Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Thematic (Sector/Industry)

This past week (Friday to Friday) saw 196 insights published:
29 on China and HK stocks and another couple dozen on greater China themes and sectors.
7 insights on Tesla Motors (TSLA US) by insight providers such as Vicki Bryan, Junheng Li, and others. 
4 insights on the semiconductor industry from noted specialists William Keating and Jim Handy

24 bottom-up insights on ASEAN+subcontinent plus another 30 on stocks and thematics in the same zones.
42 insights on event-driven and IPOs/Placements
42 insights on Japan and Korea stocks and situations
And more!
Japan had the best week of any major market last week with TOPIX up 2.6% and Nikkei 225 up 3.5%, despite it being an SQ week (which generally lowers directional volumes as those exposed roll their futures). SQ volume on Friday was JPY 1.0-1.1 trillion by itself, and then the market climbed. My years in the markets trading derivatives tell me that there was some pent-up demand and CTAs are getting long. And the chart would tell a similar story. While I am not a chartist at heart, I recognise a "breakout" when I see one, and Friday signalled one. Among sectors, "Mining" led but that was driven by Inpex Corp (1605 JP) up 10% on the week as they offered their first condensate from their Ichthys project and Brent crude rose 1.5% on the week, clearing $80 at one point. Other energy, shipping, and trade-sensitive stocks generally did well despite the news that US President Trump would seek to impose tariffs on US$200bn of Chinese goods as early as Monday, September 17th. In Japan specifically, Abe leads Ishiba in LDP presidential election polling (results out on the Thursday the 20th), which will make some feel better, as some of Ishiba's ideas are less-than-profit-friendly.The next North Korea-South Korea Summit starts on the 18th and goes for three days as Douglas Kim addressed in What to Expect in the Next North &amp; South Korea Summit on Sept 18-20th. The wielding of cross-border rhetoric here is falling even as Trump does not get the advances he seems to want with NoKo. I expect more noise, little political news, but some economic news (as Doug does). Talking may not be a bad thing.IDEASSomething which is not getting enough press is the tightening of the Japanese labor market. Sharmila Whelan touched on it in Japan Outlook - Every Reason To Overweight. Profits are up. Profit margins are up. ROEs are up. There is a secular change as Japanese companies embrace (albeit sometimes reluctantly) the avatars of good governance. A Wall Street Journal article by Mike Bird addressed this subject a week ago, and it is worth a read. As Campbell Gunn discussed in Japan: Seasonality - "Sell in July and Say Goodbye...Please Come Back on Culture Day" a week ago and I did a year ago, seasonality is not Japan's friend through October. The win ratio is not good. But Japan is trading at its lowest PER and lowest relative PER to other DMs in a long while. And on Friday the market broke to new recent highs. There is something there.SOUTH KOREA 
1) Hyundai Motor Restructuring: Make a Proactive Move on Share Class Pair Trade


Insight Provider
Sanghyun Park


Companies

Hyundai Motor Co (005380 KS), Hyundai Motor Co (005387 KS), Hyundai Motor Co (005385 KS)



Summary

The Hyundai Motor restructuring is a big event, and news is expected shortly. 
Own the 87 line against the 85 line because it is 2-3x as liquid and renewed interest in the pref lines will go to the more liquid line first.



2) Elliott Mgmt's Proposal #2 for the Hyundai Motor Group - Timing &amp; Trying to Find the Middle Ground 


Insight Provider
Douglas Kim


Companies

Hyundai Motor Co (005380 KS),  Hyundai Motor Co (005380 KS)



Summary

Elliott has made a new proposal which Douglas calls Plan II
Elliott's new proposal involves merging the after-service unit of Hyundai Mobis (012330 KS) with Hyundai Motor Co (005380 KS) and the remaining Mobis operations with Glovis. The proposal also includes higher dividends as well as improving its existing BoD members at Hyundai Motor and its affiliates. 
Elliott's Plan II also includes the founding Hyundai Motor Group Chung family buying shares in the newly created merged Mobis &amp; Glovis entity as well as this new Mobis &amp; Glovis entity buying shares of Hyundai Motor (which is to merge with after sales unit of Mobis) from Kia Motor and Hyundai's Chung family.
Under Elliott's new proposal, the merged Mobis-Glovis entity would be the controlling entity of the Hyundai Motor Group, with a major ownership stake in Hyundai Motor. The key component of Elliott's revised plan that is different from its previous corporate reorganisation proposal a few months ago is that it provides a greater controlling influence on Glovis.
Elliott owns $1.5bn of shares in three Hyundai group companies. This latest proposal may indicate HMG's revised restructuring plan will be announced pretty soon.



3) A Comparison Between Bloom Energy &amp; S-Fuelcell


Insight Provider
Douglas Kim


Companies

S-Fuelcell (SFUEL KS), Bloom Energy


Summary

Douglas says is too early to know who will win with what technology but a comparison between recently-listed Bloom Energy and soon-to-list S-Fuelcell in Korea is instructive.
The two companies have different technologies which operate at different temperatures. 
Douglas sees S-Fuelcell as one of the most interesting smallcap IPOs in Korea in H2 2018.



4) LG Uplus/CJ Hello Virtually Pegged At MC Ratio of Max 10% - Trade Approach on This


Insight Provider
Sanghyun Park


Companies

LG Uplus Corp (032640 KS),  CJ Hello (037560 KS)



Summary


LG Uplus Corp (032640 KS) seems to be on the verge of taking over CJ Hello (037560 KS). The acquisition price being reported by local news outlets is ₩20,000 per share.
Under Korea's broadcasting network law, no paid TV company is allowed to own more than 30% of another paid TV company. CJ ENM seems to want to dump its 53.92% stake. G Uplus will have no choice but to go for a merger.
Sanghyun recommends long LG Uplus short CJ Hello to take advantage of LG Uplus' likely desire to lower the cost of acquisition.


JAPAN
5) Bank of Kyoto (8369 JP): Temple Belle


Insight Provider
J. Brian Waterhouse


Companies
Bank Of Kyoto (8369 JP)


Summary

Bank of Kyoto has an US$8bn equity portfolio with US$6.5bn of unrealized gains.
If you think Japan's market stands a good chance of a rally, it can be a levered play on TOPIX in valuation terms (and therefore might be a good trade against other regional banks)



6) Suruga Bank (8358 JP): Purging the Augean Stables 2018 - Part 2 &amp; Part 3


Insight Provider
J. Brian Waterhouse


Companies
Suruga Bank Ltd (8358 JP)


Summary

Part II: The independent investigative committee delivered its findings and three top execs and two other board members fell on their swords. Michio Arikuni (52), a "clean pair of hands" was named president. The question for investors is whether the damage to Suruga Bank's reputation from this scandal is irreparable. This situation is for players of the Very Long Game only. 
Part III: A significant recounting of the bank's past, and how it got into trouble.



7) Japan Telcos: A Closer Look at 1QFY18/19 Results. Pressure on Pricing Is Real but Ineffective


Insight Provider
New Street Research Insights


Companies

NTT Docomo Inc (9437 JP), KDDI Corp (9433 JP), Softbank Group (9984 JP)



Summary

Domestic revenue growth is slowing, but EBITDA margins have been rising.
Capex is under control as we approach 5G
New Street is positive on Japanese telcos for increasing shareholder returns; buyers of all the telcos but KDDI is the top pick.
New Street sees the Suga comments about desirability of phone bills 40% lower as having limited impact.



8) Could / Should Japanese Mobile Phone Bills Be Cut 40%?


Insight Provider
Pelham Smithers Associates


Companies

NTT Docomo Inc (9437 JP), KDDI Corp (9433 JP), Softbank Group (9984 JP), Rakuten Inc (4755 JP), NTT (9432 JP)



Summary

A brief investigation into Chief Cabinet Secretary's suggestion that Japanese mobile phone bills could be cut by 40% because Japanese phone bills are double the OECD average, and Rakuten would charge half.
Japanese consumers spend more, but do not spend nearly as much more per GB of data.
PSA concludes one culprit of higher overall spend on data is the fixed line business (NTT).



9)  World's IPO: 8 for Effort but Effort Isn't Enough in Japan's Tough Fashion Market


Insight Provider
Michael Causton


Companies
World Co Ltd (3612 JP)


Summary

World we relist in September, 13 years after being taken private.
World has moved further from its historical roots as a wholesale merchant.
It will use new capital to build digital capability and add stores, but the company faces industry headwinds as apparel as a category starts to flag, and its core markets are contracting.
Profitability is improving as it cuts underperforming assets but the headwinds are serious.
The IPO may be well-supported for historical and brand reasons, but it is tough to support fundamentally.
Other insights on the IPO published by Sumeet Singh (World Co IPO - Quick Thoughts - Was Privatised at Lower Multiples when It Had a Better Outlook) and Chacko Jacob (World Co Ltd IPO Preview(3612 JP): Banking On Its Legacy To Sell Over-Priced Clothes)



10) Wacoal and Descente Agree Partial Merger to Head Off Itochu


Insight Provider
Michael Causton


Companies

Wacoal Holdings (3591 JP), Descente Ltd (8114 JP), Itochu Corp (8001 JP)



Summary

[ED] One of my favorite insights this week. 
Trouble in paradise: Itochu has had a relationship with Descente for 50 years and looked to get married, but Descente has decided to announce impending nuptials with Wacoal.
Efforts in recent years by Itochu to take more control of Descente has apparently resulted in pushing the company away.
Expect the possibility of more fireworks



11) Altaba's Big Yahoo Japan Selldown


Insight Provider
Travis Lundy


Companies

Altaba Inc (AABA US), Yahoo Japan (4689 JP)



Summary

Altaba announced a sale of 750mm shares of Yahoo Japan which morphed quickly into a sale of their entire 1.36bn share stake, priced at multi-year lows.
The structure of the shareholding was such that actual required uptake by "new hands" was a lot smaller as Altaba arbitrageurs needed to buy back their shorts, and index inclusion demand is significant.
Altaba is now out. The float is now float. And Altaba has just announced a large buyback with the proceeds.



12)  Renesas Electronics: Pays Up for IDT but We Like the Strategic Fit,  Renesas Electronics: Excessive Focus on IDT Deal Multiple Belies Long-Term Strategic Potential


Insight Provider
Mio Kato, CFA


Companies

Renesas Electronics (6723 JP),  Integrated Device Tech (IDTI US)



Summary

Renesas announced agreed terms for a deal to buy IDT at an EV of US$7.2bn.
Mio sees strong strategic fit which makes the deal palatable.
Mio thought it could be entirely debt-financed.
Mio visited Renesas and found prior inventory buildup is being unwound, there is no way to spin the IDT deal as cheap, but Renesas sees strong synergies ahead. 
Further acquisitions are unlikely in the near-term. Denso may provide a plug for a few holes in the lineup.



13) Nippon Suisan (1332)--Update on Amarin's Reduce-It Trial Data Scheduled for Release by Month-End


Insight Provider
SC Capital


Companies

Nippon Suisan Kaisha (1332 JP), Amarin (AMRN US)



Summary

[ED] Another of my faves. This situation is something to watch very carefully. I don't think people are paying enough attention. 
Nissui faces a huge event this month with the release of clinical data on Amarin's ReduceIt trials.
Nissui will be chosen to supply Amarin with its pharmaceutical-use EPA if the Reduce-It trial shows 15% or more improvement by using fish-oil EPA to treat patients with cardiovascular problems.
Mochida (4534 JP) developed Epadel which expired in 2014. Amarin's Vascepa is similar, and the patent runs to 2030.
SC Capital describes some new discoveries made in talks with Mochida. Fascinating situation!



14) UKC/Vitec Merger To Bring Murakami Gang Activism?


Insight Provider
Travis Lundy


Companies

Ukc Holdings (3156 JP), Vitec Holdings (9957 JP)



Summary

A late edition, published after the Friday cutoff.
Friday after the close these two semiconductor and device trading companies announced a nil premium scrip merger.
It looks easy, if a little light on the ratio for UKC shareholders. 
But there could be a very short-term activist fight. Record date for the EGM is 30 Sep, leaving only 5 trading days for activists or their friends to accumulate voting rights. Holders affiliated with longtime activist Yoshiaki Murakami currently hold 10.88% of UKC, and a large Fidelity fund holds almost 9%. UKC at 1x book is merging with Vitec at over 2x book. The main difference is leverage and A/R-A/P management (Vitec is quite levered with low net receivable days to fund through working capital).




Event-Driven

Restar Holdings Corporation / Event-Driven

Friday after the close, <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony Corp (6758 JP)</a>-linked smallcap ($300-350mm each) semiconductor wholesalers <a href="https://www.smartkarma.com/entities/5466" target="_blank" data-smartkarma-citation="entities:5466:1">UKC Holdings (3156 JP)</a> and <a href="https://www.smartkarma.com/entities/7840" target="_blank" data-smartkarma-citation="entities:7840:1">Vitec Holdings (9957 JP)</a> announced they had agreed to merge as of April 1 2019, with UKC being the surviving entity. The UKC entity will spin off its device business to a Vitel sub called VGEL, and will become the parent holding company of three businesses - the integrated device business, the other UKC businesses, and the other Vitec businesses. The holding company will be renamed. Sony is the top shareholder (14.23%) at UKC and the second largest shareholder at Vitec (4.99%). The ratio is 1:1 meaning it appears there is a 0.6% spread to be earned vs today's close but that spread doesn't exist. Details below.This appears to be a straightforward merger of two smallcaps who look to survive in a competitive market and where they expect synergies from integrating their device businesses. There may be more here than meets the eye.

Friday after the close, Sony Corp (6758 JP)-linked smallcap ($300-350mm each) semiconductor wholesalers UKC Holdings (3156 JP) and Vitec Holdings (9957 JP) announced they had agreed to merge as of April 1 2019, with UKC being the surviving entity. The UKC entity will spin off its device business to a Vitel sub called VGEL, and will become the parent holding company of three businesses - the integrated device business, the other UKC businesses, and the other Vitec businesses. The holding company will be renamed. Sony is the top shareholder (14.23%) at UKC and the second largest shareholder at Vitec (4.99%). The ratio is 1:1 meaning it appears there is a 0.6% spread to be earned vs today's close but that spread doesn't exist. Details below.This appears to be a straightforward merger of two smallcaps who look to survive in a competitive market and where they expect synergies from integrating their device businesses. There may be more here than meets the eye.

UKC/Vitec Merger To Bring Murakami Gang Activism?

Japan

Vitec Holdings Co Ltd is a trading company specializing in semiconductor-related products.  The Company also sells other electronic parts and devices such as computer memories, integrated circuits, micro-computers, switching boards, batteries, disc drives. Vitec mainly handles products made by Sony. The company also provides environment energy consulting services.

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Vitec Holdings (9957 JP)

Smartkarma's Week That Was in JP/KR

This past week (Friday to Friday) saw 196 insights published: 29 on China and HK stocks and another couple dozen on greater China themes and...

Travis Lundy

UKC/Vitec Merger To Bring Murakami Gang Activism?

Friday after the close, Sony Corp (6758 JP)-linked smallcap ($300-350mm each) semiconductor wholesalers UKC Holdings (3156 JP) and Vitec Holdings...

Travis Lundy

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