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

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. This affects both TSE-1 incumbents and new entrants (depending on the date of entry). Every April, the application of this liquidity factor is reviewed by the TSE for all TSE1 constituents. Last April, 71 constituents saw their liquidity factors removed causing an increase in their respective FFWs used for index calculation resulting in a TOPIX upweight.This situation opens up interesting opportunities for a basket trade. Below is a discussion regarding the key details of TSE's FFW Calculation Methodology and the candidate stocks which could potentially experience a change in the application of the liquidity factor (including some surprisingly big names).

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with "low liquidity" the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation. This affects both TSE-1 incumbents and new entrants (depending on the date of entry). Every April, the application of this liquidity factor is reviewed by the TSE for all TSE1 constituents. Last April, 71 constituents saw their liquidity factors removed causing an increase in their respective FFWs used for index calculation resulting in a TOPIX upweight.This situation opens up interesting opportunities for a basket trade. Below is a discussion regarding the key details of TSE's FFW Calculation Methodology and the candidate stocks which could potentially experience a change in the application of the liquidity factor (including some surprisingly big names).   

TOPIX Index Upweights: The Big April Basket 2021

Research Coverage of Japanese Listed Companies, Shared Research Inc

Shared Research

Research Coverage of Japanese Listed Companies

Shared Research Inc

Pioneering research coverage of Japanese listed companies. Now customizable and interactive for global institutional investors. Corporate access reimagined.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/seria-co-ltd" target="_blank" data-smartkarma-citation="entities:12989:1" rel="noopener">Seria Co Ltd (2782 JP)</a> operates 100-yen stores throughout Japan, buying products from manufacturers and selling them at a flat price of JPY100 (plus tax).</li>
<li>In FY03/23, sales were JPY212.4bn (+2.1% YoY), operating profit was JPY15.4bn (-26.2% YoY), recurring profit JPY15.6bn (-26.8% YoY), and net income JPY10.3bn (-28.3% YoY).</li>
<li>On January 31, 2024, Seria Co., Ltd. announced a revision of its full-year FY03/24 earnings forecast.</li>
</ul>



Seria Co Ltd (2782 JP) operates 100-yen stores throughout Japan, buying products from manufacturers and selling them at a flat price of JPY100 (plus tax).
In FY03/23, sales were JPY212.4bn (+2.1% YoY), operating profit was JPY15.4bn (-26.2% YoY), recurring profit JPY15.6bn (-26.8% YoY), and net income JPY10.3bn (-28.3% YoY).
On January 31, 2024, Seria Co., Ltd. announced a revision of its full-year FY03/24 earnings forecast.


Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<ul>
<li>The ¥100 Shop chains are facing higher COGS on one side and rising wages on the other, a problem when you run a fixed price chain at just ¥100. </li>
<li>Most (except <a href="https://www.smartkarma.com/entities/seria-co-ltd" target="_blank" data-smartkarma-citation="entities:12989:1" rel="noopener">Seria Co Ltd (2782 JP))</a> have reacted by introducing new, higher priced lines led by Daiso.</li>
<li>Watts, the smallest chain, is now catching up and higher priced lines will make up a third of stock by 2027.</li>
</ul>


The ¥100 Shop chains are facing higher COGS on one side and rising wages on the other, a problem when you run a fixed price chain at just ¥100. 
Most (except Seria Co Ltd (2782 JP)) have reacted by introducing new, higher priced lines led by Daiso.
Watts, the smallest chain, is now catching up and higher priced lines will make up a third of stock by 2027.


Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

On Thursday, October 14, 2021, I attended the full-year earnings analyst meeting of Watts (2735), which operates a 100-yen store business, and I would like to cover the company's situation as well as its compliance with the listing standards of the prime market.

On Thursday, October 14, 2021, I attended the full-year earnings analyst meeting of Watts (2735), which operates a 100-yen store business, and I would like to cover the company's situation as well as its compliance with the listing standards of the prime market.

Japan's Governance: Prime Market Listing Maintenance Criteria: Watts (2735)

<a href="https://www.smartkarma.com/entities/12989" target="_blank" data-smartkarma-citation="entities:12989:1">Seria (2782 JP)</a> remains a robust 100 Yen shop business with one of the most disciplined store management systems in the business and an ever-expanding store portfolio.However, it faces problems, notably the labour shortage and higher wages, leading to lower operating profit.At the same time, same-store sales growth has palled in the last 18 months.These are hard issues to solve, especially for a retail model that depends on fixed, low prices. One of the solutions the sector is trying out is switching from a 100 Yen model to a variable fixed price model with ranges at ¥300 and above.While Seria has been the most disciplined retailer in the 100 Yen sector until now, its competitors are finally catching up, including Daiso Sangyo, which has triple the number of stores.

Seria (2782 JP) remains a robust 100 Yen shop business with one of the most disciplined store management systems in the business and an ever-expanding store portfolio.However, it faces problems, notably the labour shortage and higher wages, leading to lower operating profit.At the same time, same-store sales growth has palled in the last 18 months.These are hard issues to solve, especially for a retail model that depends on fixed, low prices. One of the solutions the sector is trying out is switching from a 100 Yen model to a variable fixed price model with ranges at ¥300 and above.While Seria has been the most disciplined retailer in the 100 Yen sector until now, its competitors are finally catching up, including Daiso Sangyo, which has triple the number of stores.

Japan

WATTS CO., LTD. operates 100 yen shop retail stores.  The Company's product lines include snacks, drinks, fresh vegetables, microwave foods, plastic products, wrapping, toys, gardening goods, cosmetics, hair accessories, potteries, and products for kitchen, laundry, and bath.  Watts also operates discount and flower stores.

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Watts Co Ltd (2735 JP)

TOPIX Index Upweights: The Big April Basket 2021

TOPIX does an annual exercise to adjust Liquidity Factor. The time for trades around that is upon us. This insight looks at the best trade around...

Janaghan Jeyakumar, CFA

Seria (2782): Q3 FY03/24 Update

Seria Co Ltd, a 100-yen store chain in Japan, saw a decrease in profits in FY03/23 and revised its FY03/24 earnings forecast.

Shared Research

Watts Finally Reacts to Margin Squeeze

Japanese ¥100 Shop chains are grappling with increased costs and wages, prompting some to introduce higher priced lines. Watts plans to have one...

Michael Causton

Japan's Governance: Prime Market Listing Maintenance Criteria: Watts (2735)

In the 100-yen store industry, where competition to open new stores continues, various costs are beginning to rise. The industry may have finally...

Metrical Inc

Slower Growth at Seria

Seria (2782 JP) remains a robust 100 Yen shop business with one of the most disciplined store management systems in the business and an...

Michael Causton

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

TOPIX Index Upweights: The Big April Basket 2021

TOPIX does an annual exercise to adjust Liquidity Factor. The time for trades around that is upon us. This insight looks at the best trade around...

Janaghan Jeyakumar, CFA

Seria (2782): Q3 FY03/24 Update

​Seria Co Ltd, a 100-yen store chain in Japan, saw a decrease in profits in FY03/23 and revised its FY03/24 earnings forecast.

Shared Research

Watts Finally Reacts to Margin Squeeze

​Japanese ¥100 Shop chains are grappling with increased costs and wages, prompting some to introduce higher priced lines. Watts plans to have one...

Michael Causton

Japan's Governance: Prime Market Listing Maintenance Criteria: Watts (2735)

In the 100-yen store industry, where competition to open new stores continues, various costs are beginning to rise. The industry may have finally...

Metrical Inc

Slower Growth at Seria

Seria (2782 JP) remains a robust 100 Yen shop business with one of the most disciplined store management systems in the business and an...

Michael Causton

Seria Co Ltd, a 100-yen store chain in Japan, saw a decrease in profits in FY03/23 and revised its FY03/24 earnings forecast.

Japanese ¥100 Shop chains are grappling with increased costs and wages, prompting some to introduce higher priced lines. Watts plans to have one...