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

Kaneshita Construction - 20+% Buyback And End of An Accumulation?

Quiddity Advisors

Event-Driven

Absolute ages ago, on 13 February 2020, <a href="https://www.smartkarma.com/entities/kaneshita-construction-co" target="_blank" data-smartkarma-citation="entities:8008:1" rel="noopener">Kaneshita Construction Co (1897 JP)</a> announced that it would buy back up to 21.93% of its shares outstanding at that day's closing price (¥5090/share) in a ToSTNeT-3 transaction conducted the following morning. I discussed that deal in <a href="https://www.smartkarma.com/insights/kaneshita-construction-20-buyback-and-end-of-an-accumulation" target="_blank" data-smartkarma-citation="insights:36594" rel="noopener">Kaneshita Construction - 20+% Buyback And End of An Accumulation?</a> suggesting that a) the likely seller was Black Clover Limited, which had been accumulating shares for years and years and had, in the process of doing so, seen the price reach a PBR of 1.0x and given that was the case, and the company had money, would see it good to get out (and the company's founding family wouldn't mind getting rid of him), and that b) it was a buy-on-dip opportunity. My conclusion then:<blockquote>I don't think the trade is to buy the accretion this gets you. I think the trade is to buy the dip which could come because there will be fewer traders consistently accumulating. If it goes up without you, so be it. If it drops 15-20% (or heaven forbid, more), then it will be worth being one of those accumulators.</blockquote>Subsequently, we got a 15-20% (and heaven forbid, more) drop because of the covid-19 selloff, but given the nature of the company, and the setup of the situation, it was a buy. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/132/799/original/Screenshot%202020-05-11%20at%206.42.57%20PM.png?1589193833" class="editor-image img-responsive" data-smartkarma-image-id="132799"></figure><div style="text-align: left;" class="content-caption">source: tradingview.com</div>The setup is all. <h2>The NEW News</h2>Sure enough, one business day after the company on Friday recorded a sharp gain in revenue, OP, and net profit in Q1 (it's a December-end company), raising full-year estimates, the company is now looking to buy back another large stake - up to 200,000 shares or 8.8% of shares outstanding - at today's closing price of ¥4,405/share, as <a href="https://www.kaneshita.co.jp/file/cf19761754c9bd5492327e22c810d8c5-1.pdf" target="_blank" rel="noopener">announced</a> after the close. The reasoning?   Standard boilerplate:  "In order to implement a flexible capital policy and responding to changes in the business environment, we will purchase treasury stock."What it really means is that the large holder likely wants to sell. And THAT has repercussions.The FT article this past weekend by Leo Lewis and Kana Inagaki about <a href="https://www.ft.com/content/63b35e8b-b0c4-4652-9f1d-21dd7ca8a2e0" target="_blank" rel="noopener">Bain's bet on Nichii Gakkan</a> (which I separately wrote about <a href="https://www.smartkarma.com/insights/nichii-gakkan-mbo-great-deal-for-the-buyers-not-so-much-for-minorities" target="_blank" rel="noopener">here</a>) notes that market weakness and availability of bank loans is making buyouts attractive, with several family buyouts in the pipeline. This might be one.

Absolute ages ago, on 13 February 2020, Kaneshita Construction Co (1897 JP) announced that it would buy back up to 21.93% of its shares outstanding at that day's closing price (¥5090/share) in a ToSTNeT-3 transaction conducted the following morning. I discussed that deal in Kaneshita Construction - 20+% Buyback And End of An Accumulation? suggesting that a) the likely seller was Black Clover Limited, which had been accumulating shares for years and years and had, in the process of doing so, seen the price reach a PBR of 1.0x and given that was the case, and the company had money, would see it good to get out (and the company's founding family wouldn't mind getting rid of him), and that b) it was a buy-on-dip opportunity. My conclusion then:I don't think the trade is to buy the accretion this gets you. I think the trade is to buy the dip which could come because there will be fewer traders consistently accumulating. If it goes up without you, so be it. If it drops 15-20% (or heaven forbid, more), then it will be worth being one of those accumulators.Subsequently, we got a 15-20% (and heaven forbid, more) drop because of the covid-19 selloff, but given the nature of the company, and the setup of the situation, it was a buy. source: tradingview.comThe setup is all. The NEW NewsSure enough, one business day after the company on Friday recorded a sharp gain in revenue, OP, and net profit in Q1 (it's a December-end company), raising full-year estimates, the company is now looking to buy back another large stake - up to 200,000 shares or 8.8% of shares outstanding - at today's closing price of ¥4,405/share, as announced after the close. The reasoning?   Standard boilerplate:  "In order to implement a flexible capital policy and responding to changes in the business environment, we will purchase treasury stock."What it really means is that the large holder likely wants to sell. And THAT has repercussions.The FT article this past weekend by Leo Lewis and Kana Inagaki about Bain's bet on Nichii Gakkan (which I separately wrote about here) notes that market weakness and availability of bank loans is making buyouts attractive, with several family buyouts in the pipeline. This might be one. 

Another HUGE Buyback at Kaneshita Construction (1897) - MBO Coming?