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

<ul>
<li>JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.</li>
<li>A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.</li>
<li>Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-April 2022.</li>
</ul>


JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-April 2022.


JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Apr 2022

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Imasen Electric Industrial / Event-Driven

On 9 November, along with <a href="http://www.imasen.co.jp/pdf/e_tanshin2009.pdf" target="_blank" rel="noopener">Q2 earnings</a> (which showed revenues down a sharp 35.7% in H1, with OP and NP turning sharply negative), Japanese auto parts maker (known for seat adjustment mechanisms, lamps, and various servos and relays)  <a href="https://www.smartkarma.com/entities/imasen-electric-industrial" target="_blank" data-smartkarma-citation="entities:18685:1" rel="noopener">Imasen Electric Industrial (7266 JP)</a> announced that larger auto parts maker (predominantly seats) <a href="https://www.smartkarma.com/entities/ts-tech-co-ltd" target="_blank" data-smartkarma-citation="entities:7774:1" rel="noopener">Ts Tech Co Ltd (7313 JP)</a> would launch a partial Tender Offer and would buy shares in a third party placement if the partial Tender Offer were unsuccessful with the goal of getting to xx%.TS Tech currently owns 638,000 shares (3.06%) and the Tender Offer to be launched would buy up to 5,209,500 shares (25.00%). Once they have achieved 25% in the Tender Offer, they would then be a Special Related Shareholder and would purchase 3.181mm shares in a third-party placement which would take them to 34.00%. This somewhat skirts the intent of the TOB Rules but I expect it will be difficult to get it struck down.  <div class="content-highlight">
The Tender Offer Price of PBR is ¥930/share, however, is ludicrous. 
The value on the books of net cash and securities holdings is ¥677/share as of end-Sep 2020. Add net receivables to that and you get ¥1,012/share. Book Value Per Share is ¥2,255/share (45 days of inventories is ¥529/share of that).
166% of Tender Offer Market Cap is Net Cash + Securities + Inventories + Net Receivables.
It beggars belief that a company which has strong customer relationships and substantial net cash (a bit more than half the market cap at Tender Offer Price) should see the Board sell negative control of the company (34%) at 0.4x book and an Enterprise Value of 1.1x 5-year EBITDA.  Add the cross-holdings into the "cash" column and the takeover price is roughly 0.5x five-year EBITDA.
The Tender Offer Price is set at a price which is below where the shares were in January 2020, which at the time were hovering at ten-year lows.
Large and famous Japanese investment banks SMBC Nikko and Nomura Securities signed off on DCF ranges which allow the Board to consider that price fair.
</div>As I suggested in <a href="https://www.smartkarma.com/insights/japan-needs-more-cowbell" target="_blank" data-smartkarma-citation="insights:41191" rel="noopener">Japan Needs More Cowbell</a>...<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/171/563/original/image?1605402722" class="editor-image img-responsive" data-smartkarma-image-id="171563"></figure><div class="content-highlight">
Independent shareholders need to speak up. If you do not, you tacitly approve.
More below the fold.
</div></section>

On 9 November, along with Q2 earnings (which showed revenues down a sharp 35.7% in H1, with OP and NP turning sharply negative), Japanese auto parts maker (known for seat adjustment mechanisms, lamps, and various servos and relays)  Imasen Electric Industrial (7266 JP) announced that larger auto parts maker (predominantly seats) Ts Tech Co Ltd (7313 JP) would launch a partial Tender Offer and would buy shares in a third party placement if the partial Tender Offer were unsuccessful with the goal of getting to xx%.TS Tech currently owns 638,000 shares (3.06%) and the Tender Offer to be launched would buy up to 5,209,500 shares (25.00%). Once they have achieved 25% in the Tender Offer, they would then be a Special Related Shareholder and would purchase 3.181mm shares in a third-party placement which would take them to 34.00%. This somewhat skirts the intent of the TOB Rules but I expect it will be difficult to get it struck down.  
The Tender Offer Price of PBR is ¥930/share, however, is ludicrous. 
The value on the books of net cash and securities holdings is ¥677/share as of end-Sep 2020. Add net receivables to that and you get ¥1,012/share. Book Value Per Share is ¥2,255/share (45 days of inventories is ¥529/share of that).
166% of Tender Offer Market Cap is Net Cash + Securities + Inventories + Net Receivables.
It beggars belief that a company which has strong customer relationships and substantial net cash (a bit more than half the market cap at Tender Offer Price) should see the Board sell negative control of the company (34%) at 0.4x book and an Enterprise Value of 1.1x 5-year EBITDA.  Add the cross-holdings into the "cash" column and the takeover price is roughly 0.5x five-year EBITDA.
The Tender Offer Price is set at a price which is below where the shares were in January 2020, which at the time were hovering at ten-year lows.
Large and famous Japanese investment banks SMBC Nikko and Nomura Securities signed off on DCF ranges which allow the Board to consider that price fair.
As I suggested in Japan Needs More Cowbell...
Independent shareholders need to speak up. If you do not, you tacitly approve.
More below the fold.


Imasen Electric Partial Tender - Set Governance to Ludicrous Mode

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

Tachi-S is a small cap (¥30bn market cap) seat manufacturer which counts Honda and the Nissan Alliance as its key customers, though it has been growing sales to Toyota of late and has signed a partnership agreement with Toyota Boshoku, the Toyota group’s seat manufacturer. A dependence on China for profits at present is a concern, but with exposure to North America and Latin America in addition to China, the company offers a rare geographical mix for a Japanese autoparts company. At 5.2x FY2 PE the company is cheap, even compared to the sector. We examine the details below.

Tachi-S is a small cap (¥30bn market cap) seat manufacturer which counts Honda and the Nissan Alliance as its key customers, though it has been growing sales to Toyota of late and has signed a partnership agreement with Toyota Boshoku, the Toyota group’s seat manufacturer. A dependence on China for profits at present is a concern, but with exposure to North America and Latin America in addition to China, the company offers a rare geographical mix for a Japanese autoparts company. At 5.2x FY2 PE the company is cheap, even compared to the sector. We examine the details below.

Tachi-S – Ramped Investment into a Revenue Contraction but There Is Value and a Hint of a Recovery

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/163/original/2019-03-17_07-32-23.png?1552775594" class="editor-image img-responsive" data-smartkarma-image-id="82163"></figure>Source: Japan Analytics
</div>SIDEWAYS - Japanese equities have gove up half of their late-February gains in US dollar terms over the last two weeks. Poised just 1.7% above the fifty-day moving average, last breached to the downside six months ago, the market needs fresh catalysts. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/164/original/2019-03-17_07-54-56.png?1552777022" class="editor-image img-responsive" data-smartkarma-image-id="82164"></figure><div class="content-caption">Source: Japan Analytics</div>BOJ IS BACK - After almost a one-month hiatus, the Bank of Japan resumed purchases of exchange-traded funds, intervening four times in the last nine trading days. Further intervention is to be expected as the market adjusts to the continuing stream of weak macro data.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/082/165/original/2019-03-17_08-15-44.png?1552778203" class="editor-image img-responsive" data-smartkarma-image-id="82165"></figure><div class="content-caption">Source: Japan Analytics</div>THANK YOU, MIZUHO - <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho' s (8411 JP)</a> ¥680b retail branch, software and foreign bond write down, and net profit forecast of ¥80b for FY 2018 has resulted in the market composite forecast for net income falling to ¥43.6t, 5.6% below the November peak. Forecast net income is now 1.2% below the level of one year ago, and seven sectors' forecasts are more than 10% lower than a year ago.   MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Machinery, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on the Auto sector,  <a href="https://www.smartkarma.com/entities/1411" target="_blank" data-smartkarma-citation="entities:1411:1">Sumitomo Realty (8830 JP)</a>, <a href="https://www.smartkarma.com/entities/4508" target="_blank" data-smartkarma-citation="entities:4508:1">Sekisui House (1928 JP)</a>, <a href="https://www.smartkarma.com/entities/3294" target="_blank" data-smartkarma-citation="entities:3294:1">Pigeon (7956 JP)</a>, <a href="https://www.smartkarma.com/entities/8723" target="_blank" data-smartkarma-citation="entities:8723:1">Fuji Seal (7864 JP)</a>, and <a href="https://www.smartkarma.com/entities/3548" target="_blank" data-smartkarma-citation="entities:3548:1">Kawasaki Kisen (9107 JP)</a>


Source: Japan Analytics
SIDEWAYS - Japanese equities have gove up half of their late-February gains in US dollar terms over the last two weeks. Poised just 1.7% above the fifty-day moving average, last breached to the downside six months ago, the market needs fresh catalysts. Source: Japan AnalyticsBOJ IS BACK - After almost a one-month hiatus, the Bank of Japan resumed purchases of exchange-traded funds, intervening four times in the last nine trading days. Further intervention is to be expected as the market adjusts to the continuing stream of weak macro data.  Source: Japan AnalyticsTHANK YOU, MIZUHO - Mizuho' s (8411 JP) ¥680b retail branch, software and foreign bond write down, and net profit forecast of ¥80b for FY 2018 has resulted in the market composite forecast for net income falling to ¥43.6t, 5.6% below the November peak. Forecast net income is now 1.2% below the level of one year ago, and seven sectors' forecasts are more than 10% lower than a year ago.   MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Machinery, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on the Auto sector,  Sumitomo Realty (8830 JP), Sekisui House (1928 JP), Pigeon (7956 JP), Fuji Seal (7864 JP), and Kawasaki Kisen (9107 JP)

🇯🇵 Japan • Fortnightly Update - Reverse Gear

Analyst - Japan Autos, Hirakata Office

Noriaki Hirakata, CFA

Analyst - Japan Autos

Hirakata Office

Thematic (Sector/Industry)

<ul><li>I am back to the research space after 5 years of field work.</li><ul><li>Over 15 years' sell side experience was not sufficient on a real battlefield.</li><li>Interesting days at Mitsubishi Motors in the strategic management office and proving track.</li></ul><li>Growth driver for global automotive industry <ul><li>Chinese market dominates most, while Japanese are not keen to this reality.</li><li>This may induce strategic mistakes for the Japanese automotive industry.</li></ul></li><li>Big Attitude Shift towards alliances <ul><li>Japanese automotive industry has become more constructive to alliances in recent years.</li><li>Huge success at Subaru.</li><li>AD or connected car may not be the main reason.</li><li>We need to make further analysis of regulation trends to understand these phenomena. </li></ul></li><li>Changes in the latest power-train strategy at Toyota Motor <ul><li>Surprising change from "Hybrid to Fuel Cell" to "Hybrid to Plug-in Hybrid".</li></ul></li><li> It seems like the right time to evaluate the competitive edge of the Japanese automotive industry. </li></ul>

I am back to the research space after 5 years of field work.Over 15 years' sell side experience was not sufficient on a real battlefield.Interesting days at Mitsubishi Motors in the strategic management office and proving track.Growth driver for global automotive industry Chinese market dominates most, while Japanese are not keen to this reality.This may induce strategic mistakes for the Japanese automotive industry.Big Attitude Shift towards alliances Japanese automotive industry has become more constructive to alliances in recent years.Huge success at Subaru.AD or connected car may not be the main reason.We need to make further analysis of regulation trends to understand these phenomena. Changes in the latest power-train strategy at Toyota Motor Surprising change from "Hybrid to Fuel Cell" to "Hybrid to Plug-in Hybrid". It seems like the right time to evaluate the competitive edge of the Japanese automotive industry. 

I'm Back with New and Hopefully Better Thoughts (Japanese Automotive Industry)

Japan

TS TECH CO., LTD. manufactures seats for two-wheeled and four-wheeled vehicles. The Company also produces other automobile accessories.

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Ts Tech Co Ltd (7313 JP)

JPX-Nikkei 400 Rebalance 2022: Leaderboard End-Apr 2022

A look at the potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-April 2022.

Janaghan Jeyakumar, CFA

Imasen Electric Partial Tender - Set Governance to Ludicrous Mode

Smaller autoparts maker Imasen Electric has decided that to go under the wing of larger parts maker it will recommend a Tender Offer (then sell new...

Travis Lundy

Tachi-S – Ramped Investment into a Revenue Contraction but There Is Value and a Hint of a Recovery

Tachi-S is a small cap (¥30bn market cap) seat manufacturer which counts Honda and the Nissan Alliance as its key customers, though it has been...

Mio Kato

🇯🇵 Japan • Fortnightly Update - Reverse Gear

SIDEWAYS - Japanese equities have gove up half of their late-February gains in US dollar terms over the last two weeks. Poised just 1.7% above the...

Campbell Gunn

I'm Back with New and Hopefully Better Thoughts (Japanese Automotive Industry)

I am back to the research space after 5 years of field work. Over 15 years' sell side experience was not sufficient on a real...

Noriaki Hirakata, CFA

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