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.

Equity Bottom-Up

<p>Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.</p>

Lexus announced its new LF-Z EV concept yesterday, laying out broad plans for its electrification strategy and future development outlook. The brand has seen less news flow than the main Toyota brand in terms of technological progress but this appears to now be changing. This has implications for a variety of suppliers.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>A month ago, known active (and occasional activist and concentrated investor) Effissimo Capital Management announced an unsolicited partial Tender Offer to purchase 4,834,343 shares of <a href="https://www.smartkarma.com/entities/sanken-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:6073:1" rel="noopener">Sanken Electric (6707 JP)</a> to take it from 9.97% to 30.00% at ¥5210/share. </p><p>The announcement was deliberately couched in terms to make it seem friendly. Effissimo is not going for negative control, or seeking to interfere with management in any way. They say they just want more stock. </p><p>The shares, which had recently traded from the area of the Tender Offer Price down to sub-¥4500/share, immediately bounced, trading 10% through terms on the first full day of trading after going limit up on Day 1.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/998/original/Screenshot+2021-03-09+at+3.51.32+PM.png?1615276314" class="editor-image img-responsive" data-smartkarma-image-id="192998"></figure><p></p></section><p>Since then, <a href="https://www.smartkarma.com/entities/allegro-microsystems" target="_blank" data-smartkarma-citation="entities:29707:1" rel="noopener">Allegro MicroSystems (ALGM US)</a> shares - Sanken's 52% subsidiary which it listed in November (and the key value driver for Sanken Electric), have fallen nearly 20% from just under US$31/share on 8 Feb the day after the announcement to US$25.14 yesterday.</p><p>And Sanken itself has fallen back down to ¥5300/share, ~1.7% above the Tender Offer Price.</p><p>In my first insight on the deal, I did not address "the stub trade" (Sanken's holding in Allegro, which was originally <em>Sanken North America</em>) and where I thought it should trade - as such - in the insight because frankly, it's difficult. The future is tough to predict. </p><p>Below is a brief look at the parameters and the modalities.</p>

A month ago, known active (and occasional activist and concentrated investor) Effissimo Capital Management announced an unsolicited partial Tender Offer to purchase 4,834,343 shares of Sanken Electric (6707 JP) to take it from 9.97% to 30.00% at ¥5210/share. The announcement was deliberately couched in terms to make it seem friendly. Effissimo is not going for negative control, or seeking to interfere with management in any way. They say they just want more stock. The shares, which had recently traded from the area of the Tender Offer Price down to sub-¥4500/share, immediately bounced, trading 10% through terms on the first full day of trading after going limit up on Day 1.Since then, Allegro MicroSystems (ALGM US) shares - Sanken's 52% subsidiary which it listed in November (and the key value driver for Sanken Electric), have fallen nearly 20% from just under US$31/share on 8 Feb the day after the announcement to US$25.14 yesterday.And Sanken itself has fallen back down to ¥5300/share, ~1.7% above the Tender Offer Price.In my first insight on the deal, I did not address "the stub trade" (Sanken's holding in Allegro, which was originally Sanken North America) and where I thought it should trade - as such - in the insight because frankly, it's difficult. The future is tough to predict. Below is a brief look at the parameters and the modalities.

Effissimo, Sanken, and Allegro - Thinking About the Future

<p><a href="https://www.bloomberg.com/news/articles/2021-02-09/toyota-autonomous-vehicle-startup-aurora-enter-self-driving-cars-partnership" target="_blank" rel="noopener">Toyota and Denso have reportedly struck a long-term partnership with key autonomous technology startup Aurora Innovation</a>. Part of our core thesis for automakers is that increasingly confident shifts into electrified technologies and later autonomous would reveal the immaturity and deficiencies of EV makers, popping this bubble. We do not expect this to happen overnight but there is one more step being taken here to shine light on the underlying reality in the space.</p>

Toyota and Denso have reportedly struck a long-term partnership with key autonomous technology startup Aurora Innovation. Part of our core thesis for automakers is that increasingly confident shifts into electrified technologies and later autonomous would reveal the immaturity and deficiencies of EV makers, popping this bubble. We do not expect this to happen overnight but there is one more step being taken here to shine light on the underlying reality in the space.

Toyota – Strengthening Autonomous with Aurora Partnership

David Blennerhassett

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<p><em>This week in StubWorld ...</em></p>
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<li>
<a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> outperforms as global carmakers face a chip shortage;</li>
<li>
<a href="https://www.smartkarma.com/entities/gulf-energy-development-public-company-limited" target="_blank" data-smartkarma-citation="entities:26038:1" rel="noopener">Gulf Energy Development Public Company (GULF TB)</a> increases its questionable stake in <a href="https://www.smartkarma.com/entities/intouch-holdings-pcl" target="_blank" data-smartkarma-citation="entities:17638:1" rel="noopener">Intouch Holdings (INTUCH TB)</a>; and</li>
<li>
<a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a>'s ramps up its buybacks.</li>
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<p>Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...




Tokyo Electron (8035 JP) outperforms as global carmakers face a chip shortage;

Gulf Energy Development Public Company (GULF TB) increases its questionable stake in Intouch Holdings (INTUCH TB); and

Jardine Matheson Holdings (JM SP)'s ramps up its buybacks.




Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: TBS/Tokyo Electron, Intouch/Gulf, Jardines' Buybacks

<p>Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the Japanese market overall offers value investors rich pickings relative to valuations that had been getting more stretched by the day in other regions, especially the US. Below, we provide a quick synopsis of the trading companies’ business models and our thoughts on other potential investments that could attract Berkshire.</p>

Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the Japanese market overall offers value investors rich pickings relative to valuations that had been getting more stretched by the day in other regions, especially the US. Below, we provide a quick synopsis of the trading companies’ business models and our thoughts on other potential investments that could attract Berkshire.

A Quick Look at the Buffet Trade and the Most Obvious Follow-Ons

Japan

DENSO CORPORATION manufactures electronic parts for automobiles.  The Company's products include automobile air conditioners, air bags, ignition systems, generators, power steering systems, and spark plugs with iridium electrode. The Company also produces communication equipment for mobile navigation system.

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Denso Corp (6902 JP)

Toyota – Electrifying Lexus

Lexus has seen less EV related news flow than the main Toyota brand in terms of technological progress but this appears to now be changing and has...

Mio Kato

Effissimo, Sanken, and Allegro - Thinking About the Future

Effissimo launched a partial tender for Sanken (6707) and it went through terms as people noted the "stub trade" for Allegro Microsystems. It's...

Travis Lundy

Toyota – Strengthening Autonomous with Aurora Partnership

A partnership between Toyota and Denso and autonomous startup Aurora Innovation continues the trend of traditional automakers partnering with tech...

Mio Kato

StubWorld: TBS/Tokyo Electron, Intouch/Gulf, Jardines' Buybacks

Tokyo Electron (8035 JP) outperforms as global carmakers face a chip shortage; Gulf Energy increases its questionable stake in Intouch; and Jardine...

David Blennerhassett

A Quick Look at the Buffet Trade and the Most Obvious Follow-Ons

Last week it was revealed that Warren Buffet had taken stakes of about 5% in Japan’s five major trading companies. This comes at a time when the...

Mio Kato

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