Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

TASAKI:  A turnaround-slash-company-sale-slash-huge-buyback-slash-China-inbound-tourism-story

Equity Bottom-Up

(24 Jul 201: 10&nbsp;hrs after first piece published): &nbsp;Hold the presses!I missed a key piece of information in a glaring oversight on my part. I blame myself for rushing to complete a piece late last night based on previous research - updating for the price movement and buyback results for a piece which was mostly written a little while ago&nbsp;(I could not decide how to pitch the conclusion so left it on the table). The updated&nbsp;inbound tourism data and the fall in the stock price&nbsp;made it that much more attractive a fundamental idea, with a catalyst on the other side. And I just missed a really, really big piece of news in the interim.&nbsp;There was an announcement in Japanese (which I have no problem with had I seen it) on&nbsp;July 15th that MBK Partners was going to try to sell down its remaining stake in an uridashi offering.&nbsp;This changes the event and makes it very clear. A follow-up piece will be forthcoming. &nbsp;In the meantime...&nbsp;What DOESN'T CHANGE from the first piece:<ol><li>The Turnaround: The&nbsp;re-engineering of the company over time.</li><li>The Value: The analysis of sales &amp; earnings structure change over time, and the idea that the current company forecast for H2 and full-year is probably still light (see details of first piece for more).&nbsp;</li><li>The Company Sale:&nbsp;The company is for sale. :-)</li><li>The Inbound&nbsp;Tourism&nbsp;Story:&nbsp;That doesn't change despite my error.</li></ol>None of the above changes despite my error. What DOES change is that...<ul><li>My analysis that a market sell-down by MBK was unlikely. There is obviously an effort to get this out the door and I just missed that. I had expected a trade/strategic sale eventually because of the difficulties in selling the story on a wide basis to a new buying public. MS MUFJ and Daiwa apparently didn't share my concerns.</li><li>My main thesis behind the&nbsp;assertion a market sell-down was difficult was that... <ul><li>it is effectively like an IPO - no analyst coverage, few international investors have ever looked at it or indeed the space.</li><li>The company has no English-language documents or history.</li><li>It is too small as a market cap and too unknown a name to effectively pitch this to foreign investors.</li><li>&nbsp;Therefore it has to go to retail. My opinion was that... <ul><li>Retail investors who have made money in it already own it, and those who know its history may have lost a lot of money in it before.&nbsp;</li><li>Dividend clarity is still somewhat low.</li><li>While the brand name is ubiquitous, it is a specialty space - not so many people buy pearls even if they all know the&nbsp;name. There is no internet angle, no&nbsp;robotics, no game function. This is just a specialty luxury retailer. It is avoidable.</li><li>As an offering, it kind of looks like Calbee, SuntoryBev, Otsuka, or Skylark deal or something similar - a well-known brand but little institutional support, and&nbsp;LOTS of overhang. Most of those worked well after a while but there was not much Day2-Day30 joy.</li><li>The lack of history makes the story a limiting factor. The only thing you can sell is 'turnaround' and the very recent history. "The future is in pearls, my boy!" doesn't fly.</li></ul></li></ul></li><li>All of this makes it&nbsp;a very easy offering for people to avoid.&nbsp;</li></ul>One other thing which changes is forward liquidity. This is actually a BIG positive.<ul><li>If this deal gets placed, liquidity will go up. Float will go WAY up. TOPIX &nbsp;weighting will go WAY up. A decent portion of the deal would get bought by benchmarkers over the next year.</li><li>In addition, it would make an ideal JPX-Nikkei400 candidate with its board, rising earnings, and high ROE. And because of its float, it would have a relatively high weight in the index compared to its market cap.&nbsp;</li></ul>NEW AND REVISED CONCLUSIONS:<ul><li>There is an offering coming out - it is about to dump the whole company into the float. This will be sold to people who likely have never owned it before, and it will go predominantly to retail.&nbsp;</li><li>The greenshoe will cover the entire insto tranche or 12% of the retail tranche.</li><li>Analysis of the likelihood of retail flipping is ABSOLUTELY KEY. I don't have that analysis yet.</li><li>The stock is cheap on a current year basis.</li><li>There will be considerable buying&nbsp;from index funds&nbsp;over the next period to help take out some of the flipping supply.&nbsp;</li><li>The next company update on fundamentals won't be for a while, so short-term movement will be purely determined by flipper supply vs indexer demand.&nbsp;</li></ul>More forthcoming and more below the fold.&nbsp;

(24 Jul 201: 10&nbsp;hrs after first piece published): &nbsp;Hold the presses!I missed a key piece of information in a glaring oversight on my part. I blame myself for rushing to complete a piece late last night based on previous research - updating for the price movement and buyback results for a piece which was mostly written a little while ago&nbsp;(I could not decide how to pitch the conclusion so left it on the table). The updated&nbsp;inbound tourism data and the fall in the stock price&nbsp;made it that much more attractive a fundamental idea, with a catalyst on the other side. And I just missed a really, really big piece of news in the interim.&nbsp;There was an announcement in Japanese (which I have no problem with had I seen it) on&nbsp;July 15th that MBK Partners was going to try to sell down its remaining stake in an uridashi offering.&nbsp;This changes the event and makes it very clear. A follow-up piece will be forthcoming. &nbsp;In the meantime...&nbsp;What DOESN'T CHANGE from the first piece:The Turnaround: The&nbsp;re-engineering of the company over time.The Value: The analysis of sales &amp; earnings structure change over time, and the idea that the current company forecast for H2 and full-year is probably still light (see details of first piece for more).&nbsp;The Company Sale:&nbsp;The company is for sale. :-)The Inbound&nbsp;Tourism&nbsp;Story:&nbsp;That doesn't change despite my error.None of the above changes despite my error. What DOES change is that...My analysis that a market sell-down by MBK was unlikely. There is obviously an effort to get this out the door and I just missed that. I had expected a trade/strategic sale eventually because of the difficulties in selling the story on a wide basis to a new buying public. MS MUFJ and Daiwa apparently didn't share my concerns.My main thesis behind the&nbsp;assertion a market sell-down was difficult was that... it is effectively like an IPO - no analyst coverage, few international investors have ever looked at it or indeed the space.The company has no English-language documents or history.It is too small as a market cap and too unknown a name to effectively pitch this to foreign investors.&nbsp;Therefore it has to go to retail. My opinion was that... Retail investors who have made money in it already own it, and those who know its history may have lost a lot of money in it before.&nbsp;Dividend clarity is still somewhat low.While the brand name is ubiquitous, it is a specialty space - not so many people buy pearls even if they all know the&nbsp;name. There is no internet angle, no&nbsp;robotics, no game function. This is just a specialty luxury retailer. It is avoidable.As an offering, it kind of looks like Calbee, SuntoryBev, Otsuka, or Skylark deal or something similar - a well-known brand but little institutional support, and&nbsp;LOTS of overhang. Most of those worked well after a while but there was not much Day2-Day30 joy.The lack of history makes the story a limiting factor. The only thing you can sell is 'turnaround' and the very recent history. "The future is in pearls, my boy!" doesn't fly.All of this makes it&nbsp;a very easy offering for people to avoid.&nbsp;One other thing which changes is forward liquidity. This is actually a BIG positive.If this deal gets placed, liquidity will go up. Float will go WAY up. TOPIX &nbsp;weighting will go WAY up. A decent portion of the deal would get bought by benchmarkers over the next year.In addition, it would make an ideal JPX-Nikkei400 candidate with its board, rising earnings, and high ROE. And because of its float, it would have a relatively high weight in the index compared to its market cap.&nbsp;NEW AND REVISED CONCLUSIONS:There is an offering coming out - it is about to dump the whole company into the float. This will be sold to people who likely have never owned it before, and it will go predominantly to retail.&nbsp;The greenshoe will cover the entire insto tranche or 12% of the retail tranche.Analysis of the likelihood of retail flipping is ABSOLUTELY KEY. I don't have that analysis yet.The stock is cheap on a current year basis.There will be considerable buying&nbsp;from index funds&nbsp;over the next period to help take out some of the flipping supply.&nbsp;The next company update on fundamentals won't be for a while, so short-term movement will be purely determined by flipper supply vs indexer demand.&nbsp;More forthcoming and more below the fold.&nbsp;

TASAKI: [CORRECTION]: Glaring error in my analysis

Tasaki & Co Ltd

TASAKI: [CORRECTION]: Glaring error in my analysis