Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

<ul>
<li>The Berkshire Hathaway <a href="https://www.berkshirehathaway.com/2024ar/2024ar.pdf" target="_blank" rel="noopener">Annual Shareholder Letter for 2024</a> was released this weekend. Much was made in Japanese twitter-space of the comments he made on the Japanese trading houses. </li>
<li>He said Berkshire Hathaway's admiration of these companies "has consistently grown" and Berkshire likes their capital deployment, managements, and their attitude in respect to investors. They also pay themselves reasonably.</li>
<li>He mentioned Berkshire will increase their stakes somewhat in the trading houses "over time." That comment deserves some exploration, as does the comment about yen funding.</li>
</ul>


The Berkshire Hathaway Annual Shareholder Letter for 2024 was released this weekend. Much was made in Japanese twitter-space of the comments he made on the Japanese trading houses. 
He said Berkshire Hathaway's admiration of these companies "has consistently grown" and Berkshire likes their capital deployment, managements, and their attitude in respect to investors. They also pay themselves reasonably.
He mentioned Berkshire will increase their stakes somewhat in the trading houses "over time." That comment deserves some exploration, as does the comment about yen funding.


Warren Buffett and the Japanese Trading Houses I

Event-Driven

<ul>
<li>The <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> to rid itself of control of the Ito-Yokado, York Benimaru, Akachan Hompo, and Denny's Japan businesses in York Holdings proceeds apace.</li>
<li>The First Round of bids is due tomorrow, apparently, and all manner of bidders have assembled. </li>
<li>This leads to the question of a deal for the rest of 7&amp;i. If a TradingCo is a natural co-investor for the Ito family (or ACT), so is Berkshire Hathaway.</li>
</ul>


The Seven &amp; I Holdings (3382 JP) to rid itself of control of the Ito-Yokado, York Benimaru, Akachan Hompo, and Denny's Japan businesses in York Holdings proceeds apace.
The First Round of bids is due tomorrow, apparently, and all manner of bidders have assembled. 
This leads to the question of a deal for the rest of 7&amp;i. If a TradingCo is a natural co-investor for the Ito family (or ACT), so is Berkshire Hathaway.


7&I (3382 JP) - A York Holdings Deal And Warren Buffett?

<ul>
<li>Yesterday a news article from Bloomberg suggested 7&amp;i was "considering" an MBO. <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> later confirmed they had received a non-binding proposal from ITO Junro/family.</li>
<li>The initial number was ¥9trln. If market cap? High. If EV, too low. That would have implied a price just over the first "grossly inadequate" ACT price.</li>
<li>There is a lot we don't know. This changes the landscape. It probably shifts the range trade, but it will shift more when we get more clarity on ITO-san's price.</li>
</ul>


Yesterday a news article from Bloomberg suggested 7&amp;i was "considering" an MBO. Seven &amp; I Holdings (3382 JP) later confirmed they had received a non-binding proposal from ITO Junro/family.
The initial number was ¥9trln. If market cap? High. If EV, too low. That would have implied a price just over the first "grossly inadequate" ACT price.
There is a lot we don't know. This changes the landscape. It probably shifts the range trade, but it will shift more when we get more clarity on ITO-san's price.


7&I (3382 JP) - An ITO Family MBO? With Itochu? At ¥9trln? Maybe. Information Is Scarce

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Thematic (Sector/Industry)

<ul>
<li>Tailwinds are turning to headwinds for the Japanese Trading companies.</li>
<li>Risks rising in the short term due to JPY strength, weakening commodity prices and the upcoming US recession.</li>
<li>Massive outperformance over the last two years, most recently due to multiple expansion</li>
</ul>


Tailwinds are turning to headwinds for the Japanese Trading companies.
Risks rising in the short term due to JPY strength, weakening commodity prices and the upcoming US recession.
Massive outperformance over the last two years, most recently due to multiple expansion


Risks Ahead for Japanese Trading Companies. Marubeni, Mitsui, Sumitomo, Mitsubishi

TSE Tokyo Price Index TOPIX / Event-Driven

<ul>
<li>In April 2022, after long prep and considerable public comment as to desires and design, the TSE launched its new market segments designed to encourage governance and foreign investment.</li>
<li>At the time, the TSE wanted to showcase Japan's best blue chips. In March, JPX announced JPX Prime 150, designed to make visible</li>
<li>In March 2023, JPX announced JPX Prime 150, to "make visible the leading Japanese companies that are estimated to create value." Ambitious? Yes. Fated to fail? Probably. Badly constructed?  Definitely. </li>
</ul>


In April 2022, after long prep and considerable public comment as to desires and design, the TSE launched its new market segments designed to encourage governance and foreign investment.
At the time, the TSE wanted to showcase Japan's best blue chips. In March, JPX announced JPX Prime 150, designed to make visible
In March 2023, JPX announced JPX Prime 150, to "make visible the leading Japanese companies that are estimated to create value." Ambitious? Yes. Fated to fail? Probably. Badly constructed?  Definitely. 


The TSE's New 'Better' Index:  JPX Prime 150

Japan

Sumitomo Corp is a general trading company.  The Company imports and exports a wide variety of goods such as metals, machinery, chemicals, fuel,food products, and textiles.  Sumitomo also operates real estate, construction, shipping, insurance, finance, and leasing businesses.

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Sumitomo Corp (8053 JP)

Warren Buffett and the Japanese Trading Houses I

Today, National Indemnity - BRK's holdco for owning Japanese trading co shares - announced it had upped its stake in each of the five trading...

Travis Lundy

7&I (3382 JP) - A York Holdings Deal And Warren Buffett?

7&i is holding a bidding process for York Holdings. This could be priced and dealt in 3mos (with close next FY). That cleans up the process for...

Travis Lundy

7&I (3382 JP) - An ITO Family MBO? With Itochu? At ¥9trln? Maybe. Information Is Scarce

An MBO for Seven & i by the ITO family? Maybe. And the number was big (¥3450/sh), unless it was small (¥2,300/sh), and we don't know which. But it...

Travis Lundy

Risks Ahead for Japanese Trading Companies. Marubeni, Mitsui, Sumitomo, Mitsubishi

The investment thesis is starting to work as the reasoning behind the trade is playing out as the Japanese Yen strengthens.

Rikki Malik

The TSE's New 'Better' Index: JPX Prime 150

The TSE is launching a new JPX Prime 150 Index on 3 July 2023. It is 150 stocks with high PBRs and high "Equity Spread" (ROE vs cost of capital)...

Travis Lundy

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