Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Tonight, in what is a shocker of a news story, the Nikkei carried an article titled ヤフーとLINE、経営統合へ which translates to "Yahoo and LINE, Moving Towards a Merger."Initial articles across the web trying to take a cue from that article had mixed information but if we look at what the Nikkei article says, it is pretty simple. <ul>
<li>
<a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> owns most of <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> which now owns ~47.5% of the ¥1.8trln market cap <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>. </li>
<li>
<a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> owns 73.1% of <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a>. </li>
<li>The result of a transaction described in the Nikkei <a href="https://www.nikkei.com/article/DGXMZO52139820T11C19A1I00000/" target="_blank" rel="noopener">article</a> would have Softbank and NAVER each owning 50% of a NEWCO which itself would own all of Z Holdings and all of LINE. </li>
</ul>That means that Z Holdings and LINE would be taken private.It is clear from the article that a deal which would join the two companies is on the table. The article proposes the ownership structure above, but that requires cash. And LINE has profitability problems. Z Holdings should be able to target ¥200bn in OP on its own again. LINE has never made a tenth of that.This creates a platform of a LOT of users. But it doesn't monetize them. Yet. Which means buying out minorities of Z Holdings and LINE "equally" at a 30% premium to last on Z Holdings would mean putting up something like ¥1.6 trillion of cash between Softbank and NAVER.That is a lot of money. And while the Nikkei article suggests that a deal could be agreed by month-end, regulatory approvals could take some time (though offhand, I expect that the only real problem would be internet service provision). There is a fair bit of uncertainty here. The mismatch vs the last close between the cash value of NAVER's stake in LINE and Softbank Corp's stake in Z is about 8.26% (LINE would have to rise by that much vs Yahoo Japan. That is neither here nor there.The question is what to do about it now.

Tonight, in what is a shocker of a news story, the Nikkei carried an article titled ヤフーとLINE、経営統合へ which translates to "Yahoo and LINE, Moving Towards a Merger."Initial articles across the web trying to take a cue from that article had mixed information but if we look at what the Nikkei article says, it is pretty simple. 

Softbank Group (9984 JP) owns most of Softbank Corp (9434 JP) which now owns ~47.5% of the ¥1.8trln market cap Z Holdings (4689 JP). 

Naver Corp (035420 KS) owns 73.1% of LINE Corp (3938 JP). 
The result of a transaction described in the Nikkei article would have Softbank and NAVER each owning 50% of a NEWCO which itself would own all of Z Holdings and all of LINE. 
That means that Z Holdings and LINE would be taken private.It is clear from the article that a deal which would join the two companies is on the table. The article proposes the ownership structure above, but that requires cash. And LINE has profitability problems. Z Holdings should be able to target ¥200bn in OP on its own again. LINE has never made a tenth of that.This creates a platform of a LOT of users. But it doesn't monetize them. Yet. Which means buying out minorities of Z Holdings and LINE "equally" at a 30% premium to last on Z Holdings would mean putting up something like ¥1.6 trillion of cash between Softbank and NAVER.That is a lot of money. And while the Nikkei article suggests that a deal could be agreed by month-end, regulatory approvals could take some time (though offhand, I expect that the only real problem would be internet service provision). There is a fair bit of uncertainty here. The mismatch vs the last close between the cash value of NAVER's stake in LINE and Softbank Corp's stake in Z is about 8.26% (LINE would have to rise by that much vs Yahoo Japan. That is neither here nor there.The question is what to do about it now.

Z and LINE, Sitting in a Tree... M.E.R.G.I.N... G...?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

freee K.K. (freee) aims to raise around US$300m in its mothers listing in Japan.Freee offers a cloud-native ERP platform encompassing a broad range of functions including accounting, invoicing, bill management, expense management, workflow management, payroll and time tracking. As of Sep 2019, it had 161,904 paying customers and an ARR of JPY5.7bn. It’s ERP platform consists primarily of two core solutions: Accounting freee and HR freee.Freee was founded by an ex-Google employee and counts <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit Holdings (6098 JP)</a> and <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> amongst its shareholders. It also operates in the SaaS segment and hence, is likely to draw ample attention. Furthermore, it has been growing fast through a combination of acquiring new customers and increasing ARPU. Although, it still remains far from being able to break even.However, the company hasn’t provided a lot of the traditional SaaS metrics data. It has also modified some of the definitions to suit its own presentation needs. Hence, it’s not easy or straightforward to paint an accurate picture of how the company’s operations have been faring.

freee K.K. (freee) aims to raise around US$300m in its mothers listing in Japan.Freee offers a cloud-native ERP platform encompassing a broad range of functions including accounting, invoicing, bill management, expense management, workflow management, payroll and time tracking. As of Sep 2019, it had 161,904 paying customers and an ARR of JPY5.7bn. It’s ERP platform consists primarily of two core solutions: Accounting freee and HR freee.Freee was founded by an ex-Google employee and counts Recruit Holdings (6098 JP) and LINE Corp (3938 JP) amongst its shareholders. It also operates in the SaaS segment and hence, is likely to draw ample attention. Furthermore, it has been growing fast through a combination of acquiring new customers and increasing ARPU. Although, it still remains far from being able to break even.However, the company hasn’t provided a lot of the traditional SaaS metrics data. It has also modified some of the definitions to suit its own presentation needs. Hence, it’s not easy or straightforward to paint an accurate picture of how the company’s operations have been faring. 

Freee Pre-IPO - Has Been Growing Fast but Missing Data Points Leave Quite a Few Niggling Doubts

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

• RELATIVE PRICE SCORE •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/178/original/2019-09-06_09-42-35.png?1567730614" class="editor-image img-responsive" data-smartkarma-image-id="98178"></figure><div class="content-caption">Source: Japan Analytics</div>INTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech 'bubble'. <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a> has just joined <a href="https://www.smartkarma.com/entities/goldwin-inc" target="_blank" data-smartkarma-citation="entities:410:1" rel="noopener">Goldwin (8111 JP)</a> in being only the second large-cap RPS 'ten-baggers' in the last twenty years. <div class="content-highlight">This insight updates our list of Overbought and Oversold companies, reviews the best and worst-performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.</div><div></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/046/original/2019-09-05_12-46-46.png?1567655232" class="editor-image img-responsive" data-smartkarma-image-id="98046"></figure><div class="content-caption">Source: Japan Analytics</div>STATISTICS - Currently, of the 3,706 listed companies for which monthly RPS data is available, 81 companies are 'Overbought', and 133 are 'Oversold' - 2.45% and 3.8%, respectively of the total. For the 737 companies with a market capitalisation of over ¥100b, there are 44 'Overbought' and 37 'Oversold' companies, 6% and 5%, respectively.<hr>• RELATIVE PRICE SCORE 'TOPS' •<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/055/original/2019-09-05_13-06-30.png?1567656423" class="editor-image img-responsive" data-smartkarma-image-id="98055"></figure><div class="content-caption">Source: Japan Analytics</div>RPS 'TOPS' - In the last two years, 388 companies have achieved an RPS of '4' or more and the average Overbought 'persistence' is 42 days. 1.26% of the total of 1.94 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 74 days - demonstrating the superior persistence of large capitalisation companies in this regard. The chart above highlights the track record of all 95 large caps which are some point were Overbought in the last twenty-four months and illustrates the extreme outlier status of Goldwin and Lasertec.RPS NEGATIVE MEAN REVERSION - Some examples of RPS mean reversion in the last three months have been <a href="https://www.smartkarma.com/entities/suzuken-co-ltd" target="_blank" data-smartkarma-citation="entities:14996:1" rel="noopener">Suzuken (9987 JP)</a>, <a href="https://www.smartkarma.com/entities/infomart-corp" target="_blank" data-smartkarma-citation="entities:1301:1" rel="noopener">Infomart (2492 JP)</a>, <a href="https://www.smartkarma.com/entities/nichirei-corp" target="_blank" data-smartkarma-citation="entities:7168:1" rel="noopener">Nichirei (2871 JP)</a>, and <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl (4921 JP)</a>. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/096/original/2019-09-05_16-25-39.png?1567668352" class="editor-image img-responsive" data-smartkarma-image-id="98096"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/097/original/2019-09-05_16-27-09.png?1567668441" class="editor-image img-responsive" data-smartkarma-image-id="98097"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/098/original/2019-09-05_16-28-42.png?1567668548" class="editor-image img-responsive" data-smartkarma-image-id="98098"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/099/original/2019-09-05_16-30-29.png?1567668640" class="editor-image img-responsive" data-smartkarma-image-id="98099"></figure><div class="content-caption">Source: Japan Analytics</div><hr>• RELATIVE PRICE SCORE 'BOTTOMS' •<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/056/original/2019-09-05_13-12-52.png?1567656806" class="editor-image img-responsive" data-smartkarma-image-id="98056"></figure><div class="content-caption">Source: Japan Analytics</div>
</div>RPS 'BOTTOMS' - 259 companies have seen their RPS fall to '-2' or below in the last two years, and the average Oversold 'persistence' is 83 days. 1.46% of the total of 1.94 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 79 companies and 94 days. The chart above highlights the track record of the 79 large caps which are some point were Oversold in the last twenty-four months and illustrates the strong recovery in the REITs Sector and the continuing demise of Regional Banks.RPS POSITIVE MEAN REVERSION - Some recent examples of positive RPS mean reversions are <a href="https://www.smartkarma.com/entities/otsuka-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:12292:1" rel="noopener">Otsuka Holdings (4578 JP) </a>and <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE (3938 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/100/original/2019-09-05_16-35-47.png?1567668972" class="editor-image img-responsive" data-smartkarma-image-id="98100"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/102/original/2019-09-05_16-36-50.png?1567669047" class="editor-image img-responsive" data-smartkarma-image-id="98102"></figure><div class="content-caption">Source: Japan Analytics</div>As we noted in our June <a href="https://www.smartkarma.com/insights/japan-relative-price-scores-overbought-oversold-companies-june-2019" target="_blank" data-smartkarma-citation="insights:30393" rel="noopener">Insight: -</a><blockquote><a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE (3938 JP)</a>- Line has performed poorly since being featured in last year's Sohn Conference and has had negative and worsening Operating Income for each of the previous five quarters. Although there is a possibility of a double-bottom RPS 'bounce' and the company is now the most-Oversold non-financial large-cap over one year, there are no fundamental reasons to own the shares.   </blockquote>In the DETAIL section below, we list the current Very Overbought (RPS&gt;5), Too-Late-To-Buy (RPS &gt;4&lt;5) and Oversold (RPS &lt;-2) stocks as well as the most substantial three-month positive and negative changes in RPS.

• RELATIVE PRICE SCORE •Source: Japan AnalyticsINTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech 'bubble'. Lasertec (6920 JP) has just joined Goldwin (8111 JP) in being only the second large-cap RPS 'ten-baggers' in the last twenty years. This insight updates our list of Overbought and Oversold companies, reviews the best and worst-performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.Source: Japan AnalyticsSTATISTICS - Currently, of the 3,706 listed companies for which monthly RPS data is available, 81 companies are 'Overbought', and 133 are 'Oversold' - 2.45% and 3.8%, respectively of the total. For the 737 companies with a market capitalisation of over ¥100b, there are 44 'Overbought' and 37 'Oversold' companies, 6% and 5%, respectively.• RELATIVE PRICE SCORE 'TOPS' •Source: Japan AnalyticsRPS 'TOPS' - In the last two years, 388 companies have achieved an RPS of '4' or more and the average Overbought 'persistence' is 42 days. 1.26% of the total of 1.94 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 74 days - demonstrating the superior persistence of large capitalisation companies in this regard. The chart above highlights the track record of all 95 large caps which are some point were Overbought in the last twenty-four months and illustrates the extreme outlier status of Goldwin and Lasertec.RPS NEGATIVE MEAN REVERSION - Some examples of RPS mean reversion in the last three months have been Suzuken (9987 JP), Infomart (2492 JP), Nichirei (2871 JP), and Fancl (4921 JP). Source: Japan Analytics• RELATIVE PRICE SCORE 'BOTTOMS' •
Source: Japan Analytics
RPS 'BOTTOMS' - 259 companies have seen their RPS fall to '-2' or below in the last two years, and the average Oversold 'persistence' is 83 days. 1.46% of the total of 1.94 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 79 companies and 94 days. The chart above highlights the track record of the 79 large caps which are some point were Oversold in the last twenty-four months and illustrates the strong recovery in the REITs Sector and the continuing demise of Regional Banks.RPS POSITIVE MEAN REVERSION - Some recent examples of positive RPS mean reversions are Otsuka Holdings (4578 JP) and LINE (3938 JP).Source: Japan AnalyticsAs we noted in our June Insight: -LINE (3938 JP)- Line has performed poorly since being featured in last year's Sohn Conference and has had negative and worsening Operating Income for each of the previous five quarters. Although there is a possibility of a double-bottom RPS 'bounce' and the company is now the most-Oversold non-financial large-cap over one year, there are no fundamental reasons to own the shares.   In the DETAIL section below, we list the current Very Overbought (RPS&gt;5), Too-Late-To-Buy (RPS &gt;4&lt;5) and Oversold (RPS &lt;-2) stocks as well as the most substantial three-month positive and negative changes in RPS.

🇯🇵 Japan • September Relative Price Scores - Life at the Poles Part 2: Companies

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

This is a tricky one. First, this isn't exactly a captive spin-off. Well, Naver isn't hiding its intention of going for ECO later. Naver COO said during yesterday's earnings call that IPO is the final goal. <a href="http://www.inews24.com/view/1196592" target="_blank" rel="noopener">Here is the news link</a>. This must have been pre-arranged with Mirae. It is very likely that Mirae will exit at ECO. Mirae isn't that naive as to pour in ₩500bil believing there will be direct synergies. Then, what's really important is the true meaning of this spin-off. The point is this should be interpreted as strategic weight shift from LINE to Naver for financial business.

This is a tricky one. First, this isn't exactly a captive spin-off. Well, Naver isn't hiding its intention of going for ECO later. Naver COO said during yesterday's earnings call that IPO is the final goal. Here is the news link. This must have been pre-arranged with Mirae. It is very likely that Mirae will exit at ECO. Mirae isn't that naive as to pour in ₩500bil believing there will be direct synergies. Then, what's really important is the true meaning of this spin-off. The point is this should be interpreted as strategic weight shift from LINE to Naver for financial business.

This post looks at what is being locally talked and speculated about Naver's possible pullout from LINE Corp in Japan and how this may be connected to LHJ's recent money injection into his personal company Jieum.

This post looks at what is being locally talked and speculated about Naver's possible pullout from LINE Corp in Japan and how this may be connected to LHJ's recent money injection into his personal company Jieum.

LINE, Naver & LHJ's Jieum: Local Speculations

Japan

A Holdings Corporation develops and operates the LINE application for smartphones. The Company offers games distribution, music distribution, advertisements, and other services. A Holdings serves clients across worldwide.

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A Holdings (LN US)

Z and LINE, Sitting in a Tree... M.E.R.G.I.N... G...?

Tonight, in what is a shocker of a news story, the Nikkei carried an article titled ヤフーとLINE、経営統合へ which translates to "Yahoo and LINE, Moving...

Travis Lundy

Freee Pre-IPO - Has Been Growing Fast but Missing Data Points Leave Quite a Few Niggling Doubts

freee K.K. (freee) aims to raise around US$300m in its mothers listing in Japan.Freee offers a cloud-native ERP platform encompassing a broad range...

Sumeet Singh

🇯🇵 Japan • September Relative Price Scores - Life at the Poles Part 2: Companies

• RELATIVE PRICE SCORE •INTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by...

Campbell Gunn

Naver Financial ECO: Meaning for LINE

This is a tricky one. First, this isn't exactly a captive spin-off. Well, Naver isn't hiding its intention of going for ECO later. Naver COO said...

Sanghyun Park

LINE, Naver & LHJ's Jieum: Local Speculations

This post looks at what is being locally talked and speculated about Naver's possible pullout from LINE Corp in Japan and how this may be connected...

Sanghyun Park

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