In this briefing:
- Dollar Yen BIG Short Phase II
- Korea M&A Spotlight: Will the Nexon Group Sell the Korean or the Japanese Company?
- Japanese Telcos: What to Look for in 2019. Earnings May Surprise on the Upside.
- This Week in Blockchain & Cryptos: A Bitcoin Reversal; More Red Flags for Bitmain
- Asia Gaming Preview 2019: Part Two Picks: Galaxy, MGM China and Nagacorp
1. Dollar Yen BIG Short Phase II
Major top and short call at USD/JPY 114 and flash decline did have a direct impact on a risk assets and the Nikkei in line with our S&P and Nikkei short calls. The second phase of USD/JPY weakness will usher in the next downturn in risk assets in late Q1 after some tactical posturing. We do view SPX 2,600 as a good level to re cycle shorts with some range work in store for February.
High degree divergence is still not fully unwound and implies the USD/JPY is set for a new low and part of phase II of the pain trade. Japan’s Crowded Long Faces Exodus Pressure . Japan Bank Index Bearish Head and Shoulders .
JPY crosses versus the AUD, GBP and Euro are currently nudging up against key resistance points that represent an interesting pivot point to stage a fresh decline (good risk aversion barometers).
We are seeing the knock on effect in Asian FX.
USD/JPY will surpass our original downside target of 108-109.
2. Korea M&A Spotlight: Will the Nexon Group Sell the Korean or the Japanese Company?
According to a local media outlet called Chosun Daily, it stated that one of the bankers in the deal (Deutsche Bank), already sent teaser letters of this deal to Tencent Holdings (700 HK) and KKR and in the teaser letter, it mentioned about potentially selling nearly 47% of Nexon Co Ltd (3659 JP) (Japan).
The question about whether or not Kim Jung-Joo decides to sell NXC Corp (Korea) or Nexon Co Ltd (3659 JP) (Japan) has important consequences not just for him and his family but also to the minority shareholders of Nexon Co Ltd (3659 JP). If Kim Jung-Joo decides to sell NXC Corp (Korea), there may not be much upside for the minority shareholders of Nexon Co Ltd (3659 JP) since current regulations do not require the buyers to pay potentially additional control premium to the minority shareholders as well.
However, if Kim Jung-Joo decides to sell Nexon Co Ltd (3659 JP) (Japan), there may be an opportunity for the minority shareholders to gain from an additional control premium. We think that this is one of the reasons why Nexon Co Ltd (3659 JP) shares are up 13% YTD as some of the investors may think that there could be a higher probability that Kim Jung-Joo ends up selling Nexon Co Ltd (3659 JP) (Japan), instead of NXC Corp (Korea).
3. Japanese Telcos: What to Look for in 2019. Earnings May Surprise on the Upside.
The Japanese telecom market was more volatile in 2018 than anticipated. However, Chris Hoare remains broadly positive on the sector for 2019. While pressure on the revenue line is intensifying, we do do not expect a price war to break out. In fact, we look for volatility to ease as the year progresses. Operators point to opex reductions and handset subsidy reductions to offset revenue weakness. We think that earnings are likely to surprise on to the upside. Over time we also look for dividend payout ratios to gradually rise, with the Softbank Corp (9434 JP) (KK) listing the long term catalyst. For Softbank Group (9984 JP) (SB) we look for market confidence to improve on the Vision Fund strategy, as profitable exits/up-valuations of assets such as Uber are announced.
The sector is recovering from NTT Docomo’s (9437 JP) price cut announcements but we don’t think they will slash prices (cuts will be selective). Our top pick is now KDDI (9433 JP) which could actually benefit from Rakuten’s (4755 JP) entry (as the roaming partner). DoCoMo is most affected but there are plenty of cost cutting opportunities. NTT (Nippon Telegraph & Telephone) (9432 JP) has optimistic guidance with substantial opex and capex cost cuts planned. Our order of preference for the stocks is now: KDDI (Buy), followed in order by NTT (Buy), SB Group (Buy), DoCoMo (Buy) and SB Corp (Neutral). We do not currently cover Rakuten.
4. This Week in Blockchain & Cryptos: A Bitcoin Reversal; More Red Flags for Bitmain
The year 2018 was not the brightest for cryptocurrencies; Bitcoin (XBTUSD CURNCY) fell around 70% during 2018 and top altcoins like Ethereum (ETH BGN CURNCY), Ripple and Bitcoin Cash were also down around 80%, 85% and 95% respectively during last year. While it is difficult to pinpoint a single reason for this, a number of factors including, rising security concerns, increased scrutiny, failed institutional support and Bitcoin Cash hash wars have collectively contributed to this bearish sentiment in the cryptocurrency markets last year.
In this note we take a look at several top cryptocurrency and blockchain developments from last year, to see how they would fare going into 2019.
This is a collaborative report between Douglas Kim and myself.
5. Asia Gaming Preview 2019: Part Two Picks: Galaxy, MGM China and Nagacorp
- Global and Asia headwinds still rattle the gaming sector, but these three companies remain undervalued despite market sentiment.
- Macau’s solid year end performance continues to defy projections, producing a 14% y/y GGR increase.
- Galaxy will benefit disproportionately from the HKMB bridge traffic growth, MGM’s single digit market share will ramp up to double digits and Nagacorp may be the single most siloed gaming operator in all of Asia.
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