Last Week in Event SPACE: Fast Retailing, Samsung, Yakult, JCNC, CCASS

Last week, a compendium piece on potential changes to the Nikkei 225, setting the stage for a big short in Fast Retailing Co Ltd (9983 JP); a possible short selling opportunity ahead of Samsung Electronics Co Ltd (005930 KS)'s suspension; opposing opinions on Danone SA (BN FP)'s sell-down in Yakult Honsha Co Ltd (2267 JP); Jardine Cycle & Carriage Ltd (JCNC SP) looks attractive as it trades around multi-year lows against Astra International Tbk Pt (ASII IJ), and introducing large movements in CCASS holdings.

(Market cap and liquidity noted below are in US$. Liquidity is assessed on a 3-month average)

Fast Retailing Co Ltd (9983 JP) (Mkt Cap: $42.6bn; Liquidity: $325.7mn)

Travis Lundy's insight last week - The BOJ's Ongoing ETF Impact - Is a Nikkei 225 Reshuffle in the Cards? - proposed possible changes to the BOJ's buying patterns and possible changes to the Nikkei 225. IF you think this change to the Nikkei 225 is likely to happen, the single most important trade out there is to be short Fast Retailing.

• A proposed dollar-weighted long basket (in the prior insight) outperformed the proposed DW short basket every day of the week, with the 50-name long basket outperforming the 40-name short basket by 4.8%. Not a bad place to start, and there is undoubtedly more to go. Overall the shorts matter more than the longs. But that is the point - to reduce exposure to those names with a high impact and high ownership and elevate those with less impact.
• This accompaniment piece elucidates the risk metrics of a Nikkei-related trade.

(link to Travis’ insight: Trading the BOJ-Nikkei 225 Baskets)

Samsung Electronics Co Ltd (005930 KS) (Mkt Cap: $295bn; Liquidity: $697mn)

As a result of the 50 to 1 stock split, SamE said its shares will be suspended from Apr 25 to May 15, with the newly split shares re-listed on May 16.

• So what? SamE's market cap accounts for one-fifth of the KOSPI and more than one-fourth of the KOSPI 200. That’ll make life interesting for those KOSPI 200 based ETFs/ETNs operators and also those KOSPI 200 index arbitrage traders. The KRX is trying to minimize the SamE's stock trade suspension period but even then, it will still be suspended for at least 3-5 trading days.
• Ideally, sell all of your SamE shares to get a perfect zero tracking error. That’s not going to happen. But some ETF operators may sell a chunk of their SamE shares, which may create a short selling opportunity according to Sanghyun Park.
• Amorepacific Corp (090430 KS) experienced an extremely high level of short selling activity before its shares were suspended ahead of 10 to 1 split; while Lotte Holdings (004990 KS) had some meaningful short selling activities prior to its suspension, also a 10 to 1 split.

(link to Sanghyun’s insight: Samsung Electronics Stock Split - Short Selling Opportunity Checkup)

NTT Docomo Inc (9437 JP) (Mkt Cap: $95.4bn; Liquidity: $127mn)

Subsequent to his insight on Docomo’s tender offer, Travis estimates the remaining ¥97.1bn available to be spent equates to ~36mn shares at the current share price of ¥2700/share, or around 900k shares per day if using a 1st Feb-31st Mar period.

• Since Feb 1, NTT Docomo has sharply outperformed NTT (Nippon Telegraph & Telephone) (9432 JP) and the NTT/Docomo ratio is now trading at the lowest it has traded since early May 2017. There is reason to expect further downward pressure on the NTT/Docomo ratio because of the NTT Docomo buyback. Not to mention NTT does not have a buyback program.
• At the completion of the Docomo buyback, and assuming NTT/Docomo ratio is down in this range or lower, NTT will be quite inexpensive on a relative basis, and a switch to NTT would be favoured in the subsequent months. For now, Travis considers there is a reward/risk skew to owning NTT Docomo vs NTT (and vs the market) through the end of the buyback.

(link to Travis’ insight: Docomo Buyback - Updated Estimates of Impact)

Yakult Honsha Co Ltd (2267 JP) (Mkt Cap: $12.4bn; Liquidity: $40mn)

Yakult declined 6.8% on Thursday after top-shareholder Danone announced it would reduce its 21.29% stake to ~7%, with a deal value of ¥189.8bn (€1.43bn). The sell-down will be done via a combination secondary offering (plus greenshoe) and possibly into a 5mn share (3.02% of shares out) ToSTNeT-3 buyback, spending up to ¥36bn, to be conducted by Yakult sometime between Friday February 16th and February 28th. The sell-down has been well-flagged (the two companies have had a strained relationship for years), and more recently spurred on after US activist hedge fund Corvex built a US$400mn position in Danone.

• Yakult is down 23% from its peak (but still up 20% in the past year) and retains strong long-term growth prospects with plenty of headroom before its opportunities in Asia are exhausted. The company's strategy has also been to raise prices in emerging markets in line with inflation, underpinning a stable marginal profit ratio. For these reasons, Mio Kato recommends taking the deal as this would be a great opportunity to purchase the stock if the share price remained at these levels and a further 3-5% discount on top of that was on offer.
• Travis holds a different view. He thinks this will be a tough placement and as a trading opportunity, is likely a short from Tuesday's close. Even though there is no dilution, there is significant float increase. And it is not cheap. And it does not have a huge dividend to attract retail investors.

link to:
Mio's insight: Yakult: A Digestible Deal Indeed
Travis' insight: Danone To Sell Down Yakult Stake - It's a Big Deal

Kirin Holdings Co Ltd (2503 JP) (Mkt Cap: $23.7bn; Liquidity: $66.9mn)

Kirin announced a buyback program to buy back up to 50mn shares for up to ¥100bn. The buyback program commenced on Friday and lasts until December 28^th – although Kirin’s last big buyback in 2013 was completed in 5.5 months out of the 9.5 months allocated. The announcement did not specify whether the buyback will all be done on-market or via ToSTNeT-3, or Tender Offer.

• The Kirin buyback is large at 4% of outstanding shares. It is 6% of ADV every day for the rest of the year which equals ~10% of eligible volume every day. Travis would not neglect the impact this buyback may have.
• As such, Travis would count on a positively skewed distribution of daily returns compared with its sector competitors on account of the buyback. Kirin's multiples are on average a bit higher than the average of the other three majors, but Kirin enjoys a 20+% ROE against Asahi Co Ltd (3333 JP)'s 14% level and Sapporo Holdings Ltd (2501 JP) and Suntory levels at 7% and 8.5% respectively.

(link to Travis’ insight: Large Kirin (2503 JP) Buyback)

Mirae Asset Daewoo Securities Co Ltd (006800 KS) (Mkt Cap: $6bn; Liquidity: $39.6mn)

The final offering price, as expected, was set at ₩5,000 (the face value). Sanghyun believes if you are an existing shareholder, then this rights offering is still worth giving a serious consideration. Assuming the price won't fall further from the current price level, then you will likely enjoy at least 7% yield on your new class B pref share. Just don't forget the subscription date (Feb 21-22).

(link to Sanghyun's insight: Mirae Asset Daewoo Pref Issuance - Latest Situation)

Toshiba Corp (6502 JP) (Mkt Cap: $19bn; Liquidity: $143mn)

In Toshiba's 3Q earnings release, it said it will likely miss its March deadline for approval of the memory unit sale; and former SMBC deputy president Nobuaki Kurumatani would be assuming the role of chairman and CEO (with current CEO Satoshi Tsunakawa remaining as president). Toshiba then released earnings which were largely unsurprising.

• There was also news that subsidiary Toshiba Tec Corp (6588 JP) had discovered accounting fraud at a German subsidiary, and although relatively minor in scale (¥624mn), the fact no problem was previously known is a concern.
• Mio continues to feel that Toshiba's management culture, specifically the lack of transparency, represents a significant investment risk. He also remains concerned about the likelihood of a cyclical decline in memory profitability and as such, tilts short-term bullish at best.

(link to Mio’s’ insight: Toshiba: Likely Delay in Deal Approval and Poor Non-Memory Earnings Make IPO More Likely)

RHT Health Trust (RHT SP) (Mkt Cap: $505mn; Liquidity: $1.2mn)

RHT Health Trust (RHT SP) announced entering into a master purchase agreement with Fortis Healthcare Ltd (FORH IN) in relation to the proposed disposal touted in Nov-17.

• The spanner in the works centres on the promoters of acquirer Fortis Healthcare. Media reports suggest that Manipal Hospitals, thought to be the front-runner in an acquisition of Fortis Healthcare, is indirectly supporting the company's bid for RHT by stepping in to stave off defaults.
• Assuming total distributions of S$0.88/unit and a payment date of mid-August, that implies a gross annualized return of ~15% at the closing price Friday of S$0.82. Pranav Rao would consider the short side if it were to trade past S$0.84.

(link to Pranav's insight: RHT Health Trust: Definitive Agreement Executed)

Jardine Cycle & Carriage Ltd (JCNC SP) / Astra International Tbk Pt (ASII IJ)

My discount to NAV of 22.1% (24.6% at the time of my insight & a 12-month low) compares with a one-year average of 14%. A simple Bloomberg GRT places the current ratio (JCNC/Astra) only slightly above the July/Aug 2015 lows, which are the lowest levels recorded.

• JCNC looks attractive as an outright long. There has been no new news to exact a reduced stub valuation; while its indirect exposure into Go-JEK (well covered by Angus Mackintosh in his note The War of the Worlds Part: Astra takes a stake in Go-JEK), Indonesia’s first billion-dollar tech startup, appears a solid new economy investment.

Citic Ltd (267 HK)/ China CITIC Bank Corp Ltd (601998 CH)

My current discount to NAV of 41% compares with the 12-month average of ~35%, having just bounced off its 12-month low of 45%. Citic disconnected from China CITIC Bank Corp Ltd (601998 CH) earlier this year and as Citic Bank rolled over, around the time of reports the bank "deepened strategic cooperation" with HNA Group, as did Citic.

• What to do? Yes, the "HNA" overhang is evidently present; however the sell-off appears overdone, and on balance, Citic looks inexpensive. There are various +ves at the stub level, be it assets sales, revaluations, and a small sentiment shift to the upside in its resources operations, which resulted in an uptick in the value of the stub value in 1H17 vs. end-2016. Moreover, on a look through P/B basis, 0.6x is not demanding for the major shareholder (and SOE) of the seventh largest lender in China.

(link to my insight: StubWorld - Set-Up & Unwind Extremes: JCNC, Citic)