-on favorite to get the boot. The addition of Softbank Corp will surprise a few people but it may indicate an ongoing trend at the Nikkei to favor a certain kind of rebalance. 
More below the fold.

Today after the close, and a few days earlier than expected, the Nikkei's “Index Business Office" which administers the Nikkei 225 Average and the other indices announced the Annual Review of the Nikkei 225 Average has resulted in one deletion, and one replacement. 
The stock getting deleted is Nippon Kayaku (4272 JP) and the stock being added is Softbank Corp (9434 JP). Softbank Corp is getting added with a Deemed Par Value of 50 yen per share as of the close of 30 September. 
There will be a few other technical changes at the end of September to do with a few stock splits and reverse stock splits but they will have no effect on the index. 
I have been surprised by the lack of aggressive shorting on Nippon Kayaku as it was the odds-on favorite to get the boot. The addition of Softbank Corp will surprise a few people but it may indicate an ongoing trend at the Nikkei to favor a certain kind of rebalance. 
More below the fold.

The 2020 Nikkei 225 Rebalance: Nippon Kayaku OUT and Softbank Corp IN

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Nikkei has just announced the changes to the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> as part of its periodic review. In a 'surprise', <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> will be added to the index and <a href="https://www.smartkarma.com/entities/nippon-kayaku-co-ltd" target="_blank" data-smartkarma-citation="entities:6971:1" rel="noopener">Nippon Kayaku (4272 JP)</a> will be deleted from the index.The changes will be made prior to the open of the market on 1 October, so passive funds will trade at the closing auction on 30 September.At between 25-26m shares to buy (2.2% of its real world float and less than 3 days of ADV to buy), the impact on <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp 9434 JP)</a> will be minimal. The overhang of the block offering announced on 28 August should keep a lid on the stock for the time being.The impact on <a href="https://www.smartkarma.com/entities/nippon-kayaku-co-ltd" target="_blank" data-smartkarma-citation="entities:6971:1" rel="noopener">Nippon Kayaku (4272 JP)</a> is expected to be much larger. The 25-26m shares to sell is over 13% of the shares outstanding and represents over 40 days of ADV and this could lead to a sharp move lower in the stock.Surprisingly, <a href="https://www.smartkarma.com/entities/familymart-co-ltd" target="_blank" data-smartkarma-citation="entities:320:1" rel="noopener">FamilyMart Co Ltd (8028 JP)</a> has not been deleted from the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> following <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a>'s offer to take the company private. The FamilyMart deletion could be done in an adhoc review or announced after the implementation of the Share Consolidation and implemented along with the annual review. We see <a href="https://www.smartkarma.com/entities/zozo-inc" target="_blank" data-smartkarma-citation="entities:18379:1" rel="noopener">ZOZO Inc (3092 JP)</a>, <a href="https://www.smartkarma.com/entities/kakaku-com-inc" target="_blank" data-smartkarma-citation="entities:7408:1" rel="noopener">Kakaku.com Inc (2371 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> as the most likely replacement candidates.

Nikkei has just announced the changes to the Nikkei 225 (NKY INDEX) as part of its periodic review. In a 'surprise', Softbank Corp (9434 JP) will be added to the index and Nippon Kayaku (4272 JP) will be deleted from the index.The changes will be made prior to the open of the market on 1 October, so passive funds will trade at the closing auction on 30 September.At between 25-26m shares to buy (2.2% of its real world float and less than 3 days of ADV to buy), the impact on Softbank Corp 9434 JP) will be minimal. The overhang of the block offering announced on 28 August should keep a lid on the stock for the time being.The impact on Nippon Kayaku (4272 JP) is expected to be much larger. The 25-26m shares to sell is over 13% of the shares outstanding and represents over 40 days of ADV and this could lead to a sharp move lower in the stock.Surprisingly, FamilyMart Co Ltd (8028 JP) has not been deleted from the Nikkei 225 (NKY INDEX) following Itochu Corp (8001 JP)'s offer to take the company private. The FamilyMart deletion could be done in an adhoc review or announced after the implementation of the Share Consolidation and implemented along with the annual review. We see ZOZO Inc (3092 JP), Kakaku.com Inc (2371 JP) and Square Enix Holdings (9684 JP) as the most likely replacement candidates.

Nikkei 225 Index Rebalance: Softbank Corp IN, Nippon Kayaku OUT

Japan

SQUARE ENIX HOLDINGS CO., LTD. develops and sells entertainment software for home video game consoles including Dragon Quest and Final Fantasy series. The Company also publishes books such as informational guide books for its game software, and comic magazines and books.  Additionally, Square Enix sells character goods and stationery items from its software products.

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Square Enix Holdings (9684 JP)

Square Enix – Losses in HD Games Disappointing

Square Enix disappointed with its 2Q earnings and weak guidance. Nevertheless, we believe guidance is conservative and strengthening HD Games could...

Mio Kato

Is It Safe to Short NEXON into the Inclusion?

Nexon has bounced on the Nikkei 225 inclusion. It may not have bounced enough to be aggressively short. The forward fundamental multiple isn't...

Travis Lundy

Small Cap Growth: Link-U (4446) – Undercutting AWS

Link-U (4446 JP) is a young, fast-growing technology company in an attractive sector. Indications are that the company has a strong moat around...

Mark Chadwick

The 2020 Nikkei 225 Rebalance: Nippon Kayaku OUT and Softbank Corp IN

Today after the close, and a few days earlier than expected, the Nikkei's “Index Business Office" which administers the Nikkei 225 Average and the...

Travis Lundy

Nikkei 225 Index Rebalance: Softbank Corp IN, Nippon Kayaku OUT

A very widely tracked index with large impact on the inclusion names.

Brian Freitas

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