Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>A little over two weeks ago, western media outlets <a href="https://www.ft.com/content/ac43e9dd-1e83-47c7-9401-112964465545" target="_blank" rel="noopener">reported</a> "sources familiar with the matter" said Elliott Management had built a "significant" stake in <a href="https://www.smartkarma.com/entities/dai-nippon-printing-co-ltd" target="_blank" data-smartkarma-citation="entities:19388:1" rel="noopener">Dai Nippon Printing (7912 JP)</a>. </li>
<li>DNP has been a "value name" for years. And years. Lots of cash, lots of real estate, and lots of cross-holdings. DNP had a plan to sell crossholdings, slowly.</li>
<li>DNP had planned a March 9 presentation of its new MTMP. Elliott, reportedly with a little less than 5%, wanted faster. A few weeks later, DNP has responded with faster. </li>
</ul>


A little over two weeks ago, western media outlets reported "sources familiar with the matter" said Elliott Management had built a "significant" stake in Dai Nippon Printing (7912 JP). 
DNP has been a "value name" for years. And years. Lots of cash, lots of real estate, and lots of cross-holdings. DNP had a plan to sell crossholdings, slowly.
DNP had planned a March 9 presentation of its new MTMP. Elliott, reportedly with a little less than 5%, wanted faster. A few weeks later, DNP has responded with faster. 


Dai Nippon Printing (7912) - Activism Results Going Forward Are Complicated

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>Dai Nippon Printing’s announcement that it would double its RoE target in its next MTP was a pleasant surprise. </li>
<li>Together with saucy hints that future buybacks could be the biggest in its history this has propelled the stock to a post-2007 high. </li>
<li>We think Elliott has found an easy win here and consider this likely to end as a standout success for activism in Japan.</li>
</ul>


Dai Nippon Printing’s announcement that it would double its RoE target in its next MTP was a pleasant surprise. 
Together with saucy hints that future buybacks could be the biggest in its history this has propelled the stock to a post-2007 high. 
We think Elliott has found an easy win here and consider this likely to end as a standout success for activism in Japan.


Dai Nippon Printing – Activism On Easy Street

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Equity Bottom-Up

<ul>
<li>Canon's reported capital spending plan suggest that commercial production of nanoimprint lithography tools could start in time for the next semiconductor up-cycle.</li>
<li>If this is the case, Kioxia is likely to be the main beneficiary. In the meantime, LightStream recommends that investors in Toshiba hedge against tech/semi weakness.</li>
<li>Technical hurdles remain formidable, but nanoimprint lithography has the potential to be much cheaper than EUV.</li>
</ul>


Canon's reported capital spending plan suggest that commercial production of nanoimprint lithography tools could start in time for the next semiconductor up-cycle.
If this is the case, Kioxia is likely to be the main beneficiary. In the meantime, LightStream recommends that investors in Toshiba hedge against tech/semi weakness.
Technical hurdles remain formidable, but nanoimprint lithography has the potential to be much cheaper than EUV.


Toshiba (6502 JP): Kioxia Nanoimprint Update - Look to the Next Cycle

In this morning's news: "Merger talks between Western Digital and Kioxia stall" (Reuters, October 22, 2021, updated 9:07 a.m. JST). It is yet not clear how serious this might be.On October 19, the Nikkei reported that Toshiba affiliate Kioxia, Canon (7751) and Dai Nippon Printing (7912) are aiming to use nanoimprint lithography in Kioxia's NAND flash memory production in 2025.The potential savings in terms of equipment and operational costs could be great enough to give Kioxia a competitive advantage. It would also justify years of development and give Canon and Dai Nippon Printing important new products.But 2025 is a long time from now and technical hurdles remain. For the time being, more immediate issues are likely to move the stocks. LightStream's Mio Kato continues to see upside potential for Toshiba, but primarily as an exit opportunity (see <a href="https://www.smartkarma.com/insights/toshiba-possibility-of-a-kioxia-western-digital-deal" target="_blank" data-smartkarma-citation="insights:56685" rel="noopener">Toshiba – Possibility of a Kioxia-Western Digital Deal</a> )

In this morning's news: "Merger talks between Western Digital and Kioxia stall" (Reuters, October 22, 2021, updated 9:07 a.m. JST). It is yet not clear how serious this might be.On October 19, the Nikkei reported that Toshiba affiliate Kioxia, Canon (7751) and Dai Nippon Printing (7912) are aiming to use nanoimprint lithography in Kioxia's NAND flash memory production in 2025.The potential savings in terms of equipment and operational costs could be great enough to give Kioxia a competitive advantage. It would also justify years of development and give Canon and Dai Nippon Printing important new products.But 2025 is a long time from now and technical hurdles remain. For the time being, more immediate issues are likely to move the stocks. LightStream's Mio Kato continues to see upside potential for Toshiba, but primarily as an exit opportunity (see Toshiba – Possibility of a Kioxia-Western Digital Deal )

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

Quantitative Analysis

Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled <a href="https://www.ft.com/content/a97cf336-518d-45dd-8092-ec0363c18725" target="_blank" rel="noopener">Takeaways from 30 years of Covering the Japanese Market</a> in the Financial Times on 26 November (Thanksgiving) which is well worth a read.He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. <section class="figure"><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/956/original/Screenshot%202020-11-29%20at%203.07.23%20PM.png?1606633655" class="editor-image img-responsive" data-smartkarma-image-id="174956"></figure></section>This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.</section>Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. 
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/969/original/Screenshot%202020-11-29%20at%203.40.57%20PM.png?1606635676" class="editor-image img-responsive" data-smartkarma-image-id="174969"></figure></section>It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.
There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. 
Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. 
Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.
Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.
This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.
The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.
Read on for the nitty gritty (as usual, we start with Conclusions First).</section>

Long-time Japan strategist Jonathan Allum, most recently of SMBC Nikko, put a guest post titled Takeaways from 30 years of Covering the Japanese Market in the Financial Times on 26 November (Thanksgiving) which is well worth a read.He points out that foreign investors in 2020 are likely going to be net dis-investors in Japan for the fourth year in five, fifth year in six, and increasing the net selldown which has occurred since the monster year in 2013. This data is compiled from the weekly data which shows each investor category. On a net basis across all investor categories, it will be flat because while it shows buybacks on market, crediting the "Business Corporations" category, it does not show the data of investors selling into Tender Offers or the data of investors buying from IPOs.Of course, the data is not that clean because investing doesn't always happen according to calendar year decisions. 
It just so happens that the last two really big selloffs in dollar terms (both exceeding ¥6trln on a rolling 52wk basis) did not happen to see start and end points coincide with those of the Gregorian calendar.
There has been an interesting confluence of "lack of participation in the market" this year. After lifting ETF buys in March 2020, the BOJ has slowed down its ETF buying considerably in the past six months (the current 6-month total is near the lower end of the range seen in the past four years), buybacks are down this year as companies slowed their activity in the face of covid-19-induced uncertainty, and foreigners are net sellers. 
Of course Japanese insurers are on the verge of extending what will be a 12-year streak of net sells to a 13th year, and it looks like Japanese banks will be extending their net selling to a 14th year in a row. Trust Banks will be net buyers for the sixth year in seven this year, but for at least the fourth year in a row it will be less than the net buying of ETFs by the BOJ so ex-BOJ trust banks will have been net sellers for several years. 
Business corporations are up ¥1.335trln year-to-date through the 20th of November, and will almost certainly extend their streak to ten years on the buy side. The interesting net flow this year is the "Proprietary" flow at brokers. This is now positive for ten years in a row, and there are particular reasons for this, as discussed below.
Because of the noise around recent articles about the BOJ and foreign activity, I decided to once again dust off the long-term analytics on Japan investor class flows, and present them here. Because flows net off to close to zero (i.e. there are a certain number of shares, and if some investor class is a net seller, other investor classes must be net buyer(s)), deriving a model for behavior is useful.  Long ago, in roles in fixed income and equity derivatives strategy, I built models of net foreign buying, and they uniformly showed that foreign investors chase/push/drive performance. My final model is a multi-input model which provides a simple combination of two factors they chase.
This insight discusses those behavior models, investor class flow dynamics, cycles, and trends and pressures near-term.
The combination of the investor class flows, and the model which drives net foreign activity, is interesting. I think it helps because the top-down aspect matters for understanding allocation flow.
Read on for the nitty gritty (as usual, we start with Conclusions First).

JAPAN FLOW:  Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

Japan

DAI NIPPON PRINTING CO., LTD. offers printing services for commercial and industrial use.  The printing items include information media such as books, periodicals, and text books, wrapping paper and containers, stationeries, and advertising medium.  The Company provides design and production services as well.  Dai Nippon Printing also produces soft drinks including Coca Cola.

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Dai Nippon Printing (7912 JP)

Dai Nippon Printing (7912) - Activism Results Going Forward Are Complicated

Elliott built a stake in perennial deep-value name Dai Nippon Printing. DNP responded by saying it will take more aggressive capital action. The...

Travis Lundy

Dai Nippon Printing – Activism On Easy Street

Elliott's investment in Dai Nippon Printing looks to us like an excellent selection for its high probability of success and the trade is already...

Mio Kato

Toshiba (6502 JP): Kioxia Nanoimprint Update - Look to the Next Cycle

Commercial production of nanoimprint lithography tools could begin in time for the next semiconductor up-cycle. That main beneficiary would be...

Scott Foster

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

Merger talks between Kioxia and Western Digital have reportedly stalled. This should be the focus of investor attention, not the recent Nikkei...

Scott Foster

JAPAN FLOW: Foreign Investor Flows Still Matter (Redux, Reduxed) - Playing Catchup

The Japanese market has unusual flow cyclicality. Foreigners take price. They have been net sellers. They buy when USD-denom TOPIX outperforms....

Travis Lundy

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