In this briefing:
- Smartkarma’s Week that Was in JP/KR: Softbank, JDI, Pioneer Corp and Doosan Bobcat
- SoftBank Corp IPO Valuation: Bull/Bear Case DCF Scenarios
- Start Your Engines: SoftBank Corp (9434 JP) Is Off to the Races
- Japan: Fortnightly Update – And So It Goes
- Historical TOPIX Inclusions: How Do They Do Around Inclusion Date?
1. Smartkarma’s Week that Was in JP/KR: Softbank, JDI, Pioneer Corp and Doosan Bobcat
Below is the list of the Japan/Korea-related posts put on the Smartkarma platform during the week.
Insight | Insight Provider | Published |
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Korea | ||
10/12/2018 | ||
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14/12/2018 | ||
14/12/2018 |
2. SoftBank Corp IPO Valuation: Bull/Bear Case DCF Scenarios
Softbank Group (9984 JP) is set to raise JPY2.65 trillion ($23.5 billion) through the Softbank Corp (9434 JP) IPO, Japan’s biggest-ever IPO. However, SoftBank Corp’s IPO which is set for 19 December is oversubscribed by less than double, according to press reports. This level of oversubscription is well below blockbuster Japanese stock debuts such as Mercari Inc (4385 JP) and Recruit Holdings (6098 JP).
Based on client discussion on SoftBank Corp’s intrinsic value, we have put together a DCF-based valuation along with scenario analysis. Our conclusion remains the same that SoftBank Corp is overvalued at the proposed IPO price of JPY1,500 per share.
3. Start Your Engines: SoftBank Corp (9434 JP) Is Off to the Races
The price has been set. The book building is done. Like watching a sleek race car aligned on the starting grid, the world eagerly awaits the start of trading for Softbank Corp (9434 JP) on Wednesday, 19 December.
We are also eager to see the stock go live. It’s not only nostalgia for the stock code “9434” to be brought back into the race, but it will be helpful to be able to compare the stock and to gain better insights into the domestic Japanese telecom industry.
That said, the past few weeks have been full of drama, and some of the drama has longer-term implications. In this insight, we take a more detailed look at some of the challenges facing SoftBank Corp. and some of the concerns that may give investors pause, or at least some things to keep in mind, over the months ahead.
Specifically, we look at issues related to:
- Network outages
- Huawei network equipment
- Corporate governance
- Regulatory headwinds
- Competitive threats
4. Japan: Fortnightly Update – And So It Goes
AND SO IT GOES – After our eight-day 4.5% ‘Thanksgiving rally’, the market reverted to recent type and promptly fell 6.5% to Tuesday’s low, which is now likely to be surpassed on the downside this Monday. Although the market has yet to fall 20% from the January 23rd peak, the odds of Japan joining the growing list of global ‘bear’ markets are lengthening and, in US$-futures-terms, we are already there. Certainly, there is now clear ‘daylight’ between the 50-day and the 200-day moving average. However, a much wider spread is required before a clear ‘bottom’ is reached.
BoJ STEPS UP – The Bank of Japan’ market-support programme bought ETFs on six of the last ten trading days and should be active again on Monday. As the Bank is now constrained in its ability to buy JGBs by a lack of supply, the equity markets (via the ETF mechanism required to circumvent restrictions on direct equity investment) appear to offer more scope for quantitative easing, although the longer-term consequences of such a ‘nationalisation’ are far from positive.
Source: Japan Analytics
1,000 NEW LOWS – The current down cycle has already produced two days of 1000-day new 52-week lows. A ‘proper’ climactic ‘low’ requires over 1,500 on a single day or over 40% of listed stocks – an event that has occurred on only ten of the last 3,426 trading days. As can be seen above, such an event is, however, only the end of the beginning of a market recovery. For now, the question is – are we replaying 2008 or 2016?
McCLELLAN SUMMATION – Our preferred long-term advance-decline ratio, the McClellan Summation will reach a new three-year low this week, but should reach ‘oversold’ territory of below -4,000 by the end of January.
MARKET-IMPLIED GROWTH FORECAST – The Market Composite PER is now below 13x. Assuming a ‘normal’ earnings multiple of 16.7x, Mr Market is suggesting that Japanese corporate profits are due to fall by 22% on average to the level last reached in the first quarter of 2017, further implying declines of greater than 50% for some key ‘global’ sectors such as Autos, Machinery, Chemicals, Electrical Equipment and Technology Hardware, which together comprise one-third of aggregate Net Income.
OUTLOOK & RECOMMENDATIONS
- We continue to recommend an underweight position in Japan in global portfolios.
- The rate of the current equity market decline is well in advance of the underlying trends in the economy and corporate profits and appears to be anticipating an all-out trade war. As our title suggests and as ‘pure-pop-icon’ Nick Lowe sings – ‘But where it’s going no one knows’.
- In contrast to global trade trends, the domestic Japanese economy remains overheated, the rate of inflation continues to rise, and Japan is close to full employment. Under such conditions, the Bank of Japan would be expected to taper its monetary easing policy. However, global trends have prompted a delay in any such move until well into next year. In the near term, we continue to favour less-overbought domestically-orientated companies and look to accumulate better quality companies into any weakness in the coming month. For a list of recommendations, please see our recent Insight – Japan: The Long and the Short of It – Recommended Portfolios.
In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on Kobe Bussan (3038 JP), Workman (7564 JP), Inpex (1605 JP) , Yaskawa Electric (6506 JP), Nidec (6594 JP), Keyence (6861 JP), and Nomura (8604 JP), Dentsu (4324 JP), and Sohgo Security Services Co (2331 JP).
5. Historical TOPIX Inclusions: How Do They Do Around Inclusion Date?
There are seven stocks which were promoted/reassigned from TSE2, MOTHERS, and JASDAQ in November 2018 leading to the same seven stocks being included in TOPIX at the end of December.
A couple are decently largecap. Most are smaller.
A good question to ask when looking at these stocks might be… What Really Happens Around TOPIX Inclusions?
Having traded them for much of the last 20yrs, I had my hypotheses, and had done studies over the years for my own purposes, but I had not done a study recently. To check my personal hypotheses I tested 340+ TOPIX inclusions over the past five years.
There are patterns to the history of trading these events which are worth a look. Some of the patterns are reasonably interesting.
