In today’s briefing:
- JAPAN FLOW: Foreigners Vs Cross-Holding Unwinds Vs Buybacks Vs Pensions
- S&P 500/400/600 Index Rebal – It’s Not The Trade You Think
- Korea Value-Up Index: Probable Constituents & Impact of NPS’ US$8.2bn Allocation
- Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
- Will China TCM (570.HK) Be Incorporated into Taiji Group (600129.CH)? –If Yes, Valuation Will Double
- Nikkei 225 Index Rebalance: DISCO, Socionext, ZOZO In; PacMetals, Sumitomo Osaka, Takara Holding Out
- JSR Corporation (4185 JP): Something Is Brewing, but Nobody Knows Quite What
- Trial Holdings IPO: Valuation Thoughts
- Why HBM is the Hottest Thing in Memory
- Trial Holdings IPO – Not Wholly Convinced but a Strong Market Should Help
JAPAN FLOW: Foreigners Vs Cross-Holding Unwinds Vs Buybacks Vs Pensions
- For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
- The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to One (relatively) Simple Indicator.
- Foreigners have a lot of ammunition left. But cross-holding unwinds are picking up, and buybacks are too, and dividend reinvestments are smaller than public pension selling. Which way next?
S&P 500/400/600 Index Rebal – It’s Not The Trade You Think
- On Friday after the close, the S&P DJI Index Committee announced changes to the S&P 100, S&P500, S&P MidCap400, and S&P SmallCap600. Changes happen at the close 15 March 2024.
- Super Micro Computer (SMCI US) and Deckers Outdoor (DECK US) replace Zions Bancorporation (ZION US) and Whirlpool Corp (WHR US) in the S&P500. 2 changes to 400, 6 to 600.
- The immediate reaction was to send SMCI up 12.5%. That’s shortsighted. It pays to count the pennies involved. There are a LOT of pennies.
Korea Value-Up Index: Probable Constituents & Impact of NPS’ US$8.2bn Allocation
- Media reports indicate that the National Pension Service (NPS) could invest up to KRW 11tn (US$8.2bn) in a new index tracking stocks with low Price to Book ratios.
- Filtering stocks with market cap higher than US$500m, ADTV of atleast US$1m, div yield of atleast 1.5% and Price to Book less than 1 throws up 94 potential index candidates.
- Choosing an index of 50 stocks will require managers to buy between 1.7-3.4% of the float on the stocks. Increasing the number of constituents will reduce the impact.
Mar24 Nikkei 225 Rebal – Socionext, Disco, Zozo IN; US$4bn One-Way; More Impactful Than It Looks
- The changes to the Nikkei 225 Average for the March 2024 Review were announced today after the close. A little earlier than I expected.
- Socionext, Disco, Zozo IN; Takara Hldgs, Sumi Osaka Cement, Pacific Metals OUT. Nitori PAF increase. US$4bn+ to trade one way on 29Mar close. One interesting surprise.
- Overall more impactful than it looks. And it changes the front-end arithmetic on Fast Retailing (9983 JP). There may be fun on the DELETEs.
Will China TCM (570.HK) Be Incorporated into Taiji Group (600129.CH)? –If Yes, Valuation Will Double
- In the past few years, a big problem of Taiji is weak performance/low valuation. The main purpose of mixed-ownership reform with CNPGC is to improve operational efficiency and enhance profitability.
- CNPGC made a clear commitment to solve the horizontal competition issue. So, after the privatization of China TCM is completed, it’s worth noting whether it will be merged into Taiji.
- 2024 is expected to see Taiji launch new M&A deals, which would bring a qualitative leap for Taiji. Market value of Taiji is expected to at least double.
Nikkei 225 Index Rebalance: DISCO, Socionext, ZOZO In; PacMetals, Sumitomo Osaka, Takara Holding Out
- DISCO (6146 JP), Socionext (6526 JP) and ZOZO (3092 JP) will replace Takara Holdings (2531 JP), Sumitomo Osaka Cement (5232 JP) and Pacific Metals (5541 JP) in the Nikkei 225.
- Nitori Holdings (9843 JP)‘s PAF will increase from 0.3 to 0.5, and surprisingly there is no PAF adjustment for ZOZO Inc (3092 JP).
- Passive trackers need to buy between 1-18 days of ADV on the adds while selling between 2.7-28 days of ADV on the deletes. There is a big funding trade too.
JSR Corporation (4185 JP): Something Is Brewing, but Nobody Knows Quite What
- JSR Corp (4185 JP)’s shares rose 4.8% due to a Nikkan Kogyo article that states that JIC will start the tender within the month due to concluding negotiations with SAMR.
- Caution is warranted as JSR has not provided a customary timeline update, no confirmatory disclosure from SAMR and JSR’s response to SUNY RF’s claims are yet to be filed.
- Based on current information, there are five possible tender scenarios. In the worst case, the downside risk on a deal break should be muted due to the market re-rating.
Trial Holdings IPO: Valuation Thoughts
- Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$236 million at the IPO reference price of JPY1,550 per share.
- We previously discussed the IPO in Trial Holdings IPO: The Investment Case.
- In this note, we discuss valuation. Our analysis suggests that Trial is attractively valued at the IPO reference price of JPY1,550. We would participate in the IPO.
Why HBM is the Hottest Thing in Memory
Investing in semiconductors can be pretty simple if you let it be.
At a high level, I believe you want to invest in the secular at a decent price or invest in places where there are unwarranted dislocations.
Sometimes the entire ecosystem says one thing and the stocks say another. Usually, the ecosystem is right.
Trial Holdings IPO – Not Wholly Convinced but a Strong Market Should Help
- Trial Holdings (5882 JP) (TH) is now looking to raise up to US$259m in its Japan IPO, after having canceled its prior listing attempt last year.
- TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
- We have looked at the company’s past performance in our previous notes. In this note, we talk about implied valuations in the IPO range.
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