Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Friday 30 October, 2020 just after lunch,  <a href="https://www.smartkarma.com/entities/daiichi-sankyo-co-ltd" target="_blank" data-smartkarma-citation="entities:3014:1" rel="noopener">Daiichi Sankyo (4568 JP)</a> released Q2 earnings (<a href="https://www.daiichisankyo.com/files/investors/library/quarterly_result/2020/pdf/FY2020%20Q2%20Financial%20Results.pdf" target="_blank" rel="noopener">results</a>, <a href="https://www.daiichisankyo.com/files/investors/library/quarterly_result/2020/pdf/FY2020%20Q2%20Presentation%20Material.pdf" target="_blank" rel="noopener">presentation</a>) which showed H1 revenue at ¥480.17bn +0.1%yoy, OP at ¥58.47bn -32.1%yoy, and Net Profit ¥51.59bn -19.9%yoy as SG&amp;A and R&amp;D costs both jumped sharply. The company had sharply lowered forecasts for profits this year, even not including the impact of covid-19 beyond that point in late April 2020 when results and the FY2021 forecasts were announced. The company has lowered forecasts further for the year, lowering revenues from ¥970bn to ¥960bn, OP from ¥80bn to ¥60bn, and Net Profit from ¥56bn to ¥53bn. Eagle-eyed readers will note that the implied OP and NP for H2 are effectively zero - ¥1.5bn and ¥1.4bn, respectively.Consensus was already well below original company guidance so shares bounced 4% mid-day on the news, helped by news of a large buyback. <div class="content-highlight">The <a href="https://www.daiichisankyo.com/media/press_release/detail/index_4087.html" target="_blank" rel="noopener">buyback</a> programme is to buy up to 60 million shares for up to ¥100bn from the start of November 2020 through 23 March 2021. That is 3.1% of shares outstanding. </div>This is non-negligible given Real World Float is roughly 52% of shares out.A buyback also changes the VWAP curve, sometimes significantly.As a result, it is worth understanding the impact against float and investor positioning, and it may be worth altering execution strategy during the buyback period.

On Friday 30 October, 2020 just after lunch,  Daiichi Sankyo (4568 JP) released Q2 earnings (results, presentation) which showed H1 revenue at ¥480.17bn +0.1%yoy, OP at ¥58.47bn -32.1%yoy, and Net Profit ¥51.59bn -19.9%yoy as SG&amp;A and R&amp;D costs both jumped sharply. The company had sharply lowered forecasts for profits this year, even not including the impact of covid-19 beyond that point in late April 2020 when results and the FY2021 forecasts were announced. The company has lowered forecasts further for the year, lowering revenues from ¥970bn to ¥960bn, OP from ¥80bn to ¥60bn, and Net Profit from ¥56bn to ¥53bn. Eagle-eyed readers will note that the implied OP and NP for H2 are effectively zero - ¥1.5bn and ¥1.4bn, respectively.Consensus was already well below original company guidance so shares bounced 4% mid-day on the news, helped by news of a large buyback. The buyback programme is to buy up to 60 million shares for up to ¥100bn from the start of November 2020 through 23 March 2021. That is 3.1% of shares outstanding. This is non-negligible given Real World Float is roughly 52% of shares out.A buyback also changes the VWAP curve, sometimes significantly.As a result, it is worth understanding the impact against float and investor positioning, and it may be worth altering execution strategy during the buyback period.

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/remegen-ltd" target="_blank" data-smartkarma-citation="entities:29191:1" rel="noopener">Remegen Ltd (1788976D CH)</a> has developed a comprehensive pipeline of more than 10 new biological drug candidates for the treatment of refractory diseases, including autoimmune diseases, tumors and eye diseases, that meet a large number of unmet medical needs in China and around the world. Among these drug candidates, two core products are RC18 and RC48. Both are at late clinical stage and would probably be the first two drugs to be commercialized for RemeGen.

Remegen Ltd (1788976D CH) has developed a comprehensive pipeline of more than 10 new biological drug candidates for the treatment of refractory diseases, including autoimmune diseases, tumors and eye diseases, that meet a large number of unmet medical needs in China and around the world. Among these drug candidates, two core products are RC18 and RC48. Both are at late clinical stage and would probably be the first two drugs to be commercialized for RemeGen.

Pre-IPO RemeGen - Insights on Two Core Products RC18 & RC48

David Blennerhassett

On the 22 April this year, the FDA granted <a href="https://www.immunomedics.com/news-and-events/fda-grants-accelerated-approval-for-immunomedics-trodelvy-in-previously-treated-metastatic-triple-negative-breast-cancer" target="_blank" rel="noopener">accelerated approval</a> for Trodelvy, <a href="https://www.smartkarma.com/entities/immunomedics-inc" target="_blank" data-smartkarma-citation="entities:13913:1" rel="noopener">Immunomedics Inc (IMMU US)</a>'s first-in-class antibody-drug conjugate (ADC), for the treatment of patients with metastatic triple-negative breast cancer (mTNBC). Shares gained 19% to US$26.18/share, taking the one year gain to 57%.
(Triple-negative breast cancer is cancer that tests negative for estrogen receptors, progesterone receptors, and excess HER2 protein.)
On the <a href="https://www.immunomedics.com/news-and-events/immunomedics-announces-positive-results-from-phase-3-ascent-study-of-trodelvytm" target="_blank" rel="noopener">6 July</a>, Immunomedics reported that the phase 3 ASCENT study stopped early due to compelling efficacy after meeting primary and key secondary endpoints - Trodelvy "has set a new benchmark in scientific and clinical innovation for patients with mTNBC by offering a novel alternative to the common drugs currently in clinical practice". Shares cleared US$40/share and largely traded flat for the next 9 weeks.
On the 13 September, <a href="https://www.smartkarma.com/entities/gilead-sciences-inc" target="_blank" data-smartkarma-citation="entities:973:1" rel="noopener">Gilead Sciences (GILD US)</a> announced it had entered into a definitive agreement pursuant to which Gilead will acquire Immunomedics for $88.00/share in cash, a 108% premium to last close, in a US$20bn deal.
The tender offer is not subject to any financing condition with ~US$15bn of the funding from existing cash and ~US$6bn in newly issued debt.
Conditions to the tender offer are limited - valid tendering of 50% + one share, no MACs, and the waiting period applicable to the Offer under the HSR Act having expired or been terminated. 
The close of the tender is expected in 4Q20, subject to regulatory approval and other customary closing conditions.  Immunomedics' board unanimously supports the Offer.
Provided the Offer completes, a second-stage merger will be undertaken, which will dispense with the requirement for consent from Immunomedics shareholders.  Immunomedics will cease to be listed once the merger is consummated.
This looks done. As always, more below the fold.

On the 22 April this year, the FDA granted accelerated approval for Trodelvy, Immunomedics Inc (IMMU US)'s first-in-class antibody-drug conjugate (ADC), for the treatment of patients with metastatic triple-negative breast cancer (mTNBC). Shares gained 19% to US$26.18/share, taking the one year gain to 57%.
(Triple-negative breast cancer is cancer that tests negative for estrogen receptors, progesterone receptors, and excess HER2 protein.)
On the 6 July, Immunomedics reported that the phase 3 ASCENT study stopped early due to compelling efficacy after meeting primary and key secondary endpoints - Trodelvy "has set a new benchmark in scientific and clinical innovation for patients with mTNBC by offering a novel alternative to the common drugs currently in clinical practice". Shares cleared US$40/share and largely traded flat for the next 9 weeks.
On the 13 September, Gilead Sciences (GILD US) announced it had entered into a definitive agreement pursuant to which Gilead will acquire Immunomedics for $88.00/share in cash, a 108% premium to last close, in a US$20bn deal.
The tender offer is not subject to any financing condition with ~US$15bn of the funding from existing cash and ~US$6bn in newly issued debt.
Conditions to the tender offer are limited - valid tendering of 50% + one share, no MACs, and the waiting period applicable to the Offer under the HSR Act having expired or been terminated. 
The close of the tender is expected in 4Q20, subject to regulatory approval and other customary closing conditions.  Immunomedics' board unanimously supports the Offer.
Provided the Offer completes, a second-stage merger will be undertaken, which will dispense with the requirement for consent from Immunomedics shareholders.  Immunomedics will cease to be listed once the merger is consummated.
This looks done. As always, more below the fold. 

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Quantitative Analysis

<div>
• RELATIVE PRICE SCORE •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/735/original/2020-09-23_11-03-49.png?1600826665" class="editor-image img-responsive" data-smartkarma-image-id="160735"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<a href="https://www.dropbox.com/s/6h3m1giwbtzcupg/2020-09-23_11-03-49.png?dl=0" target="_blank" rel="noopener">PEAK OUTLIER</a> - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/736/original/2020-09-23_11-11-07.png?1600827080" class="editor-image img-responsive" data-smartkarma-image-id="160736"></figure>
</div>SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP))</a>  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/741/original/2020-09-23_11-39-24.png?1600828791" class="editor-image img-responsive" data-smartkarma-image-id="160741"></figure>In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.<div class="content-highlight">RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.</div>


• RELATIVE PRICE SCORE •
Source for all charts &amp; tables: Japan Analytics
PEAK OUTLIER - Since the onset of  COVID-19 in March, the degree of polarisation in the Japanese equity market as measured by our Relative Price Score [definition below] has increased significantly. Although only 3.1% and 5.1% of listed companies are Overbought and Oversold, respectively, their market weight represented is 10.8% and 6.2%. Such extreme outlier weightings have not occurred since the technology 'bubble' of 2000, and, since then, only during the 2008/9 financial crisis. Investors have increasingly held and bid up perceived long-term domestic non-manufacturing 'winners' without much regard for valuation while discarding Japan's manufacturers, and transportation, utility and energy companies as well as insurers and banks.  

SECTOR TIMELINE - The twenty-eight-year history of Sector Relative Price Scores illustrates the ebbs and flows of investment themes in the market, from the 2000 Technology 'bubble' to the REIT and Real Estate peak of 2013/14, the Healthcare and FB&amp;T market of 2016/17. On the downside, there is greater Oversold 'persistence' in the Energy, Banks, Multi-Industry ( Japan Post (6178 JP))  and Utilities Sectors. Currently, nine Sectors are Overbought, and four are Oversold - thirty-year and twenty-year highs, respectively.  In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific comments.RELATIVE PRICE SCORE OUTLIERS - The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,883 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

The question has been asked about dividends in Japan and what they may look like for the remainder of this year and into 2021. Japanese companies have grown revenues over the past ten years, and have grown net income quite a bit faster. In addition, payout ratios have risen on a normalized basis since their last-decade lows in 2014. Because net income has dropped in the past year while dividends paid out have risen, payout ratios have spiked sharply. With the very large amount of buybacks executed in the past fiscal year to March 2020, total payout to shareholders has been quite significant. But COVID-19 has changed things. When companies announced earnings in April and May, a huge swath of corporate Japan neglected to provide forecasts. The largest number I have ever seen provided forecasts in ranges rather than as numbers. When Q1 earnings came around, many companies made a stab at full-year. Some have provided dividend guidance but net income in the April-June quarter along with forecasts for H1 and FY have given the Street some comfort to be able to forecast earnings and DPS. If one looks at the top 500, top 1000, and full set of companies in TOPIX on a like-for-like basis (where guidance exists), company guidance on both net income and dividends is below where the Street is (on a consensus basis). I expect, for the moment, that the Street still may have some to come down. There is every possibility that covid-19 aftershocks will produce some VERY bad numbers, but I do not expect that many companies to exceed forecasts by a wide margin. Some WFH and tech names may do well, but Japan is not NASDAQ (much to the chagrin of Japan's investors). On the whole, there are significant discrepancies in forecasts among sectors - autos, airlines, materials are all bad - but interestingly, there is also huge discrepancy among market cap biases. Even on a like-for-like basis on coverage or guidance, the top 500 names see total dividend forecasts for the FY to March 2021 only 3% lower than what was paid in the year to March 2020. That seems like a relatively small drop. The consensus implied drop in DPS for the next 500 names seems considerably larger, though some of this may be to worse data quality as you go down the market cap scale. A study of dividends this year and beyond continues below.

The question has been asked about dividends in Japan and what they may look like for the remainder of this year and into 2021. Japanese companies have grown revenues over the past ten years, and have grown net income quite a bit faster. In addition, payout ratios have risen on a normalized basis since their last-decade lows in 2014. Because net income has dropped in the past year while dividends paid out have risen, payout ratios have spiked sharply. With the very large amount of buybacks executed in the past fiscal year to March 2020, total payout to shareholders has been quite significant. But COVID-19 has changed things. When companies announced earnings in April and May, a huge swath of corporate Japan neglected to provide forecasts. The largest number I have ever seen provided forecasts in ranges rather than as numbers. When Q1 earnings came around, many companies made a stab at full-year. Some have provided dividend guidance but net income in the April-June quarter along with forecasts for H1 and FY have given the Street some comfort to be able to forecast earnings and DPS. If one looks at the top 500, top 1000, and full set of companies in TOPIX on a like-for-like basis (where guidance exists), company guidance on both net income and dividends is below where the Street is (on a consensus basis). I expect, for the moment, that the Street still may have some to come down. There is every possibility that covid-19 aftershocks will produce some VERY bad numbers, but I do not expect that many companies to exceed forecasts by a wide margin. Some WFH and tech names may do well, but Japan is not NASDAQ (much to the chagrin of Japan's investors). On the whole, there are significant discrepancies in forecasts among sectors - autos, airlines, materials are all bad - but interestingly, there is also huge discrepancy among market cap biases. Even on a like-for-like basis on coverage or guidance, the top 500 names see total dividend forecasts for the FY to March 2021 only 3% lower than what was paid in the year to March 2020. That seems like a relatively small drop. The consensus implied drop in DPS for the next 500 names seems considerably larger, though some of this may be to worse data quality as you go down the market cap scale. A study of dividends this year and beyond continues below.

Japan

Daiichi Sankyo Company, Limited is a holding company established through merger of Sankyo and Daiichi pharmaceutical. The Group manufactures pharmaceuticals for human/veterinary use and medical tools and equipment. It also researches and promotes products through related companies throughout the world. The Group also produces food, food additives, livestock feeds, and agrochemicals.

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Daiichi Sankyo (4568 JT)

Dai-Ichi Sankyo (4568) Buyback Dynamics

Dai-Ichi Sankyo has announced Q2 earnings, a forecast revision, and a ¥100bn buyback to pick up where it left off in 2018. This is twice as big as...

Travis Lundy

Pre-IPO RemeGen - Insights on Two Core Products RC18 & RC48

This article analyzed two core products from RemeGen: RC18 and RC 48. The commercialization of these two products would have direct impact on the...

Xinyao (Criss) Wang

Gilead/Immunomedics: Bosom Buddies

Back in April, The FDA recently approved Trodelvy (sacituzumabgovitecan-hziy), an antibody-drug conjugate (ADC), for the treatment of patients...

David Blennerhassett

🇯🇵 JAPAN • September Relative Price Scores - Profiting from Outlier Mean Reversion

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

Campbell Gunn

Looking at Japan Dividends This Year

The question has been asked about dividends in Japan and what they may look like for the remainder of this year and into 2021. Japanese companies...

Travis Lundy

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