Brief Japan: Zozo: Never Meet a Margin Call and more

In this briefing:

1. Zozo: Never Meet a Margin Call
2. 🇰🇷 🇯🇵 Smartkarma North Asia • That Was The Week That Was – 18th-24th March 2019
3. 🇯🇵 Japan: Moving Average Outliers – Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064
4. Kosaido (7868 JP) Reaches Value You Can Sell
5. Hitachi Bumps Yungtay Bid to NT$65. Take It.

1. Zozo: Never Meet a Margin Call

Yusaku Maezawa is once again in the news. This time due to speculation that he is auctioning off at least part of his art collection at Sotheby’s in Hong Kong on April 1st.

Following on from the share buyback that was conducted in May last year which:

• Allowed Maezawa to sell 6m out of his then 118.227m shares into a buyback that totalled just 6.35m shares.
• Led to a ¥38.3bn swing in net cash from +¥24.6bn to -¥13.8bn (the buyback totaled ¥24.4bn)
• Was conducted at the same time that share options for up to 31m shares were issued, of which Maezawa could have been allocated more than 90%.

this looks a lot like a sudden need to raise cash.

2. 🇰🇷 🇯🇵 Smartkarma North Asia • That Was The Week That Was – 18th-24th March 2019

– TW3 NORTH ASIA – 

This week in North Asia the Smartkarma team Insights were more Bearish than Bullish. 

• Close Outs or Sales were recommended on: Kosaido (7868 JP), the Amorepacific Group/Corp pair, the Hyosung TNC/Corp pair, Resona Holdings (8308 JP) and the Japanese market overall.
• The Hyundai Autoever IPO was covered by two providers as was the Woori Group all with Bullish flags.
• Caution was expressed on Mercari (4385 JP), Onward (8016 JP), and Lasertec (6920 JP) in Japan as well as the Convenience Store and Consumer Electronics retailers there.  
• The upcoming KOSPI 200 re balancing was also covered with a list of potential additions and deletions.   
  

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 – NORTH ASIAN INSIGHT OF THE WEEK – 

Our Top Insight of the week was Douglas Kim ‘s interesting note on Korean companies pulling out of China or restructuring their operations in that country. 

As Douglas notes, “The pace of major Korean companies that are discontinuing part or all of their operations in China in the past year has been UNPRECEDENTED in the past two decades. This trend is very concerning since it suggests deteriorating business conditions and reduced employment in China”. 

The main reason why the Korean companies are pulling out of China is primarily due to the difficulty of generating profits under the current, difficult operating conditions.

However, the reasons why it has become more difficult for these Korean companies to generate profits in China is more complex. The difficult operating environment is a combination of: –

• lower Chinese consumer demand for products such as smartphones, autos, cosmetics, and other consumer goods
• many of the Korean companies’ products have become less competitive as compared to the products made by the Chinese companies, and. 
• additional regulatory pressures that are placed on these Korean companies operating in China have contributed towards the difficult operating environment

 – OTHER INSIGHTS OF THE WEEK – 

Linkbal (6046 JP): Offering & TOPIX Inclusion Late Summer 2019?

Korean Stubs: A Pair Trade Between Ecopro Co and Ecopro BM

Kosaido (7868 JP) Reaches Value You Can Sell

Descente Tamed, Itochu Delicacy Required And Investors Can Probably Wait

TRADE IDEA – Amorepacific Stub (002790 KS): Buyback Helped, Close the Trade

Korean Stubs: Close Out the Pair Trade Between Hyosung TNC & Hyosung Corp 

A Trading Strategy for Hyundai Autoever Post IPO

Hyundai Autoever IPO Bookbuilding: Street Bets on Autoever/Glovis Merger

Woori Financials – One Overhang Gone in a Well Flagged Deal, Another Remains

Woori Bank: Overhang Versus Valuation

Hankyu Invests ¥1.75 Billion in Hankyu Men’s Tokyo

Mercari (4385) A Great Business but Over-Priced

After Zozo: Onward Sets Sights on Digital Renaissance

Lasertec (6920 JP): Pricing in Long-Term Growth

KOSPI 200 June 2019 Rebalancing: List of Addition/Deletion Candidates

Uniqlo Japan’s Most Valuable Retail Brand

Major Korean Companies Shutting Down or Restructuring Operations in China 

Japanese Convenience Stores: Shorter Hours

Consumer Electronics Chains Set for Major Boost This Year – But It Will Be Temporary

🇯🇵 Japan: Moving Average Outliers – Market Sell Signal Generated

Resona Holding Faces Further Pressure After Corrective Bounce Terminates

3. 🇯🇵 Japan: Moving Average Outliers – Market Sell Signal Generated + 6920, 8036, 6758, 2326, 3064

– MARKET COMPOSITE –

FIVE-MONTH HIGH – This bear market rally is now ending. The market composite rose by 15% from the Christmas Day low, peaking on 26th February at ¥659t. The market-value-based percentage above moving averages reached a five-month on Friday. However, the three-month change in that percentage is suggesting that a new bear phase will now commence.

SELL SIGNAL – The three-month change in the market-value-based percentage above moving averages reached 38 on Friday. Although this indicator is not always reliable as a long-term indicator, it has been helpful over shorter periods and has called the most recent peak in October and December’s trough.  We now expect at least a decline in the market composite to below ¥600t and, if economic conditions continue to weaken, a re-test of the December low. 

– SECTORS – 

SECTOR BREAKDOWN – The top six sectors remain mostly domestic and defensive. REITs,Restaurants, Healthcare, Transportation, and Utilities continue from our previous review with Other Commercial Products replacing Information Technology. Equally predictable is the bottom half-dozen – Banks, Non-Bank Finance, Autos, Retail, and Metals remain from two weeks ago, with Energy replacing Construction. With the Yen having broken the ¥110 level against the US dollar on Friday, we would expect the Autos, Machinery, Electrical Equipment, Technology Hardware, and Chemicals sectors to weaken further as indicated by their Negative Crossover percentages. 

– COMPANIES –

COMPANY MOVING AVERAGE OUTLIERS – As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company’s share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. ‘Extreme’ values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 

Source: Japan Analytics

4. Kosaido (7868 JP) Reaches Value You Can Sell

On Monday the 18th of March, Yoshiaki Murakami-associated companies announced they had raised their stake in Kosaido Co Ltd (7868 JP) above 10%. That stake raise happened at a price ABOVE where Bain Capital Japan’s bidding entity had set its “final” Tender Offer Price of ¥700/share beforehand, indicating there was no way Murakami-associated companies would accept Bain’s price.

On the 20th, Minami Aoyama Fudosan – another Murakami-associated company heretofore uninvolved – announced a Tender Offer for a minimum of 50.00% of Kosaido (and up to 100% of the shares out) at ¥750/share (and announced they had bought more bringing their stake to 13.47% in total). 

The shares reacted strongly Friday the 22nd after a market holiday Thursday, rising 16.6% to close 14.5% through the Murakami-fund terms. 

After the close on Friday, the Murakami-affiliated company Reno KK which has been the lead entity to date in the effort – announced a larger position (as I noted on the 19th was likely). Also after the close, Kosaido itself made three public releases.

It is worth reading them, and it is worth thinking about what the company’s options are.

And now there is more below.

5. Hitachi Bumps Yungtay Bid to NT$65. Take It.

This was the basis of the trade. Hitachi Ltd (6501 JP) has been susceptible to pressure for a bump since even before the Tender Offer was announced because of the proxy fight at last year’s board meeting for management rights. Hitachi supported the incumbent who consequently retired as chairman, but kept the continuity. The board was split 6:3. 

Since late January or early February when it became clear that board support for the deal was still split 6:3 and one of the points in a couple of the independent directors’ comments as reasons why the deal was not supported was that Hitachi’s bid at NT$60/share did not match an informal offer from Otis at $63/share, it has been clear that one way to extinguish that criticism was to bid NT$63 or higher. 

And now Hitachi has. After the close on Friday, a release from Yungtay Engineering (1507 TT) hit the mops system saying that Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share. This is closer to the high end of the original valuations provided by the law firm and public accountancy firms of NT$40.27-68.31 and NT$55.15-67.83. Taiwan Hitachi Elevator released a press release carried by the ChinaTimes here.

Past coverage of this situation can be found at:
28 Oct 2018 – Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)
17 Jan 2019 – Hitachi Tender for Yungtay Engineering Launches
26 Feb 2019 – Yungtay Noises Haven’t Produced a Result Yet
18 Mar 2019 – Yungtay Tummy Rumblings Continue But Not Clear To What Avail